We all want to buy different things. Some are small and cheap, like a candy bar or a magazine. Others are more expensive, like a bike, a computer or horse riding lessons.
Sometimes they cost a lot more than you think.
It’s unlikely you (or mum and dad) will have enough money to buy everything you want.
Some things cost a lot of money, and would take you a lot of time to get enough to buy them.
For example, you might see a new mobile phone that you like, but it costs USD250. If you get USD10 a week, how many weeks would it take to buy the phone, if you saved all your money towards it?
It might take even longer than you think, because you will have to spend your money on more than one thing. And sometimes you need money to spend on things you hadn’t thought about too. Unless you are organised, you might run out of money!
The best way to plan to get what you want and make sure you don’t run out of money, is to have a Budget.
A budget is a record of the money you have, plus a plan that works out how much money you are likely to get and how much you are likely to spend in the future.
Budgets help you understand how much money you usually spend, and how much you save. If you plan a budget and stick to it, you can buy much bigger things than you can afford with your weekly allowance.
This gives you financial discipline – which is fundamental to all aspects of managing your money.
You might want a new pair of headphones that cost USD10, but only have USD4. If you get a USD2 allowance a week and save it all, you can save up the extra USD6 to buy the headphones in three weeks!
First, work out how much money you have
You need to begin by adding up all the money you already have. But first of all, get a spare notebook or piece of paper. At the very top, write that this is your budget – for example, ‘Jenny’s Budget’.
Below this, put a vertical line down the middle of the page. On the left write ‘Money In’, and on the right write ‘Costs & Savings’.
Once you have done this, write ‘My money’ in the left column, below ‘Money In.
After that, go to any piggy bank you have and count how much money is in it. Then add any spare bank notes or coins, and add any money you have in bank accounts that you are allowed to use. Ask mum and dad if you are not sure or need help counting it up.
Add the total of each amount of money into the left-hand column. And once you have put down everything, add it up and put this number at the bottom of the column, next to a ‘Total’.
This tells you how much money you already have.
For example, Jenny checks her piggy bank and counts her coins, and works out she has USD23.75. She then checks her drawers and finds USD15 in notes. And then she asks mum and dad how much money she has in bank accounts that she is allowed to use. They tell her she has USD150.
So she fills out her budget like this: JENNY’S BUDGET
Piggy bank: USD23.75
Spare notes: USD15
Savings account: USD150
Secondly, you need to work out how much money you are likely to get over regular periods
Next, you need to know how much money you are getting, and how regularly.
This means you know how much in total you should get over a week, or a month. When you know this, you can make better plans for saving money, particularly for items that cost more than you get over a week or two.
Now you need to add this to your Budget.
You need to go to the left-hand column again, and below the previous figures write ‘Monthly Monhey In’, in a new colour or big letter to make it obvious.
Then you add in each item below this.
Jenny’s mum and dad give her USD10 a week, provided she does her chores around the house. And once a month, Jack, her grandfather, gives her another USD15. Assuming Jenny does her chores and sees her granddad once a month, she gets USD55 each month.
Piggy bank: USD23.75
Spare notes: USD15
Savings account: USD150
Monthly Money In
Weekly pocket money USD10
Monthly pocket money from grandpa USD15
MONTHLY REVENUE: USD55
Thirdly, you need to work out how much you usually spend or save over a regular period.
You then need to work out how much you spend each week or each month. You must be honest, as you need to have correct figures to make your budget.
You also must not forget to consider costs like snacks, books or magazines, apps or video games, new clothes, or travel fares. Some of these might seem small, but they quickly add up!
These costs are called ‘expenses’.
You can divide up your expenses into three types:
- Regular expenses These are costs that you have very often. One could be a bus or taxi fare to a shopping mall you visit once a week; another could be the cost of buying your favourite magazine each month.
- Savings This is the money you should be putting aside each week or month, for the future. You should talk with your mum and dad about how much it should be. Usually 10% to 20% of what you get is enough.
- Giving You should also put some money aside to give to good causes. There are many people in the world who have less fortunate lives than you. You should begin to put a small amount of your money aside now so you can help them. Again, you should talk with you mum and dad about how much, but 5% to 10% is probably enough.
After working out her money and the money she is likely to earn, Jenny works out her costs. She thinks about it, and remembers that she likes buying ‘Top Teens!’ magazine once a month, which costs USD10. She also usually buys herself three candy bars a week, which costs USD3, or USD12 over a month. She also buys pencils and erasers at least once a month, which costs about USD15.
Jenny has also agreed to put 10% of her money each month towards savings, and another 5% towards giving.
After working this out, Jenny writes this into her budget.
Three candy bars: USD12
TOTAL : USD 45.25
Fourthly, you need to work out what you want
Wants and needs are very different. Using a simple example, you might want a bike or a new mobile phone. But you need food to eat to stay alive and healthy.
You should make a ‘Most Wanted’ list of the top 10 things you can think of that you would really like to buy.
When you do this, try to be realistic – you can’t buy a jet plane or a submarine! Instead think of all the things you would really like. And keep it to 10, or 15 things at the most. A list of hundreds of items is not useful.
After you have done this, you must work out how much each item costs. And then number them from 1 to 10, with 1 being the thing you want most, and 10 being the thing you want the least on her list.
Jenny writes her ‘Most Wanted’ list. Her top item is an iPhone, which she works out would cost USD300. Her second item is a pink bike, which costs USD150, and her third item is a new bag, which costs USD60.
Fifthly, you need to work out how much money you can save.
To do this you need to get the amount you have worked out you earn each month, and subtract the amount of recurring expenses you have, plus any one-off items you know you will also need to pay for.
The amount left each month is how much you have available.
Apart from her USD188.75 in savings, Jenny has worked out she is likely to earn USD55.50 a month, but she spends or saves USD45.25. Therefore she has USD10.25 a month left. She can put this money towards items on her ‘Most Wanted’ list.
Sixthly, talk with mum and dad about your plans.
If you haven’t already been getting mum and dad’s help, you now need it, so you can make some plans about how best to use your money.
To begin with, go through all your sums about how much you think you have and will make, and how much you spend and save. See if they agree, or if they make any changes.
After you all agree on how much you have and are likely to earn per month, you need to work out how long it will take to save up to buy the number 1 item on your ‘Most Wanted’ list.
You may find out that it will take a long time to get some of the items, especially if they are expensive. This might mean you have to consider whether you want to save for these items or not. Mum and dad might be willing to help you, provided you are willing to put aside your money for a long time.
Jenny wants an iPhone most, but it will cost USD300. And she only has USD10.25 a month, so it would take her 30 months to make the money – or two and a half years! Mum and dad also remind Jenny that if she buys an iPhone it would cost USD20 each month to pay the bill. Jenny realises she cannot afford to buy the iPhone, and so takes it off her list.
The second item on Jenny’s list is a bike for USD150. Because she has USD10.25 at the end of each month, it would take her 15 months to make the money, or one year and three months. However, Jenny’s mum and dad agree she can use USD30 from her savings account towards the bike’s cost. And after that, they say they will put in USD1 for every USD1 she saves towards the bike.
So, Jenny works out that paying USD30 towards the cost means she needs another USD120. And if mum and dad pay half, she needs USD60. Given the money she has spare each month, Jenny works out it would take her six months to earn enough to get the bike.
The third item is a new bag, for USD60. This would take Jenny six months to earn, but her mum and dad don’t agree to put money towards it, because they think it is not something she will use much. Jenny thinks about it, and decides she really wants the bike. She starts saving towards it.
To plan a really good budget, you need to be very honest with yourself. You have to work out how much money you really spend a week or a month. If you work out that you spend money on five candy bars and five cans of soda a week, don’t pretend it is only two or three.
If you do it will only mean your budget is inaccurate, and you spend more money than you planned for.
Budgets only work if you stick to them. The best way to do that is to check it regularly. You should look at the budget and update it once a week. Schedule a time with mum and dad to go through it on Saturday or Sunday.
By doing so, you can see how you are spending your money, and how well you are saving it. That way you can see if you are on track to save enough to buy the items on your ‘Most Wanted’ list.
Don’t be scared to change your budget!
Sometimes you will want to change the budget plans you have made. You may find you want to spend money on a particular item every week that you hadn’t originally planned for. Or perhaps a new item of clothing or game is released, and you want to put it at the top of your Most Wanted list. Or maybe you want to save more each week, to buy your number 1 Most Wanted item faster. Or maybe you can’t do so many chores, so you will get less money each week.
If this happens, you need to re-do your budget, thinking of what the changes mean for your budget plans. If you add a new Most Wanted item, first of all delete another item.
Then work out how much it will cost to buy, and remember this means the previous items will take even longer. Lastly, if you want to save more money or you are going to get less money than you originally planned, think of what you are spending money on now and how you can drop these costs.
Then, update your Budget with your new revenues, costs and savings, and purchase plans.
Be careful of impulse buys!
Everybody goes to the shops and sees something that they suddenly want to buy. If you cannot control the urge to buy it, even though you hadn’t put the item in your budget, then you are making an ‘impulse buy’. This is also a purchase which you make without carefully thinking about the consequences.
If you see something like this, try not to buy it straight away. Instead, go home and see whether you want to add it to the ‘Most Wanted’ list. (Don’t forget – if you do, you need to take something else off!).
If you add it to the list, work out what number it should be. Then, if it is near the top, think of how you could best afford to buy it, and if it really is one of the things you want to buy most of all, and also what impact buying it will have on your other purchase plans.
You have to make tough decisions sometimes, or risk over-spending. So think hard every time there is something new you would like to buy.
Do you really want it? Do you want it more than the other ‘Most Wanted’ items? Why? And if you do, how can you change your budget to buy it without losing money, or how can you plan to save for it?
It’s important to think about how buying something you hadn’t planned for affects your other plans.
Consider all the costs of an item!
Many items only cost the money you have to pay for them. But some, such as mobile phones, online gaming apps, or club memberships, continue to cost money.
You need to add this recurring cost into your budget when you consider adding it to your Most Wanted list.
Tax is a charge the government puts on money you make, or that it adds to goods and services. It does this to raise money so it can build roads and railways, maintain a police force, and make sure everyone follows the law.
There are several types of tax that you have to pay when you make money or invest it.
Below are the most common:
This is a standard rate of tax charged upon any money you get paid by a company for the work you do. It usually begins after you earn a certain fixed amount of income, and is a percentage of the money you earn above this.
Some countries have several levels of income tax, which rise as you earn more money. These are called tax brackets.
- Dad earns USD8,000. Under his country’s rules, he can earn up to USD10,000 without paying income tax, so he does not have to pay anything.
- Mum earns USD15,000. She earns the first USD10,000 tax-free, but has to pay 20% tax on the other USD5,000.
Q: How much does Mum pay in tax?
A: USD1,000 in tax.
- Uncle Henry earns USD50,000. He gets USD10,000 tax-free. He has to pay 20% tax from USD10,000-USD40,000. And he has to pay 40% tax from USD40,000 to USD50,000.
Q: How much does Uncle Henry pay in tax?
A: USD10,000 in tax
In some countries like the UK, income tax is automatically taken away from your salary and paid to the government by your employer.
In other countries, it has to be paid all at once, at a certain time of year. This is, for example, the case in Hong Kong.
Capital Gains Tax
This tax is charged on any money you make after you buy an investment and then sell it for more money. The extra money you make is called profit, or ‘capital gain’. The exact amount charged varies in different countries, but it is often around 20%.
For example, if you invest USD10,000 in stocks and sell them after six months for USD11,000, you have made USD1,000 in profit. However you would be charged capital gains tax of 20%, or USD200.
Capital gains tax is charged on money made from investments like stocks, bonds. It is also charged on any money you make from selling a house for more than you bought it.
When a person dies, they usually leave their goods and property to their loved ones.
However, many countries charge a tax on the money that to be given over. In some countries this rate of tax can be a lot – in the UK for example it is 40% for estates with more than GBP1 million.