When our oldest got her first job, we were thrilled for her! As her parents, we were trying to balance being excited while helping her learn how to manage the bigger paychecks than she had seen in the past from babysitting and other odd jobs. As your teen(s) start earning their own money, guiding them through a few key financial moves can set them up for future success. Here are a few ideas to get them started on the right track!
1. Help Them Set Up a Budget and Track Spending
With that first paycheck comes the responsibility of managing money. Encourage them to create a budget that lists their income and expenses—think car expenses, cell phone bill, donations, college savings and of course, all those fun extras. Just like us adults, a solid budget will help them keep tabs on where their money is going and make sure they’re living within their means. There are plenty of budgeting apps and tools out there that can make this task easier and even a bit enjoyable.
Budgeting tips to share:
• Start with a basic budget or recommend a budgeting app.
• Emphasize the importance of including savings in their budget so they get used to living on less than they make from the beginning.
• Suggest reviewing and adjusting the budget regularly as their financial situation evolves.
2. Encourage Building an Emergency Fund
As we know, life has a way of throwing unexpected expenses our way and it is important for them to start planning for unexpected expenses (or even opportunities like participating in a fun experience with their friends). Advise them to save up enough to cover three to six months of normal expenses in a separate savings account. This emergency fund will act as a financial safety net, helping them not always coming to their parents when those surprises come up.
How to build an emergency fund:
• Help them set a savings goal based on their monthly expenses.
• Suggest setting up automatic transfers to their savings account each payday.
• Remind them that even small, consistent deposits will grow over time.
3. Talk About Starting Retirement Savings
It might seem far off, but starting to save for retirement now can make a huge difference later on financially and even mentally, teaching them the discipline to live on less than they make. As soon as your teen has an earned income and needs to file a tax return, they are now eligible to contribute to a Roth IRA. Your teen can put up to the annual max, or their actual earned income, whichever is lower. You (or a grandparent) could even offer a matching program! For every dollar they put in, the parent puts in a dollar. The earlier they start, the more they’ll benefit from compound interest. Don’t forget, if needed, they can withdraw the basis (amount they contribute, not the growth) at any point without a penalty.
Retirement savings advice:
• Recommend opening and beginning to fund a Roth IRA.
• If they have a company retirement plan that they are eligible for, encourage them to consider contributing enough to their 401(k) to get any
employer match.
• Suggest aiming to invest around 10-15% of their income for retirement.
Wrapping Up
Helping your teen navigate their first job and their new financial responsibilities can make a big difference in setting them up for a successful future. By guiding them through budgeting, building an emergency fund and starting retirement savings, you’re giving them the tools they need to thrive financially. Your support and advice will help them tackle these early financial steps with confidence and prepare for a bright future ahead.
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Jeremy is passionate about partnering with individuals and families to identify what is important in their lives and creating a comprehensive financial strategy to help them reach their life goals. This holistic approach allows Jeremy and the wealth management team to ensure the specific needs of the client are front and center as they make investment recommendations and collaboratively design custom-tailored financial plans.
Jeremy has a professional track record starting, leading, and managing for-profit and non-profit organizations. He is a graduate of Taylor University and has completed business programs at both Hong Kong Baptist University & Harvard Business School. Jeremy is also formally trained and certified in behavioral assessment, conflict management and life coaching. Jeremy, his wife Kim and their 4 kids reside in Kalamazoo. They love spending time exploring the outdoors, fixing up their farmhouse, and living life with friends and extended family.
Fun fact: Jeremy has been playing drums since he was 13 years old and made callbacks for the Blue Man Group.