I was surprised when I asked parents to tell me the life skills they wish their children knew, and there was an overwhelming request for a few topics:
- How to open a bank account
- How to budget and balance accounts
- How to write checks and pay bills
- And how to start saving for retirement
It seems that some of the things we take for granted, as a result, are missing from what we teach children.
In the last article, we focused on opening a bank account. This article is the second article in a four part series and will look at how to teach children to budget and balance their accounts.
budget
It’s no surprise that budgeting can be boring and tedious. Personally, I’ve never been thrilled to sit down and create my budgets, but it’s something that builds wealth and pays off in the future.
So how do you get kids excited about it? How can you add a little glamor to something so dull and boring? Easy: make it a rewards game.
First, it’s important to know how to create a budget, then stick to the budget.
Create a budget
You can have your own way of creating a budget, and that’s fine. In my experience, the easiest way to budget is as follows:
On a piece of paper, draw a line down the middle:
- Expense budgetCalculate your average monthly gross income and put it at the top of the page, then multiply it by .80 (for example, if you earned $1,000, you would end up with $800)
- Fixed costsWrite down all of your FIXED expense categories (ie phone bill, insurance, mortgage, etc.) and place them in a column on the left side of the page.
- Variable expendsNext, write down your variable expense categories (ie food, gas, entertainment, etc.) and place them in another column on the right side of the page.
- Complete all your expenses
- Net Budget after Fixed Expenses – Subtract fixed expenses from your 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 reduce or reduce.
- variable expense budget – Using your net budget after fixed expenses, determine how much 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 any given month
making it 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 about this.”
They will if you give them some prizes or rewards. That is how:
First, tell them what a budget is and show them the paper. Then tell them you’re going to have a contest (if you have more than one child, this works even better).
Contest 1: Anticipating the expense
The first contest is to see how close they can budget their money to breakeven 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 more than one child, the person who comes closest to breaking even without going negative wins a prize. With just one child, tell them they get $5 or $10 if they break even, and for every penny they lose, deduct 10ȼ
Contest 2 – Saving after spending
The second contest is to see how well they can budget their money over the next 30 days. If they can save money, tell them you’ll give them what they save. That means if they save $5, you’ll give them another $5 (just like companies that match a person’s 401K contribution).
If you have more than one child, tell them that the one who saves the most will win and get a special prize. Obviously you will choose the prize since you know your children better.
Coming soon
In the next article, we’ll discuss how to write checks and pay bills. You’ll also learn how to combine check writing with these quizzes to simulate the real world of budgeting for your kids.
