Financial literacy is so important to teach all young adults and college students. Budgeting, specifically, is a lesson that will serve them well for a lifetime, providing a framework to understand where money comes and goes, no matter their income bracket.
Sandi Milton
The first lesson of budgeting is to keep it simple and let them customize it to their needs. I find a monthly budget to be the easiest approach—you can see how spending averages over four weeks, and it works well because most jobs pay twice a month, while most bills occur monthly.
Start with income. If they work, students should review their paychecks and determine a minimum average monthly income. In addition, even if parents or scholarships are paying for tuition or housing, students should keep track of those dollars too. They need to understand exactly how much it costs to live independently.
Next, start listing the set expenses: tuition, rent, insurance and utilities, including internet and car payment. Then list the flexible-spend necessities: gas, food and savings (I’ll come back to that). For these expenses, look back at purchase history and use a generous average. Finally, list all the “wants,” as we like to call them in financial literacy terms. Things such as movies, dining out, beauty services, streaming services, online gaming memberships and gym memberships. As adults, the first finance lesson we learn is that we have to spend less on wants.
From there, it’s simple math to create the budget. I personally love an Excel spreadsheet and use it for my own household. For the younger generation, it’s probably Google worksheets. Add the incomes at the top, then subtract the expenses. Most likely the result will be negative. Here’s where the learning comes in. Start adjusting those flexible necessities and wants until the sum total is zero or greater. If there’s a positive, then add to savings.
Let’s talk more about savings. This is critical. Most young adults don’t start to think about savings until later, and as a result, they miss prime opportunities. It’s a habit that should start with your first job, whether that’s doing household chores or working outside the home. Many employers will help you start a 401(k) or split your paycheck into different accounts. Encourage students to look for those options. The easiest way to save is to not see the money at all. You can set up automatic transfers at your bank—perhaps you move $20 per week to a savings account or $50 every payday. There are many ways to do it, but the most important tip is to just do it, no exceptions. Do you want to avoid student loans next semester? Is there a new phone coming out? A new game releasing? If you set a savings goal, you can look forward to spending a little more than your normal budget on something you really want but cannot normally afford. Even more likely, something will come up—a flat tire, a broken appliance or other common life inconveniences that aren’t in your normal budget. Having and building a savings account will allow you to better accommodate those issues when they arise. And, it can help you avoid large debts down the road.
Budgeting is a foundational financial literacy skill. It’s perfect for both visual and analytical learners—and it gives students a way to understand value and the flow of money. It’s a lesson that keeps on building and will help in the workplace and at home. For worksheets and financial literacy resources, visit Junior Achievement of Southern Nevada’s website, JASNV.org.
Sandi Milton is senior vice president of marketing communications for Nevada State Bank and the current board chair for Junior Achievement of Southern Nevada.
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