Practical Ways for Teens to Save Money

Quick answer

• Start saving a portion of every dollar earned from allowances, chores, or jobs.
• Set clear savings goals, like for a new gadget or a future purchase.
• Open a savings account to keep your money safe and track your progress.
• Look for ways to earn extra money through side hustles or selling unused items.
• Differentiate between needs and wants to avoid impulse spending.
• Automate savings by setting up regular transfers to your savings account.
• Understand the basics of budgeting to manage your money effectively.

Who this is for

• Teenagers who are receiving an allowance or earning money from chores.
• Young individuals with their first part-time jobs looking to manage their income.
• Teens who want to start saving for specific goals, like a car, college, or a significant purchase.

What to check first (before you act)

• Goal and timeline: What do you want to save for, and by when? Knowing this helps you stay motivated and set realistic targets. For example, saving for a new video game might be a shorter-term goal than saving for a down payment on a car.
• Current cash flow: How much money are you receiving regularly, and where is it coming from? Track all your income sources, whether it’s from parents, a job, or gifts. Understanding your inflow is the first step to managing your outflow.
• Emergency fund or safety buffer: Do you have a small amount of money set aside for unexpected expenses? Even a small buffer can prevent you from dipping into your long-term savings for minor issues. Consider keeping a portion of your savings accessible for these moments.
• Debt and interest rates: Are you currently owing money to anyone? If so, understand the terms and any interest you might be paying. High-interest debt can quickly eat away at your savings potential.
• Credit impact: While teens might not have established credit, understanding how responsible money management now can impact future credit is important. Good habits now can lead to better financial opportunities later.

Step-by-step (simple workflow)

1. Define your savings goal: Decide what you want to save for. This could be a specific item, an experience, or a general future need.

• What “good” looks like: You have a clear, written goal with a target amount.
• Common mistake: Not having a specific goal, leading to unfocused saving. Avoid by: Writing down your goal and visualizing it.

2. Estimate your timeline: Determine how long you have to reach your goal.

• What “good” looks like: You have a realistic timeframe for achieving your savings target.
• Common mistake: Setting an unrealistic timeline that leads to discouragement. Avoid by: Being honest about how much you can realistically save each week or month.

3. Calculate your required savings rate: Based on your goal and timeline, figure out how much you need to save regularly.

• What “good” looks like: You know the weekly or monthly amount you need to set aside.
• Common mistake: Underestimating how much is needed. Avoid by: Using a simple formula: (Total Goal Amount / Number of Weeks/Months) = Savings Needed Per Period.

4. Track your income: Identify all sources of money you receive.

• What “good” looks like: You have a clear picture of all your incoming cash.
• Common mistake: Forgetting about small income streams. Avoid by: Listing everything, from allowances to birthday money.

5. Create a simple budget: Allocate your income to different categories (spending, saving, etc.).

• What “good” looks like: You have a plan for where your money will go.
• Common mistake: Not budgeting at all, leading to overspending. Avoid by: Using a notebook or a simple app to plan your spending.

6. Prioritize saving: Make saving a non-negotiable part of your spending plan.

• What “good” looks like: You consistently put money into savings before spending it on wants.
• Common mistake: Treating savings as whatever is left over at the end of the month. Avoid by: Paying yourself first – set aside savings as soon as you get paid.

7. Open a savings account: Get a dedicated account to hold your savings.

• What “good” looks like: Your savings are in a secure place, separate from your spending money.
• Common mistake: Keeping all your money in cash, which can be lost or spent impulsively. Avoid by: Visiting a local bank or credit union to open an account.

8. Automate your savings (if possible): Set up automatic transfers from your checking to your savings account.

• What “good” looks like: Your savings grow consistently without you having to think about it.
• Common mistake: Forgetting to make transfers manually. Avoid by: Asking a parent or guardian to help set up automatic transfers.

9. Find ways to earn more: Look for opportunities to increase your income.

• What “good” looks like: You actively seek out extra work or income-generating activities.
• Common mistake: Relying only on a fixed allowance or job income. Avoid by: Brainstorming skills you can use for side hustles (e.g., pet sitting, tutoring, lawn care).

10. Review and adjust: Periodically check your progress and make changes to your plan as needed.

• What “good” looks like: You are on track to meet your goals and are adapting to any changes.
• Common mistake: Sticking to a plan that is no longer working. Avoid by: Regularly checking in on your budget and savings goals.

Common mistakes (and what happens if you ignore them)

Mistake	What it causes	Fix
Not setting specific savings goals	Unfocused saving, lack of motivation, money gets spent on impulse purchases.	Define clear, measurable goals with target amounts and timelines.
Spending without a budget	Overspending, running out of money, inability to save for important items.	Create a simple budget and track your expenses to understand where your money is going.
Treating savings as “leftovers”	Inconsistent savings, slow progress towards goals, reliance on future windfalls.	Pay yourself first: allocate a portion of income to savings as soon as you receive it.
Keeping all savings in cash	Risk of loss or theft, temptation to spend, no growth potential.	Open a savings account to keep money safe and track progress.
Not distinguishing between needs and wants	Impulse buying, overspending on non-essentials, neglecting important savings.	Before buying, ask yourself if it’s a necessity or a desire. Delay non-essential purchases.
Relying only on one income source	Limited saving potential, vulnerability to changes in that one source.	Explore opportunities for side hustles, selling items, or asking for more responsibilities for pay.
Ignoring small expenses	Small expenses add up, significantly reducing overall savings potential.	Be mindful of daily spending, like snacks or small entertainment purchases, and track them.
Not tracking savings progress	Lack of motivation, unawareness of how close you are to your goal.	Regularly check your savings account balance and celebrate milestones.
Not saving for unexpected small costs	Having to dip into long-term savings for minor emergencies.	Build a small buffer fund for unexpected, minor expenses.
Not understanding the value of compound interest	Missing out on potential growth for your savings over time.	Learn about how interest can help your money grow and consider savings vehicles that offer it.

Decision rules (simple if/then)

• If you receive an allowance, then allocate at least 10-20% to savings because this builds a consistent saving habit.
• If you have a specific item you want to buy, then calculate the total cost and divide it by the number of weeks you have to save because this sets a clear savings target.
• If you get paid from a job, then immediately transfer a predetermined amount or percentage to your savings account because this ensures savings are prioritized.
• If you are tempted to make an impulse purchase, then wait 24 hours before buying because this allows you to reconsider if you truly need it.
• If you have money from gifts or unexpected income, then allocate a portion of it to your savings goals because this accelerates your progress.
• If you notice your spending is higher than you planned, then review your budget and identify areas where you can cut back because maintaining control over spending is key to saving.
• If you are saving for a larger, long-term goal, then consider opening a separate savings account for it because this keeps it distinct from short-term goals and spending money.
• If you have a choice between two similar items, and one is significantly cheaper, then choose the cheaper option because this frees up more money for savings.
• If you are considering buying something that is on sale, then ensure it’s something you genuinely need or planned to buy, not just an impulse buy because sales can encourage overspending.
• If you are earning money from chores or small jobs, then decide beforehand what percentage you will save before you start because this sets a saving intention from the outset.
• If you find yourself consistently spending money on small, recurring items, then track those expenses to see if they can be reduced or eliminated because small amounts add up.

FAQ

• How much money should I save from my allowance?

A good starting point is 10-20% of your allowance. If you can save more, great! The key is consistency.

• What’s the best way to track my savings?

Using a simple notebook, a spreadsheet, or a dedicated savings app can help you monitor your progress and see how close you are to your goals.

• Should I open a savings account even if I don’t have much money?

Yes! Opening a savings account is a great habit to build. It keeps your money safe and separate from your spending money, and you can start with any amount.

• What if I want to buy something now but I don’t have enough money saved?

Try to wait. If it’s something you truly want and can save for, delay the purchase. If it’s a need, you might need to adjust your budget or find ways to earn more money.

• How can I earn extra money as a teen?

Consider babysitting, pet sitting, mowing lawns, tutoring younger students, selling crafts, or selling items you no longer need.

• What’s the difference between a savings account and a checking account?

A checking account is for everyday spending, while a savings account is for storing money you don’t need immediate access to, helping it grow over time.

• Is it okay to spend some of my savings?

It depends on your goals. If you’re saving for a specific item, try not to dip into those funds until you reach your goal. However, having a small “buffer” for minor emergencies is also wise.

What this page does NOT cover (and where to go next)

• Advanced investing strategies for minors. (Consider learning about compound interest and long-term growth.)
• Complex tax implications of teen income. (Consult with a parent or guardian about tax basics if you have significant earnings.)
• Detailed comparison of specific bank accounts. (Research local banks and credit unions for teen-friendly account options.)
• Strategies for managing debt for adults. (Focus on avoiding debt as a teen and understanding its impact.)
• Building a credit score from scratch. (This often comes later, but responsible saving is a good foundation.)