Trinity Scott is a wife and mother of four children, ages seven, ten, 12, and 15. She graduated from San Diego State University with a Bachelor of Science in business administration/accounting. When her family budget got too tight, she started her business, T3 Bookkeeping. Scott graciously wrote this post for Girls That Create as part of our series Talking With Girls About Finances.
Ten Things Every Girl Needs to Know About Budgeting
What exactly is a budget? Can your daughter answer that question? The word budget has become a concept dreaded by many since it often involves concepts such as self-discipline and delayed gratification. While these are important approaches to learn and apply, a better mindset is thinking of a budget as a roadmap to achieving life goals. Your girl should not be focused on what she cannot do but on what she can accomplish with resources. And teaching her how to plan carefully to use those resources will help her garner more.
The sooner your daughter becomes accustomed to using a budget, the easier it is for her to live within a budget and meet her goals. Human nature is such that personal spending will always grow to meet income no matter how much money one makes unless there’s a plan. A planned budget can lead to avoiding credit card debt and car payments and allowing for long-term investing earlier in life. Teach your girl to start with a budget instead of creating one after making poor decisions.
Explain prioritizing items like giving, saving, and investing. As said, spending often grows to eat up all of our income when we don’t plan. Placing giving, saving, and investing at the top of a budget list before planning to spend ensures one can accomplish these goals.
The Power of Giving
Why give? In addition to religious convictions, there are many great reasons to donate to charities. The nonprofit The Life You Can Save offers ten reasons to donate to charities, including: “Giving makes us happier” and “Giving benefits the world’s neediest people.” They also have an Impact Calculator, which shows what even a tiny donation can accomplish for others, along with suggestions of charities to which to give.
A budget can prevent unnecessary expenses. When you plan for paying bills, you are more likely to pay them on time, thereby avoiding late fees and interest charges that can add up. Items like Insufficient Fund Fees from banks are also easily avoided with proper planning. At $30.00 each, these can quickly add up to hundreds of dollars a year if your girl is not careful. Avoiding interest charged on loans or credit cards can also save her hundreds of thousands of dollars over a lifetime.
Planning for Emergencies
A budget should always include planning for emergencies and unexpected expenses. This step falls under the savings category. If your daughter learns to prepare for emergencies (anything from an automobile breaking down to a medical emergency like a broken arm or gallbladder surgery), there are many benefits. Knowing you have money to pay an unexpected bill relieves some of the stress in a situation. It also prevents the need to incur debt, whether through a loan or the use of a credit card. Your girl also avoids the need for an additional monthly payment to be added to her budget along with interest charges or the possibility of late penalty fees.
Planning for the Future
Planning for the future is part of savings and includes purchasing a home or car, college, retirement, or even becoming a parent one day. Moreover, planning for the future can lead to earnings from investing. Help your girl become familiar with the idea of “time value of money” (where the money you have now is worth more than the identical sum in the future due to its potential earning capacity). She also needs to understand the “power of compounding interest” (the interest she can earn on interest). These concepts refer to what happens when you invest a little money consistently over a long period of time.
Helps a Household Run Smoother
Being able to budget can make a household’s finances work much more smoothly. When you have two people coming together with unique budget ideas, goals, and spending habits, being on the same page regarding money can help eliminate stress and disagreements. Having a plan that two people create and implement together ensures everyone is on the same page from the very start. It’s also an exercise in communication, negotiation, and diplomacy.
A More Simple Process
You can introduce many tools to your daughter to make the budget process simple. Some are free; others are subscriptions. Some may be things you already have in your arsenal. If your family owns Microsoft Excel, you already have a budgeting tool. Assisting your girl with creating a budget can be done with a basic knowledge of the program. Or a quick Google search will also yield many templates. Other programs available to help with a budget include the appropriately named You Need a Budget (YNAB), Mint, and EveryDollar. A quick search of the app store on your phone or a Google search will yield many.
Knowing Where You Stand
Knowing where you stand financially will help with making life decisions. Teach your daughter that having a solid grasp of what she spends on specific things (such as housing, utilities, exactly how much is required to live) will put her on solid ground. It is helpful when making decisions about what job to take, if moving for a job is advantageous, or even if quitting a job is feasible. Every major life decision has financial repercussions, and her knowing what’s “normal” to spend can help your girl make an informed decision.
Starting Your Own Business
Explain that budget numbers have repercussions for starting a business. If your daughter doesn’t know how much she’ll need to support herself, she’ll have no way of knowing her business’s needs to not only stay afloat but to flourish. Pricing and marketing decisions are directly tied to how much is needed to pay the bills, as is the amount of work required each week.
A budget is essential to controlling financial decisions at every stage of life. The earlier your girl embraces that concept, the more time she’ll have for her finances to benefit her in the long run.
Top image by Kristina Paukshtite from Pexels
Second image by Karolina Grabowska from Pexels
Third image provided by Scott
More Girls That Create posts: Four Steps to Teaching Healthy Money Habits to Your Girl and A Conversation with Dr. Michele Borba about Thrivers