Has your child been begging you to get that newly-released toy or gadget? It can be tempting to buy it for them, especially when they keep on bugging you about it! However, why not let them earn for it? It’s also for them to realize what it’s actually worth. 

Teach them to save parts of their allowance for the things they want to buy! You might be wondering though, how? Well, this article will tell you how to teach your children and support them through their saving journey.  

To get that one thing they’ve been dreaming of but can’t afford, they have to learn how to budget. You might be wondering, what is budget? Well, a budget is an estimation of the costs and revenue over a specific period. Creating a budget can help ensure that there is enough money for the stuff you want and need.

The budgeting meaning or the definition of budgeting is creating a financial plan wherein they will allocate where to put their money. Through budgeting, their savings can be increased, or it can help them get the gadget they’ve been begging for! 

How will they save their money?

You might be wondering how to budget? Well, there are five common types of budgeting methods: (1) traditional budgeting, (2) the 50/30/20 rule, (3) the envelope system, (4) savings first, and (5) the sub-savings account method. If you want to know which method is perfect for your child, keep on reading!

Traditional Budgeting 

If their allowance is more than their expenses, they can use this method. It’s pretty straightforward, wherein they will list their income and expenses. Afterward, they will find the difference.

After doing so, they should list down different categories that matter to them. They will set a budget for the amount they want to spend in each category, such as their food, actual savings, schoolwork, and the like. 

For example, suppose their allowance is 1,000 pesos. In that case, they can allocate their 1,000 into different categories: food, actual savings, saving for the gadget they want, and school necessities. They can put 500 pesos for their food, 200 for the device they wish for, 200 for their school necessities, and 100 for their actual savings. 

50/30/20 Rule

The 50/30/20 rule will break down their expenses into three categories: needs, wants, and savings. Fifty percent of their income will be categorized into their needs, 30 percent to their wants, and 20 percent to their savings.

For example, if they have 1,000 pesos. 50%, which is 500 pesos, will go to their necessities, such as their food and school necessities. 30%, which is 300 pesos, will go to their wants, such as the gadget they’ve been saving for. The remaining 100 pesos will be for their actual savings towards their future.

Contrary to the traditional budgeting method, they only have three categories to worry about instead of a dozen. So if they’re easily turned off by the time and effort needed to do the traditional budgeting methods, then they should try this instead.

However, spending can be an issue due to the small number of categories. To minimize this issue, make their allocated money for their expenses flexible to adjust the costs.

The Envelope System

In this system, they will use their actual cash on hand as their spending money.

The envelope system is pretty straightforward, wherein they will put their money in separate categories. The envelopes are then labeled to match their categories. It’s a way to force them to accurately budget their expenses every month. 

For example, their allowance costs 2,000 pesos per week. Then their budget should be 1,000 pesos for their food, 500 pesos for their savings, and 500 for school materials. When they receive their allowance, they should put the different amounts in their designated envelopes.

Every time they need to buy their food, the money must only come from the food envelope. They must be disciplined enough not to open the others.  

They should constantly identify all their weekly or monthly categories and make an envelope for each of them. Use different colors to avoid any confusion and label everything. 

Although, once their cash is all used up, they can’t get more. This method requires them to only use their money on hand. Don’t be tempted to give them a little extra! However, it’s ok to use one debit card for emergencies. Just make sure that they’re using it for an actual emergency, not for the upcoming Shopee sale.  

So, what can go wrong? 

They can either misplace their cash or be tempted to use it. Here are some quick fixes if you think they’re not disciplined enough to follow the envelope system religiously. You can help them hide their saved up money in zip-top pouches, hidden cloth pockets that are sewn into clothing, between the insole and bottom of a shoe, and messenger bags.

Savings First

This method primarily focuses on savings. In this method, they are supposed to save their money first, even if they have to compromise their supposed expense. Instead of using the traditional income – expenses = savings formula, this uses income – savings = expenses. 

In this method, they will set aside their savings then the remaining money is for them to spend. For example, if they’re given 2,000 pesos, they’ll save 1,500 pesos, and the remaining 500 pesos is for them to use. This method is the best fit for a child who struggles to save.

Simply put, a specific amount of money is set aside every time they receive their allowance. Through this method, they can prioritize their savings and make do with what’s left. 

Sub-Savings Account Method

They can open multiple savings accounts and put a specific purpose for each saving account. For example, they will use separate bank accounts for their daily expenses, actual savings, and what they want to buy in the future. 

They can also use different types of accounts for each. For example, in their savings account, they can use a checkbook to make it more difficult to use their funds. As for their expenses, they can use a digital bank account to make it more accessible for them. 

Tips for Sticking to their Budget

Different types of budgets methods exist to help control their spending, especially because maintaining a budget is challenging. Here are specific steps to make it easier for them to follow their budget plan.

• Before they start doing their preferred budgeting method, make sure that they review their income and expenses. Verify that their expected costs are accurate.
• Despite their best efforts to adhere to any budgeting method and still falling short on their money, they can review their expenses. Try to stop them from spending items that aren’t their necessities. If not, try to convince them to lessen the cost. Trade their takeout to home-cooked meals that can be repeated. 
• If they are going over their budget, freeze their expenses. They should either completely stop spending or keep spending to a minimum.

In budgeting methods, it is essential to note that one does not fit all. Please take note that they should find what works for them and do it. We hope that this article clarified the budgeting meaning or the definition of budgeting, what is budget, and how to budget.

Picking the Right Method

Even if they pick the budgeting method that works the best for them, it takes time to get used to it, especially if they’ve never budgeted before. However, adhering to budget methods is similar to building a habit. As they do it more often, the easier it becomes to stick to it.

Their reasons why they want to budget should be clear to them. They should list down their goals and whys, then constantly return to them when it’s challenging to stick to their budgeting method. By doing this, they can regain their motivation to keep on improving their budgeting skills. 

Additionally, remind them that they shouldn’t be afraid to revise their budgeting methods as needed. They can make adjustments or tailor them to their needs. This will make it more effective for them. If they discover that a budget method is not working for them, they can always change it as they see fit.  

Try and try until they succeed!

Of course, they don’t have to adhere to the budgeting methods above strictly. Sometimes, they have to learn to treat themselves! Congratulate them for being disciplined enough and for following their road plan to financial success.

Budgeting methods that work for each person will vary, especially since everyone has different sources of income and various expenses. Use the knowledge from this article as a stepping stone for your child to achieve their financial goals. 

Help them pick from the budgeting methods from above, and you can also try one for yourself. From there, both of you can determine which works the best for you both. Both of you can measure the success of the budget method by your level of contentment and the amount of money saved.