March 15, 2021, 3:26 p.m.
Learning to manage your money correctly is one of the most essential skills needed when as you transition from a young person to an adult. From around the age of 15/16, you will become familiar with money coming in and out that needs to be managed effectively in order to be financially stable. Managing money can seem quite complicated for some people, especially if you have just started a new job.
Below, our team have provided a few tips on skills you may want to put into practice to assist you with managing your money effectively.
1. Understanding Banking
By the age of 16, you should have your own bank account set up in your name where you can manage all of your personal finances. You should at this point be familiar with a few of the high street banks that are available, such as Natwest, Barclays and Santander. All of these banks typically provide similar services, and will allow you to set up specific bank account types for your needs. It's important to understand that different banks offer different account types with different terms. Understanding the terms can be quite confusing, so we have listed a short glossary below to help you understand what different things can mean...
Interest: Interest is the cost of using money. When you borrow, you pay interest. When you lend or deposit funds in bank accounts, you can earn interest. This is calculated as a %.
Balance: The amount of money held in a bank account at a given moment.
Overdraft: An overdraft means that the bank allows customers to borrow a set amount of money. This is used when a bank account balance reaches 0 and the customer will have to pay this back.
Bank Statement: A bank statement is a list of all transactions for a bank account over a set period, usually monthly. The statement includes deposits, charges, withdrawals, as well as the beginning and ending balance for the period.
Account Holder: The person whose name is on a bank account
Credit: Credit the total amount of money a person or business can borrow from a bank or other financial institution.
Debit Card: A debit card is a plastic payment card that can be used instead of cash when making purchases. It is similar to a credit card, but unlike a credit card, the money is immediately transferred directly from the cardholder's bank account to pay for the transaction.
Debt: Debt is an amount of money borrowed by one party from another. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.
For more definitions, please click here.
2. Understanding Budgeting
Budgeting is one of the most important skills a young person can have when it comes to managing money. Receiving your first pay checks can be really exciting, and in some cases people tend to channel their excitement into over spending and not being sensible. Setting a budget is all about being aware of how much money you have coming in, and how much of that income you're allowed to spend. Of course, it is absolutely fine to spend money on treating yourself, but the key to budgeting is all about breaking down your income into covering your essential outgoings (payments you need to make), keeping some money saved, and also any extra spending on things you would like. With the recent rise in mobile banking apps, it is now easier than ever to digitally manage your spending budgets.
3. Being Able To Save
Savings are sometimes disregarded as being important when you're young. However, it is good practice to always save a certain percentage of your income for a back up. This could be used for emergencies, future spending or things like a house deposit. The earlier you get into the habit of saving money, the easier it will be in the long run.
4. Identifying Needs and Wants
Money management has a lot to do with mentality. It's often the case that if you're sensible with your money from the get-go, you'll find it easier to maintain a positive money mindset. With having money, comes decisions. Every day you'll be required to make a decision on what you want to spend money on, this could include essentials like bus fare or non-essentials like buying clothes. To develop a basic understanding of making money decisions, try writing a list of all the things you spend money on and categorising them into 'Needs' and 'Wants'.
5. Planning For The Future
Although it may seems quite far away, it is really important that you develop a basic plan of how much money you may need in the future. You can make a start by thinking about everything you may 'Need' to spend money on as you grow up. Ideas could include buying a house, organising transport, buying your own food etc. All of these things are going to require different amounts of money, and depending on your future ambition some things may be more expensive than others. This can also help you make considerations for the type of job that you want to secure, and the income or salary that comes with that. Does your future spending plans match up to the salary you're aiming to earn?
If you're still unsure on anything mentioned above, you can access a variety of resources online which can help you understand more about money management. At some point, you may also want to seek support and advise from a professional who works in finance. This support is often available at most banking branches.