Budgeting is a practice that many people find difficult to do. But it's not as hard as you might think, and the benefits are worth the effort. In this 4th part of our financial literacy series, we help guide you on how to teach your children on how easy it can be to start, where to start, and what is the best way to stick with a budget.
When you're working with your children on a budget, there are always going to be things that need to be cut or saved for in order to make sure their money lasts until their next allowance.
The following steps will help guide your child on how to keep within a budget:
1. Calculate how much money comes in.
Start by listing down all monthly income sources be it allowances, chores or even pocket money from grandparents. This way your child has an overview of how much money he or she receives in a month.
2. Figure out how much money is spent
Next, list down all expenses that your child incurs in a month. For example, school meals or extra curriculum activities that are out of school. Also list down any variable expenses that may come up. Assign a spending value to each of these expenses
3. Sum up and readjust.
Total up both the monthly income and monthly expenses and if currently the expenses overshoot the income, you and your child may want to look into ways of reducing the variable expenses. If your expenses are lower than your income, it means you have an extra amount that you can use for savings.
4. Use your budgeting method and monitor your spending.
You may do this by using a notebook or an excel workbook. Recording and tracking are both essential in ensuring that the budget is kept and so you and your child know in which areas you can still readjust, and this helps build their discipline.
Common mistakes made when starting a new budget
It takes time and effort, but once your child learns how to manage their finances it'll be much easier. Sit down and take them through these common mistakes so they don’t make them:
● Trying to do it all on your own. Your child can’t do this by themselves! Be a part of the process with them in setting up the budget. Everyone must work together to stay within the budget. There may be challenges along the way but learn from these challenges and improve the budgeting system the following month.
● Making everything look perfect on paper - but not actually living it out in reality. It doesn't matter if your child has the most detailed budget ever created, if they don't stick to it then what's the point? Make sure that they follow a system that reflects the kind of family you have.
● Abandoning the budget when things go wrong. We all make mistakes and we need to overcome our money mindset. It won’t help in improving our financial standing if we abandon methods just because we cannot rise up from our pitfalls.
● Failing to have fun. A budget is not a tool for totally restricting yourself. Just be mindful not to overspend.
Finally, as a parent, how well do you budget. If you think you can improve, then use teaching your children about budgeting as an opportunity to improve yourself. Involve your child in your improvement, apply the basics together. Kids love taking action with their children and parents love spending quality time with their children.
Imagine – budgeting together could be one of those moments!