18 Steps Teens Can Take to Prepare for Financial Independence
If you clicked on this post, then I’m assuming you are a teenager, and you are looking to set up a good financial future.
Well, I’ve got good news! I am here to help!
Who am I exactly? My name is Jacob, and I am a 17-year-old personal finance blogger on Teen Financial Freedom. Teen Financial Freedom is all about guiding teens to financial independence.
That’s what I want to cover in this post. I want to give you suggestions that you can start TODAY to set up a long life of financial independence.
18 Ways Teenagers Can Prepare for Financial Independence
- Get Good Grades
- Develop Good Habits
- Get a Job
- Track Expenses
- Treat Saving Like an Expense
- Start an Emergency Fund
- Saving for College
- Picking the Right College
- Applying for Scholarships
- Don’t Get in Debt
- Open a Retirement Account
- Reduce Expenses
- Start a Business
- Track Your Networth
- Educate and Invest in Yourself
1. Get Good Grades
Before you begin doing anything else, you need to make sure that you have good grades. This should be your priority as a teenager in school.
It’s very important that you graduate and have good enough grades to get into college if you choose to.
If you need help with your grades, here’s what I suggest.
Get organized, don’t procrastinate, and do your work. It’s so easy to pass your classes as long as you do your work. Most students forget about something or decide not to do something, and it affects their grades. If you show up and do your work, you’ll be fine.
2. Develop Good Habits
You might be thinking, what do habits have to do with setting me up for financial independence?
Habits make you into a better person. That’s really what life is all about…living your best life as the best version of yourself.
It’s things like exercising, eating healthy, reading, etc. that drastically improve your life.
But the truth is that when you start one of these habits, it instills discipline in your life that you can carry over to your financial situation.
3. Get a Job
If you feel like you have accomplished the first two steps, you’re ready to move on to getting a job.
Even if you don’t want to get a job, you definitely need a reliable source of income as a teenager. It’s the first pivotal step towards financial independence.
You need to start saving money now. The best way to do that is to get a job…so what are you doing?
Go get one already.
Alright, you got your job now, and hopefully, you’re rolling in the dough.
It’s probably tempting to go and blow all of your money on a fancy new phone or car.
But don’t. Please don’t.
Don’t make the same foolish mistakes that all the other teenagers make.
Instead, I’d recommend budgeting. It’s a great way to control your spending.
It’s essential that you try to create a plan for your spending and that you try to stick to it as much as you can.
Budgeting will be a foundation of your financial life, so get used to it now.
If you need help budgeting, I’d recommend you check out my 10 Budgeting Tips for Teens!
5. Track Expenses
Going along with budgeting, it’s also important that you track your expenses.
Not only will this help you in budgeting, but it will also help you get an idea of how much you’re spending on unnecessary expenses. Whenever you can, it’s always a good idea to cut back on your spending and try to save more.
I tracked all of my expenses over the last year and found some pretty interesting results.
I was proud to see that I saved and invested 55% of my income over the last year.
I was less happy to see that I spent 10% on technology and video games.
And to my surprise, I spent only 6% of my money on food.
Tracking your expenses shows you important data that you can use to help your financial situation.
6. Treat Saving Like an Expense
I don’t know if you’ve ever heard of this before, but this was a game-changer for me.
When you are planning out your budget, you need to treat saving like an expense.
Most people spend their money and then save what is left over. But what is usually leftover? $0. They are left with no money to save or invest. This is a huge mistake.
What you should do is pretend like saving is one of your fixed expenses.
Treat it like a tax. As soon as you get your paycheck, immediately put money in savings. Then, whatever you have left over is the money that you have to spend.
Use this method for saving for things like a car, college, and a house.
7. Start an Emergency Fund
Where should you save this money? Good question!
To start, you should set up an emergency fund. An emergency fund is money set aside for unpredicted expenses that could include car repairs, medical bills, etc.
Experts suggest having 3-6 months’ worth of income in your emergency fund.
So if you make $500/month, you should have $1500-3000 put away in savings specifically for emergencies.
You don’t have to stop at six months’ worth of income, though. You can continue to build your emergency fund to prepare for bigger emergencies.
I’d recommend putting this money into a high-interest savings account because those accounts can have interest rates of up to 2%.
Once you have established a good emergency fund, it’s time to start investing.
There are dozens of investments that you could make, and really, you should try to make as many as you can.
Investing experts always recommend a diversified portfolio. Why? Because when something bad happens to one of your investments, the other ones will still be there.
What should you invest in as a teenager? Well, lots of things. But I’d recommend investing in the stock market.
Why? Because retirement is 40-50 years away!
When you invest, you have to keep a long-term mindset. You should put your money into the market and then not worry about how your investments perform.
The stock market may have good and bad years, but the average return is 10%. That means that every year your money is in the stock market, it grows by 10%.
So, take some money and invest in a mutual fund when you are young, and continue to do this for years to come, and you’ll be retiring in no time.
9. Saving for College
Before you go too crazy with investing, you should remember to save for college.
If you decide to go to college, you should be prepared for the hefty price tag associated with a degree.
You should make it a priority throughout your teenage years to save for college. But, just in case you started a little late, here’s How To Save For College In 4 Years!
10. Picking the Right College
Now, I know that people have their dream schools that they want to go to, but I think it’s smart to think more about your financial situation when choosing a college.
If you have the money either from savings or scholarships to go to your dream school, then by all means, go!
But, otherwise, make the smart choice and go to a school that’s a bit more affordable.
At the end of the day, college is still college. It’s almost the same education, experience, and degree from any school.
In reality, a job is not going to reject you for spending two years at a community college before transferring to the state school.
Just, make the smart decision. That’s all I ask.
11. Applying for Scholarships
College may be expensive, but you don’t have to settle for these high prices. There are plenty of opportunities to apply for scholarships to help lower the cost of college.
There are thousands of scholarships out there. There’s no reason for you not to go to college for free.
But I get it. It’s hard work applying for scholarships when there’s often no reward for it.
Here’s how I think of it. If I apply for ten scholarships, it may take me 20 hours to fill out the applications and write the essays. But if I win one $1000 scholarship, it will be well worth my time.
Why? Because that is the equivalent of working at a rate of $50/hour. Last time I checked, there aren’t many jobs for teenagers that pay $50/hour.
So quit making excuses and start applying for scholarships.
12. Don’t Get in Debt
All of this stuff about college is really for one goal, avoiding debt. Debt will cripple your financial situation if you let it.
The funny thing about debt is that there is absolutely no need for it. With smart saving and decision making, you could avoid debt your entire life.
That starts at college with picking an affordable school and applying for as many scholarships as you can.
But, it continues long after that with car payments, credit card bills, etc. Be smart and avoid all of that!
13. Open a Retirement Account
It’s never too early to start planning for retirement. The key to all of this is to start young.
The earlier you start investing, the more money you will make. A few years can be a difference of millions of dollars.
A parent can open a retirement account for you so you can start before you are even 18! If you feel uncomfortable with your parents opening an account for you, you could start this when you are 18.
How does a retirement account work? There are different kinds of retirement accounts, but they all have the same idea.
Investors will take your retirement money and spread it across large mutual funds. Mutual funds are funds that divide your money across numerous stocks and give you the combined return.
So, when you save money in your retirement account, you are essentially investing in the stock market. The difference is, these investments are more conservative and less likely to have huge risks involved.
However, experts suggest that you start to pull out money from these accounts as you get closer to retirement.
14. Reduce Expenses
Now that you know the basics, you can see it all comes down to saving as much money as possible.
This means that the more money you save, the closer you are to achieving true financial independence.
In order to save more, you need to spend less. If you want to spend less money, take another look at your budget.
Look at what expenses you can reduce. Maybe you could move to a cheaper cell phone plan or spend less on eating out.
Pay attention to what expenses are necessary and which you can live without.
Cut back wherever you can, and you’ll be setting yourself up for a great financial future.
15. Start a Business
Another great way to improve your financial situation is to start a business.
Even if your income starts out small, any amount could make a major difference.
If you only make a couple hundred bucks a month from your business, you could choose to save or invest that money.
If you need help with business ideas, I have over 20 realistic business ideas on my blog with 8 Businesses That Make Money While You Sleep and 12 Business Ideas For Students With Low Investment!
16. Track Your Net Worth
A key element of this journey is tracking your progress. You do this by totaling your net worth.
Your net worth is your assets (things you own) – liabilities (things you owe).
Every couple of months, take a look at your finances and see if you have made any progress.
Hopefully, you will see that your debts are becoming smaller, and your assets are growing.
If this is the case, you are on the right track toward financial independence.
17. Educate and Invest in Yourself
Perhaps one of the best things you can do at a young age to achieve financial independence is to educate and invest in yourself.
What I mean by this is taking the time to learn more about personal finance and investing in tools that may help you achieve it.
Read personal finance books, blog posts, and watch videos.
Then purchase software, apps, and guides to implement what you’ve learned.
Most of these tools are well worth the price.
Keep educating and investing in yourself, and you’ll be hitting financial independence in no time.
The last thing I want to touch on in this post is FIRE. If you haven’t heard of FIRE, it stands for Financial Independence and Retire Early.
There’s a lot behind it, but the whole idea is to save as much as you can for a short period of time (about ten years) and then be able to retire after that.
Basically, you live off of the interest of your investments.
In order to achieve this, you have to make tough sacrifices for ten years, but then you are able to live a life of financial freedom after that.
Maybe it’s not for you, but at a young age, it’s definitely an idea to contemplate.
If you want to know more about FIRE, Millennial Money has some great resources to help you.
So, Will You Prepare For Financial Independence Now?
As I am sure you have noticed, the main theme with all of this is starting early.
If you start early, you get a jump on the rest of society.
You’ll have plenty of extra time to learn these strategies and implement them in your own life to achieve financial independence.
That’s it! I hope you enjoyed these 18 Steps Teens Can Take To Prepare For Financial Independence!
If you enjoyed this post, I’d highly encourage you to go check out my blog, where I post content just like this regularly.