When I asked parents what life skills they wish their children had, I was shocked to hear a resounding request for a few topics:
What is the procedure for opening a bank account?
How to budget and balance your books
How to make a check and pay your bills
Also, how do you begin saving for retirement?
As a result, it appears that some of the things we take for granted are lacking from what we teach children.
We concentrated on opening a bank account in the last article. This is the second of four articles in a four-part series on how to teach children to budget and balance their accounts.
Budgeting
It's no surprise that budgeting may be laborious and monotonous. I've never looked forward to sitting down and making my budgets, but it's something that generates money and pays off in the long run.
So, how do you get the youngsters interested in it? How do you add a little glitz and sparkle to something so drab and uninteresting? Simple: Turn it into a game with prizes.
It's crucial to first understand how to set a budget and then stick to it.
Making a Financial Plan
It's fine if you want to construct a budget in your own way. The simplest approach to build a budget, in my opinion, is to:
Draw a line down the middle of a piece of paper:
Budget for Spending
Calculate and write your average monthly gross income at the top of the page, then multiply it by.80 (for example, if you earned $1,000, you'd end up with $800).
Expenses that are not variable
Put all of your FIXED spending categories in one column on the left side of the page (i.e. phone bill, insurance, mortgage, etc.).
Expenses that change over time
Then, in a separate column on the right side of the page, type in the variable expense categories (e.g., food, petrol, leisure, etc.).
Make a list of all of your expenses.
Subtract fixed expenses from your spending budget to arrive at your net budget. If it's a positive figure, there's no need to make any changes. If it's zero or negative, you should seek ways to reduce or eliminate expenses.
Budget variable expenses - Using your Net Budget after fixed expenses, figure out how much you can spend on variable expenses each month without going overboard.
Set a budget for each variable item so you know how much you can spend in a given month on each.
Making it a Game
Now that you have a budget blueprint, it's time to pique the interest of the children.
"My kids will never be enthusiastic about this," you might be thinking.
If you provide them some prizes or payoffs, they'll do it. Here's how to do it:
Explain what a budget is and show them the paper first. After that, inform them you're going to have a contest (if you have more than one kid, this works even better).
1st Prize: Spending Prediction
The first competition is to see how close they can budget their money over the course of a month to reach break-even or zero. In other words, the goal is to be able to estimate your expenditure to the penny.
If you have multiple children, the one who comes closest to breaking even without going negative wins a prize. Tell only one child that if they hit break-even, they will receive $5 or $10, and for every cent they are off, you will deduct $114.
Saving After Spending is the second contest.
The second competition will measure their ability to budget their money for the next 30 days. Tell them you'll give them anything they save if they can save money. That means if they save $5, you'll match it with another $5 (similar to how corporations match 401K contributions).
If you have more than one child, inform them that whoever saves the most money will win a prize. You will, of course, choose the prize because you are the one who knows your children best.
Soon to be released
We'll go through how to make checks and pay bills in the future article. You'll also learn how to integrate check-writing with these contests to give your kids a realistic budgeting experience.
The previous piece can be found here.
Equip your children with financial knowledge and tricks...
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