Saving money and budgeting@headingTag>
How using budgets and saving regularly can help manage money
Download full lesson plan pack with all activities
Budgeting is an effective way to help your young person build money management skills. By understanding their income and balancing it with their outgoings, they can start to make the most of their money. Now is a great time to start the habit of saving, to be better prepared for when circumstances can change, and develop the know-how to manage money.
Using the steps below, which should take between 15-20 minutes to complete, work through the activities with your young person, or use the student worksheets provided for independent learning. Your young person will learn how to create a budget that tracks incomings and outgoings, identify their spending and saving habits and recognise the importance of working within a budget.
Step one: What is a budget and who is it for?
A budget is a plan of how someone spends money, taking all income and outgoing payments into consideration. An efficient budget should include all the ways money may be spent or received, however small, and cover a set period – usually a week or month. Start by asking your young person what they think budgeting is; they can note down their answers on worksheet one.
Ask them to think of some examples of income and expenditure that they might have (e.g. part-time job, pocket money, gift money). Explain that a budget is a way of making sure they have enough to pay for the other things they want and need. They can also write down their suggestions on worksheet one.
Ask your young person why they think keeping track of money is important, taking into consideration people’s aspirations in different life stages (teenagers, young adults, parents etc.) and what financial costs these aspirations might have. Use the below prompts to help:
- Without a budget you might get into debt (e.g. credit card, mortgage)
- It can help plan for long-term aspirations (e.g further study, apprenticeship, job, starting a business)
- It can help save for purchases (from buying some clothes to buying a car or house)
Step two: Budgeting case studies
Now that your young person has an understanding on what budgeting is and why it’s important, it’s time for them to have a go at creating a budget themselves using different real-world scenarios. The second case study further down about Ahmed may be better suited to older or more advanced learners.
Case study 1: Chris
Read through Chris’s case study below with your young person.
Complete the table on worksheet two with your young person to create a budget for Chris. Check that they understand the key terminology used such as:
- Expenditure: the amount of money spent
- Income: the money received
- Balance (positive or negative): total income minus total expenditure
Chris’s weekly budget answers:
Case study 2: Ahmed
Work with your young person using the below spending guide to create a more advanced budget for Ahmed. Note that not everything on the spending guide will apply to Ahmed.
Think about Ahmed’s weekly, monthly and yearly incomings as well as expenditures such as:
- Living costs (e.g. accommodation, food, bills, clothes)
- One-off costs (e.g. new laptop)
- Travel (e.g. petrol for car, train fares)
- Leisure (e.g. cinema, gym)
Ask your young person to add all these expenditures together to discover Ahmed’s weekly, monthly and yearly outgoings. This can all be recorded and worked out on the budgeting template on worksheet two.
Worksheet two also includes a blank budgeting template that can be used by your young person to track their own income and expenditure and create a budget for themselves.
Discuss with your young person what they want to do next in terms of further study, apprenticeship, job and what they think their income and costs will be. You could take this conversation further by discussing their aspirations; how could budgeting help them in being able to set and achieve exciting longer-term goals?
If you feel comfortable, discuss with your young person how you budget in your day-to-day life, the income you keep a track of and if you find it useful. Alternatively, if you haven’t used it already, show them the ‘Make it through the month’ tool, which is explained further up, to illustrate how budgeting can work on a daily basis.
Step three: Top tips for saving money
Disposable income is the money that is left to spend after all other expenditures have been paid. It’s easy to get carried away and spend it all quickly, but it’s important to think about saving this money for something in the future, whether that’s a new games console or a house.
Discuss with your young person how easy they find it to keep their spending within their disposable income and if they would be able to identify everything they have spent money on at the end of each week.
For inspiration, why not show them this blog about two young people’s challenges and tips around managing money.
In order to work within a budget, your young person needs to understand their spending habits and where their money goes – particularly the small amounts. Get your young person to think about what they spend their money on in an average week; they can fill this out in the weekly spending diary on worksheet three. Their regular outgoings may include:
- Travel costs e.g. bus ticket, petrol
- Mobile phone bill
- TV, film and music streaming services
- One-off items e.g. cinema ticket, new clothes or a night out
Explain to your young person that it’s a good idea to use a spending diary for a few weeks, especially when circumstances have changed such as starting a new job or going to university. It will really help them identify spending habits and areas they could save money.
To live within their income and keep to the budgets they set themselves, explain to your young person that they need to be good at saving money where they can. This ensures that they have money for the essential things as well as emergencies and luxuries. It does take some practice and discipline, especially when living independently for the first time.
Load the ‘34 ways to save’ interactive tool with your young person. Work through the tool and get more ideas for how to save money across all areas of your young person’s life so they can become a savings master.
Now ask your young person to think about any good tips they could give to others on how to save money (this could be related to saving cash or reducing spending when shopping), and if you feel comfortable share some of your own useful tips. They can write down their ideas on worksheet three. Some top tips could include:
- Save regularly, even if it’s only a small amount
- Put loose change into a jar and bank it every three months
- Shop around for best deals. Comparison websites are useful for this
- If you plan to travel a lot, look into season tickets or railcard discounts
- Transfer a regular amount in to savings as soon as you are paid
- Instead of buying lunch, make it at home
- If you have a monthly mobile phone contract, make sure you know what your monthly allowances are