How much money should I save as a teenager? Unfortunately, this question is asked by very few teenagers.
When’s the next party? Do you know if she likes me? Where are you going to college?
Yup, that’s more like it.
How many teenagers do you know that actually wonder “how much money should I be saving during my teenage years?”
Even better, how many teenagers do you know that are actually saving money!
While there may be some, they are few and far between.
In short, a teenager should try and save $2000 a year from ages 15-20. Having $10,000 set aside at age 20 is a great foundation for any teenager to start their next phase of life with.
Obviously, this depends dramatically on your situation and financial goals, which we will get into shortly, but as a general rule of thumb, having $10,000 set aside by the time you turn 20 is very advisable.
I am assuming you googled this question either because you are a:
- teenager with a little extra money and you’re wondering how of it you should save.
- parent of a teenager who is looking to advise your child on saving money.
If either of these persona’s match your criteria, this article is for you!
Related Financial Geek Article: How to Save Money for Travel as a Teenager
Reasons to Save Money as a Teenager
While it is always a good idea to save money, the reason people save is always dependent on their current stage of life.
My 90 year old grandmother is not saving money for college right now, I can assure you of that.
Some reasons why teenagers should save money include things like college, retirement and for an emergency fund.
If you are fortunate enough to have your parents pay for all, or even part of your college tuition, take advantage of that opportunity and make sure to thank them.
For most teens though, this isn’t reality, and while $10,000 won’t pay for your entire degree (most likely), it is a hell of start and it is $10,000 less you’ll have to pay back once your graduate, and trust me you’ll need that money more at 25 than you do at 19.
I know what you are thinking, “I am 15 years old! Why would I start thinking about retirement now?”
And you know what, that is actually a valid point.
99.9% of teens won’t put money aside for retirement, as even I admit, it might be a little early.
But just hear me out for a second. Let’s look at a quick example.
If you save $2,000 from ages 15-20, you will have $10,000 saved by the time you are 20.
If you invest that $10,000 into a retirement fund at age 20 and don’t touch it until you are 65, assuming an average return of 10%, you will have $441,770 by the time you are 65.
In other words, you will make $431,770 off a $10,000 investment! That is astronomical!
Check the number for yourself! I am not lying!
Despite what my friends say, I am actually an honest guy!
That is compound interest for you though, the more time you allow your money to compound and work for you, the larger you return will be.
Some guy named Albert Einstein stated that compound interest was the 8th wonder of the world. Must have been a smart lad!
Related Financial Geek Article: Retire Early as a Canadian | 15 Tips and Tricks
3. Emergency Fund
In my article about emergency funds, I state that you should save 3-6 month worth of expenses set aside in case of emergency.
Let’s be honest though, for most teenagers, monthly expenses are extremely low and might only include small subscription fees like a Netflix account or a Spotify subscription.
For some lucky teens, it can even be $0, which, don’t get me wrong, is great.
So you might be wondering, why would I need an emergency fund if I barely have any expenses? I can create a 3-6 month emergency fund with 100 bucks!
For one, lucky you.
But as your age increases, so do your expenses, and soon your $100 emergency fund will need to be $5,000 or $10,000.
So it’s a great idea to start early and save for an emergency fund while your living expenses, such as food and rent, are likely very low, if not non-existent.
Take advantage of being a teenager! Setting up a $5,000-$10,000 emergency fund as a teenager won’t be too difficult.
Furthermore, when your expenses do start to creep up, you can begin investing and paying off any debt earlier as your emergency fund will already be set in place.
What to Spend Money on as a Teenager
Okay, so you now have a rough estimate on how much you should save as a teenager.
But chances are, as long as you are working somewhat consistently in your teenage years (15-20), your overall income will surpass $10,000 and you will have money left over to spend on things you want.
There are a million and one things most teenagers want, but unless they come from an extremely wealthy family or they’ve somehow managed to win the lottery underage, their financial resources will be limited.
I will say it again, your wants are unlimited but your money is limited.
This is a tricky situation, but one that can be figured out!
The question you have to ask yourself is, how can I efficiently spend my money.
In other words, how can I maximize my happiness with the money I have. For a deeper dive into this concept, check out my article 11 Quick Tips For Spending Your Money More Wisely
Don’t spend money on things that don’t add value to your life! Spend money on things that fulfill your life and make you happy.
A great quote I read about this topic was in David Chilton’s book The Wealthy Barber.
It read- The best things in life aren’t things.
While you might be too young to hit up the Las Vegas strip at the ripe age of 16, think about what types of things you love to do and spend your money on that.
Do you love going to live sporting events?
Some of the best money I have ever spent was on Toronto Raptors tickets. While spending $200 on nose bleed seats might not be everyone’s cup of tea, for me it was incredible and it is something I always have to cherish and remember.
Maybe for you it’s going to a broadway show, I don’t know! How am I suppose to know what teenagers fancy these days!
But as they say, different strokes for different folks. Just make sure it’s making you happy…and it’s legal!
It goes without saying, experiencing moments with people you enjoy spending time with makes those moments even better, so keep that in mind as well.
Lastly, unlike buying things, where the marginal utility (happiness units) of owning that thing goes down as time goes on, experiences tend to get better!
Good memories can create happiness in your life forever, whereas things will only make you happy at the start, but fade as time goes on, we all know that.
Not only do you have the nostalgia effect working its magic, but as time passes, memory fades and you can usually add some pretty hilarious moments that didn’t even happen!
2. Personal Development
Some things you can buy for personal development in your teenage years include:
- Books – Personal Finance Book.
- Classes – Cooking Class.
- Premium Apps – Meditation Apps.
- Work Out Equipment – Dumbbells.
These are just a few examples but you get the point.
Investing your hard earned money on personal development is a great idea.
Think of any money spent on personal development as an investment and not an expense.
Not only are you investing in your future self and your future earning potential, but developing as a person feels good from an intrinsic perspective and will help build your self confidence.
You are a teenager, have some fun with the money you’ve earned!
While saving money in your teenage years for things like college and retirement is a great idea, it’s not the most exciting thing in the world for a teenager.
And while experiences like sporting events, musicals or maybe even a trip are more exciting than saving your money, they still require some form of short terms savings plan which can sometimes be a pain!
As a teenager, you want to have some day to day spending money for things you enjoy doing that still cost some money.
For example, you might want to buy a case of….apple juice for the high school party this coming weekend.
Who doesn’t love apple juice pong??
Or maybe you want to take someone out on a date and you need $60 for a nice meal. Or even it’s just a few dollars for a coffee date.
Whatever it is, having a little bit of money to spend on typical teenage things is totally okay and even encouraged.
Don’t deprive yourself of your teenage years because you are focused on saving for retirement or college.
Spend some money on random things that give you value in the moment.
Don’t obsess over your money during your teenage years. There is plenty of time for that.
Let’s be honest, most teenagers aren’t worried about saving money.
Money in, equals money out. That’s how it usually works.
And the reality of the situation is, how much money you save in your teenage years won’t make or break you.
However, if you are reading this article, you probably aren’t like most teenagers and you want to get a head of the game.
Bravo, you are wise among your years and you will thank yourself later.
Just remember, once you have saved roughly $2000 for the year, enjoy the money that you’ve earned! Life is too short not to!
Whether it’s on experiences, personal development or just day to day spending, make sure you spend your money wisely!
Spend it on “things” that will improve your happiness. Maximize those happiness units with each dollar you spend.
By saving and spending your money wisely during your teenage years, you can set yourself up nicely for a life of financial success and happiness!