Financial Skills – How to Budget & Balance Accounts
I was surprised when I asked parents to tell me the life skills they wish their kids knew, and there was a resounding request for a few topics:
- How to open a bank account
- How to budget & balance accounts
- How to write checks and pay bills
- And how to start saving for retirement
It seems some of the things we take for granted are, as a result, missing from what we teach kids.
In the last article, we focused on opening a bank account. This article is the second article in the four-part series and will look at how to teach kids to budget and balance their accounts.
It’s not shock that budgeting can be boring and tedious. I’ve personally never been excited to sit down and create my budgets, but it’s something that creates wealth and pays off down the road.
So how do you get kids excited about it? How can you add a little glamour to something so dull and boring? Easy – make it a game with payoffs.
Firstly, it’s important to know how to create a budget, then to adhere to the budget.
Creating a Budget
You may have your own way to create a budget, and that’s fine. In my experience, the easiest way to make a budget is as follows:
On a piece of paper, draw a line down the middle:
- Spending BudgetCalculate your average monthly gross income and put that at the top of the page, then multiply it by.80 (for example, if you earned $1,000, you would end up with $800)
- Fixed ExpensesWrite down all of your FIXED expense categories (i.e. phone bill, insurance, mortgage etc… ) and put them in one column on the left side of the page
- Variable ExpensesNext write in the variable expense categories (i.e. food, gas, leisure, etc… ) and put them in another column on the right side of the page
- Fill in all of your expenses
Net Budget after Fixed Expenses – Subtract fixed expenses from your spending budget
If it’s a positive number, you don’t need to change anything
If it’s zero or a negative number, you should look for expenses that you can cut or lower
- Budget variable expenses – Using your Net Budget after fixed expenses, determine what you can spend on variable expenses without overspending each month
- Set a budget for each variable expense so you know what you can spend on each category in a given month
Making it Fun
OK, now that you have a budget outline, it’s time to get the kids excited.
I know what you’re thinking: “My kids will never be excited for this.”
They will if you give them some prizes or payoffs. Here’s how:
First, tell them what a budget is and show them the paper. Next, tell them that you’re going to do a contest (if you have more than one kid, this works even better).
Contest 1: Anticipating Spending
The first contest is to see how close they can budget their money to reach a break-even or $0 over the course of a month. In other words, the goal is to predict your spending as close to the penny as possible.
If you have more than one kid person that gets the closest to break-even without going negative wins a prize. With just one kid, tell them that they get $5 or $10 if they reach break-even, and every penny they are off, you deduct 10È¼
Contest 2 – Saving After Spending
The second contest is to see how well they can budget their money over the next 30 days. If they can save money, tell them you will give them whatever they save. That means if they save $5, you’ll give them another $5 (just like companies matching a person’s 401K contribution).
If you have more than one kid, tell them whoever is able to save the most will win and get a special prize. You will obviously choose the prize since you know your kids best.
In the next article, we’ll discuss how to write checks and pay bills. You will also learn how to combine check-writing with these contests to simulate the real world of budgeting for your kids.