Learning money management skills early can set a person up for financial success throughout life. That’s why high school and the start of college are ideal times for students to gain some knowledge and skill so they can manage their money, whether that means saving their earnings from a summer job or understanding the ins and outs of college loans.
Skills like budgeting and building a solid credit score may seem daunting to high school students at first — but quickly become exciting and engaging as they gain independence and see the results pay off.
Here, you’ll learn about the ways to start on a path of smart money management and good financial habits, from using credit wisely to building an emergency fund.
Budgeting Checklist for Incoming College Freshmen
1. Setting up Your Own Bank Account
Financial planning for high school students begins with a simple money move: opening an online bank account. This is also a key step towards independence; it marks the shift from asking mom and dad for funds to being a more self-sufficient young adult.
Typically, you can open your own bank account once you turn 18. If you are younger, you will likely still need your parent’s help to open either a joint account or high-school student account.
But if you are 18 or older, you can easily open a bank account online or in person at a bricks-and-mortar bank branch. You might look for a college student bank account, which may have lower fees. Typically, the documents needed to start an account will include:
• Government-issued photo ID, like a driver’s license or passport.
• Proof of your mailing address.
• Your Social Security number.
You may or may not even need to make an opening deposit. Before you sign on,though, do read or inquire about the account terms. You’ll want to know what kind of requirements (like a minimum monthly balance) and fees (such as monthly and overdraft fees) are expected so you can make sure to get the best, most affordable deal possible.
Aim to open both a checking account for spending and a savings account for rainy day or emergency funds.
2. Preparing for College Ahead
If you are a high school student, you are probably aware of how big an issue student debt can be in America. Currently, approximately 43 million borrowers owe around $1.6 trillion in student debt. Being saddled with significant debt may make achieving your financial goals harder. Familiarizing yourself with how much your education will cost is a good step as you prepare for college. This knowledge can help you chart a path that avoids too much debt.
As you compare the tuition of colleges you might attend, look at the funds available vs. how much you might have to borrow. The U.S. Office of Financial Readiness has a useful Savings Goal Calculator to show you how long it’ll take to save towards your goal and what your monthly contribution would be, along with other tools.
3. Getting a Credit Card to Build Credit
As you are probably well aware, credit cards are a convenient way to pay for purchases online and in-person. They also help build your credit score, which is a three-digit number that reflects how well you handle debt. It’s based on such things as how good a job you do of paying bills on time and how well you use credit (that is, not charging up a storm on your plastic if you can’t easily repay it). Your credit score is calculated by the big three credit reporting agencies (Equifax, Experian, and TransUnion). If you have a good rather than fair credit score, it means you’ll likely qualify for lower rates if you take out a car loan or mortgage later in life.
If you’re a high school student, you can learn how to use a credit card wisely to build credit by being added onto a parent’s credit card. Their wise use of their card and good credit rating can create a solid launching pad for your credit score. Parents can set low borrowing limits and write up agreements with their kids to ensure their responsibility for paying off their card.
4. Growing an Emergency Fund
As a high school student, you likely have free housing and free food. That won’t always be the case, so while your expenses are low or even non-existent, it’s a great time to start saving for a rainy day (aka creating an emergency fund).
You only need three things to start saving: some money, an account, and a goal. In terms of goals, getting in a groove of saving some “just in case” cash can be a very smart move. An emergency fund can really provide peace of mind when those unexpected life events occur, like a big medical bill arrives or your laptop dies. Even if you just put $20 a month away, it’s a good start.
You might also put away some cash you earn if you are working or money you receive as a gift. If you start an emergency fund now, you’ll have a headstart on financial security when you’re in college.
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5. Creating a Monthly Budget
Now, when you’re young, is a great time to learn how to create a budget and stick to it. It boils down to understanding how much money you have each month and how that will be allocated towards your needs and wants. Of course, budgeting for high school students may be a little different than budgeting for adults; you likely aren’t paying your own rent and utilities, nor are you probably working full-time. But still, it can be a valuable exercise to help you understand cash management today and tomorrow.
There are many engaging tools available to help you build your budget, from great-looking notebooks to easy-to-use apps. They can help guide you through understanding your fixed expenses (say, your monthly cellphone bill) and your variable expenses (groceries and dining out). You’ll want to make sure the money you have every month covers your fixed and variable expenses and allows you to save a little, too. If you are interested in learning more about budgeting for beginners, you might look into options like the envelope system or the 50/30/20 rule.
Recommended: How to Build a 50/30/20 Budget
6. Not Relying on Credit Cards
Another good budgeting strategy for high school students is to be careful when using a credit card. Shopping with a credit card can feel as if you are getting things for free. That is, until the bill, with the high interest rate added on, arrives.
Carrying a balance on your card will cost you. Interest rates add up over time — and you’ll spend more on an item than you would have with cash. You also risk building a habit of living beyond your means.
To keep out of credit card debt, try to only use your credit card to pay for essentials like your phone or car insurance bill every month. Your bill will be much more manageable than if you use plastic to hit the mall. And when your bill is manageable and you can pay it off monthly, your credit score will likely increase.
7. Not Getting Overzealous With Spending
Building on the idea above, part of entering adulthood means knowing how to sidestep financial pitfalls. Overspending is a major one, and it can be so fun in the moment. Shopping is easier than ever with your phone and computer, but those non-essential expenses add up. Here are a few tricks to stop that bad habit before it starts:
• Create a shopping list for your next outing. Let’s say you’re dorm room shopping. Set a budget, and use cash or a debit card so you spend only what you have.
• Avoid sales at stores…it’s better to spend no money than money on something you don’t need—no matter how good the deal is.
• Sleep on it. If you see something you like…don’t get it right away. Think about whether or not you really and truly need it. If you feel as if you have to have it but can’t afford it, get in the habit of saving for it and then buying it outright instead of charging it and then dealing with credit card debt.
8. Paying Attention to Bills and Charges
Even though you are in high school, right now is a great moment to start being a savvy consumer. Get in the habit of tracking your bills, making sure they are accurate, and paying them on time. You might review bills at the end of each week or month, say. Review bills carefully as scams, hacks, and fraudulent charges do happen.
You might also set up bill pay reminders and track expenses on phone apps. Finance apps from banks and software companies have alert systems that can notify you of new charges and due dates. These can pop up as phone banners, text messages, or emails.
While you’re at it, why not check your account balances regularly? For many people, a couple of times a week is good. This will help you stay in touch with how your money is doing and will also allow you to catch any fraudulent activity early.
9. Keeping Your Credit Card Clean of Any Bad Reports
Learn how to build a positive credit score by paying your credit card bill on time. Paying bills on time is the biggest contributor (35%) to your credit score, so work towards nailing that.
Also know that your credit utilization ratio matters. Here’s what that ratio does: It reflects how much of your available credit you are using. So if you have a credit card with a $1,000 credit limit, if you charge $700, you are at 70% of your limit. Which, according to financial experts, may be too high and can lower your credit score. The best rule of thumb for balances on your card is 10% or less of the borrowing limit and no more than 30%. This shows a less risky use of credit.
10. Thinking About Insurance Early
High school students usually don’t need policies like life insurance or disability insurance, which are part of true “adulting.” But it helps to get familiar with how insurance works.
Car insurance is a great product to learn with. If you are getting a car, ask your parents to help you shop for auto insurance or look online. There are tools that let you compare policy features and rates. If you are covered by your parents’ policy, ask them to walk you through its features and costs. These experiences will help you learn how to protect your hard-earned assets and be a smarter consumer.
Why Getting Started Young Is Important
Building financial health early sets you up with the life skills needed for bigger decisions, like purchasing a home or retiring early. Recent research found that young people who have taken some financial literacy courses make better financial decisions, like avoiding costly debt. Immersing yourself in or at least getting some basic knowledge about finance will serve you well for years to come.
Here are some other advantages of building your financial know-how and learning how to budget:
Shows Maturity to Parents
Learning basic financial skills will help you transition from dependence on your parents to independence. It will also show your parents that you are ready for more freedom and self-reliance, which can be a good thing, especially if they are the helicopter types.
Helps Parents With Expenses
By learning to budget and manage your money, you can help your family reach their goals. If you stash cash aside now, you might have enough funds to pay for books or daily needs like toiletries and food when you are in college. You might even be able to contribute a chunk of change towards tuition. Whatever the case, starting to save for college in high school will help you gain good financial habits.
Prepares You Better for College
Setting up a financial plan when you are a high school student is great preparation for college. Students who have a good knowledge of budgeting will likely not run out of spending money while on campus. They may also have an understanding of college loans that makes them less likely to default when it’s time to repay them. Establishing moneywise routines early can set you up for decades of financial health.
High school is a great time to begin to learn financial concepts and skills like budgeting and nurturing a good credit score. While you are living at home and not paying rent, you can begin to establish good habits with bank accounts, credit, and bill paying that will reward you throughout your life.
One important step is setting up a bank account that helps your money grow. When you open an online bank account with SoFi that includes direct deposit, you’ll be rewarded with a competitive APY and no account fees, so your money grows faster. Plus you’ll have access to 55,000+ Allpoint Network ATMs worldwide at no cost.
How can a teenager create a budget?
Students have a wealth of resources like free budget templates on the Internet, budgeting apps, or old-school budget planners. You might look into some of the different methods, like the envelope system and the 50/30/20 rule, and see which one suits your style best.
How much money should a high schooler have saved?
That depends on the individual and their goals. The general rule of thumb for savings is three to six months of living expenses in your emergency account. For high school students, who typically aren’t paying for daily living expenses, they might begin saving $20 or more a month to build up a nest egg for when they are on their own.
How should a beginner budget?
A beginner should partner up with someone to guide them. Ask a parent or a trusted older relative to help you set up a budget. Another avenue is to use online tools, from financial literacy courses and videos to apps that help you track spending and savings.
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