Managing your money
What do you spend most of your money on?
What do you think your parents spend most of their money on?
As we grow up, most of us will start to have more control over how much money we have and what we choose to spend it on. However, most of us will also start to have more responsibility to pay for things that in the past, parents and carers have paid for (for example, our mobile phone). We may have to spend much more of our money on things like bills and food.
It’s important to be able to budget our money so that we have enough to pay for all the things we have to buy. These items are called ‘priorities’ or ‘needs’, and are things we need to survive. An example of a priority is a house to live in, and food to eat.
Once a person has budgeted their money to pay for the priorities, they may find they have extra money that they can spend on things they want. These ‘wants’ are not things we need to survive, but things we might enjoy having. Examples of ‘wants’ are a games console or new perfume.
Think of the things you spend your money on and decide if they are ‘wants’ or ‘needs’.
What is Budgeting?
Budgeting is calculating the amount of money you have and the amount of money you spend on things, to ensure you have enough money for everything you need.
- In = The money you have (from pocket money or money you earn)
- Out = The money you spend on things
If you spend more money than you have, you may have to borrow money from people or a bank. This is called debt. It is not good to owe people money or have debts, as you will need to pay these back in the future which can be very hard to do.
For example, Sam has £20 but wants to buy a game for £30. He borrows £10 from his brother. He had £20 and spent £30. He is in £10 debt and will need to pay this back to his brother in the future.
If you spend all the money you have, you will have paid for all the things you need and want, but not have any money left to save for the future.
For example, Justin has £20 and buys two £10 albums from his favourite band. He has no money left to save for another purchase.
If you have more money than you spend, you will have extra money left over. This is called savings. If you save a little bit of money regularly, it means that you could save for something important or a big purchase that you want.
For example, Julie has £20. She buys a t-shirt for £15. She has £5 left which she saves to help her buy a new MP3 player.
What would you save for?
Budgeting is important because you need to make sure you have enough money for everything you need to buy, so that you don’t get into debt. Budgeting can also help you to save money, meaning you can save up for a big purchase you really want, or have extra money in case you ever need it in the future.