I recently asked parents to tell me the life skills they wish their kids knew, and I was very surprised to hear some resounding request for a few topics such as:
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.
I have been writing about related topics but this article will look at how to teach kids to budget and balance their accounts. This is basically for kids and I’ve came down to their stage so, If you are an adult and find this a bit boring, its normal. But hey, there are a lot to benefit from this article.
Budgeting
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. More importantly, budgeting and budgetary control will help your kids be financially disciplined.
So how do you get kids excited about it? How can you add a little glamour to something so dull and boring? It’s Easy – You can 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
There are many ways to creating a budget, so, you may have your own way to create a budget, and that's fine. In my experience as financier, the easiest way to make a budget is as follows:
On a piece of paper, draw a line down the middle:
Spending Budget: Calculate your average monthly gross income and put that at the top of the page, then do the rough estimation of the total expenses you spend every month. Teach the kids that this is a measure to peg down the expenses in a bid to ensure that the income is not totally eaten up by the variable expenses.
Fixed Expenses: Write down all of your FIXED expenses (these are expenses that you cannot do without. They are must-spend every month) categories (i.e. phone bill, insurance, mortgage etc...) and put them in one column on the left side of the page
Variable Expenses: the next thing to do is to write in the variable expense(these are the expenses that are not fixed in nature) 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 total 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 – Now, 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
How can you make it a fun for kids? Kids like 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 in details what a budget is and what they stand to gain in using it, and then 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 well). Here is my way to do the contest.
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 any kid that gets the closest to break-even without going negative then such a kid 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 10ȼ
Contest 2 - Saving After Spending
The second contest is to see how well the kids 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. If you commit to doing this nonce in a while, you will be amazed to see your kids having financial discipline and creating a wealthy future for your kids.
Hope you enjoy this.
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