Throughout high school and college, I found managing money extremely challenging. No matter how many hours or part-time jobs I worked, I never felt like I had enough money. In other words, I was perpetually broke. Meanwhile, my list of wants was endless, from nights out with friends to new outfits to movie tickets.
Back then, my biggest problem was that money always felt very abstract. I was not thinking about the consequences of my financial decisions, such as budgeting and differentiating between wants and needs. In this article, we’ll go over ways to develop healthy financial habits early on so you can protect yourself from making bad financial decisions and set yourself up for success.
- Financial goals are monetary targets you want to reach within a specified period.
- Following the nine tips we outline in this article will allow you to significantly build wealth as a teen.
As a student, having financial goals felt like a foreign concept. Most of the time, money from my paychecks would go directly toward paying my bills, and that was it. However, now that I’m learning how to be an adult, I’ve had to actively learn how to manage my money and build a foundation in personal finance.
If you’re like me, chances are setting financial goals doesn’t come naturally. It is a learning process that takes time, practice, and discipline. The good news is that you can carry the skills you learn from developing healthy financial habits into other facets of your life. As I’ve gone down the rabbit hole of personal finance, I’ve also gotten better at planning ahead, owning up to my mistakes, and challenging myself to grow and step out of my comfort zone.
Defining Financial Goals
A financial goal is any monetary target that you want to reach in a specific timeframe. How long it takes you to reach each goal will depend on the cost of the goal, available resources, financial obligations, and motivation.
Setting Financial Goals for Teens
When I was a teen, I worked part-time minimum wage jobs every weekend and over the summers to get disposable income to spend. While it was nice having fun money, I regret not working towards long-term financial goals. Now that I’m saving for a home down payment and retirement, I think back on all the money I could have invested back then and how much it would be worth today. For example, if I had invested $500 in Apple stock 5 years ago, that money would have nearly quadrupled by now. However, as the saying goes, hindsight is 20/20. All I can do is move on and work towards my financial goals every day.
Let’s take a look at different money goals you can set as a teen:
Short-Term Money Goals
Some short-term goals may include:
- Getting your first job
- Funding a savings account with $20 a week for one month
- Earning money from a side hustle
- Saving for prom, new electronics, presents for family and friends, etc.
- Buying a concert ticket
- Getting new clothes or shoes
Medium-Term Money Goals
Popular medium-term goals may include:
- Buying a used car
- Regularly investing a percentage of your money every week or month
- Setting money aside for a side business
- Tracking your monthly spending
- Saving for a school trip or vacation
Long-Term Money Goals
Goals that have a longer time horizon may include:
- Saving money for college
- Getting hired for internships or full-time jobs
- Saving for a home down payment
- Investing in a Roth IRA or equivalent retirement account
- Investing in a business – creating an LLC (or hire a professional LLC formation service to set it up for you
While it may be difficult to start thinking about these longer-term goals as a teen, do not underestimate the power of compound interest. Even saving a small amount of money today will go a long way years or decades from now.
9 Ways to Reach Your Financial Goals
Now that we’ve covered examples of different financial goals, let’s go over 10 ways to reach these goals.
1. Start with Quick Wins
Fear of failure can often prevent us from working on our goals. If we don’t try, then we can’t fail, right? To ease yourself into this process, start with simple goals to make some quick wins. That way, you can build the confidence you need to accomplish goals that require more work. For example, saving $100 may seem intimidating. A quick win could be opening a savings or investment account. While this one step may seem small, it’s an easy way to put you on track to reach your goal and prevent procrastination.
2. Set SMART Goals
When you are vague about what you want to accomplish, it’s hard to measure what success means and if you are making progress. If you make unrealistic goals, you may be setting yourself up for failure. We recommend setting goals that are Specific, Measurable, Achievable, Realistic, and Timely (SMART). Rather than saying you want to do better in school, define what that means. For example, you can set a goal to get all A’s and B’s in your classes this semester by going to office hours, turning all your assignments in on time, and studying for one hour a day.
Think about why you are choosing each goal and what you need to do to accomplish them. If you’re not motivated, it makes it much easier to give up. Finally, makes sure to have clear timelines. If you don’t set realistic timeframes, it may feel like you’ll never accomplish your goals. At the end of the day, you are in control of your goals and whether you will be successful or not.
3. Weigh the Costs and Benefits of Your Goals
With any goal, there are many potential challenges and benefits. For example, if you want to make it onto your school’s varsity cross-country team, you may want to attend a running camp over the summer – which costs money. If you plan on covering the costs on your own, you need to calculate how much money you’ll need and how long it will take you to save that amount.
There could be spillover benefits as well whenever you set a goal. If you’re working a part-time retail job to fund the cost of the running camp, you could gain strong customer service skills and learn how to prioritize tasks better. Thinking about potential challenges and benefits while setting goals can help you determine whether the goals are worth pursuing and what actions you’ll need to take.
4. Open a Savings or Investing Account
Because I began working at an early age, my mom helped me set up a joint checking account when I started high school. Having a debit card helped me see how much money I had available to spend and was a great segway into learning how to use credit cards wisely. If you’re just getting started, we recommend opening a checking and a savings account. That way, you can start learning the basics of money management and handling virtual money. When I first started using my credit card, I became very conscious of my spending because I saw my balance statement every month vs. how much money I had in my checking account. When I was only using cash, it was harder to visualize how much I was spending because I either had cash or I didn’t.
5. Find an Income Stream
To get comfortable with managing money, look for ways to make your own money. If you have no idea where to start, consider getting a part-time job. This could be anything from babysitting to working at Starbucks to mowing lawns. If you’re feeling entrepreneurial, come up with an idea for starting a small business, such as setting up a shop on Etsy or running a tutoring gig. Think about ways to market your business, gather all the resources needed, and operate at a low cost. If your business ends up taking off, find ways to scale your business and use your profits to help it grow.
One thing to keep in mind when you start making money is taxes. When I received my first paycheck, I was shocked to see how much was withheld for federal income tax, Social Security, Medicare, etc. Even now as an adult, I often feel surprised when I see how much I get taxed. When you calculate how much your paycheck should be, make sure to take all these withholdings and deductions into consideration.
6. Save and Invest Extra Money
As the saying goes, “old habits die hard.” Getting into the habit of saving at investing when you’re still young can set you up for life. As college becomes more costly and the job market becomes more competitive, the earlier we start thinking about these things, the more prepared we will be in the future.
The better you get at paying yourself first, the better you’ll be at managing your bills, avoiding excessive credit card debt, and investing in your future. If you get a regular allowance or have a steady income from part-time work, start saving a percentage of your money every week or month. You can start small by saving 5% into a high-yield savings account like HM Bradley or Ally Bank, for example. While the interest earned may seem insignificant at first, the more money you set aside, the more interest you will earn over time.
Once you have a small emergency fund in place, consider opening an investment account. Depending on how much risk you want to take on, that could be an account for investing in stocks, such as Fidelity, Charles Schwab, or Webull, or an account for cryptocurrencies, such as Coinbase, Celsius, or Gemini. If you want to take a passive investment approach, use the “set it and forget it” strategy. Just choose a few index funds, such as VOO, VTI, or SPY, and automatically deposit a percentage of your income into your accounts every payday.
7. Separate Needs From Wants
A big part of setting financial goals is understanding how to prioritize your spending. As you start working towards your goals, learning how to budget can help move you closer to them. With budgeting, differentiating between needs and wants will be crucial. For example, the latest smartphone or newest video game are wants. Groceries, phone bills, or school uniforms are needs.
The goal is not to completely dismiss your wants, but to understand that if you have limited income, you need to figure out how to prioritize what’s important and what’s not. One way to do this is to practice delayed gratification. Back when tacos used to cost $1, I would think about how many tacos I could buy instead of the amount I was spending on new shoes or online shopping. While it may seem silly, thinking in this way helped me reevaluate whether what I was buying was worth it.
If you don’t know how to budget, start with a free app such as Mint or Personal Capital. Both apps allow you to create buckets of spending categories and link all your accounts to them to track how much you are spending and saving each month.
8. Differentiate Good vs. Bad Debt
There are different types of debt. Some hold you back from reaching your goals, while others help you move forward.
Good debt is debt that can help you generate income and raise your net worth. Examples of good debt are student loans, mortgages, and business loans. Bad debt is debt used to fund depreciating assets or consumption, such as expensive cars and credit card debt. While not all debt is created equal, you should still consider all your options before taking on debt, even if they are considered “good.” Currently, the average student loan debt amount is roughly $37,172, according to Nitro. Before taking out a massive student loan for college, weigh the costs and benefits of doing so.
9. Take Advantage of Compound Interest
Now that you’ve learned about the basics of personal finance, all you need to do is start working on your goals and let the power of compound interest carry you. The more money you invest now, the more you’ll have in the future. If you don’t believe me, play around with this compound interest calculator. As you start making more money, you’ll continue earning interest on your investments and create a snowball effect. In the example below, if you invest $10,000 today and let it sit for 30 years at 7% interest annually, it’ll be worth $76,122.55 – a 7x of your initial investment!
The Bottom Line
Learning how to set and accomplish your goals will allow you to take control of your life and figure out what you want. While you may not complete every goal you set out to achieve, that’s perfectly fine. We can always adjust our goals and make changes as needed. Ultimately, some basic knowledge (that can be acquired within just a few hours of research on a weekend) combined with discipline and planning is a key differentiator that can be the difference between being broke and having thousands in the bank account – even as a teenager.