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How to Help Your Child Set Up a Successful Budget

As we mentioned in the “Teaching to Save…and Spend” article, it’s important to set goals. Before you sit down to help your child plan a budget, think about the goals you want to help them achieve. Whether it be a short-term goal like saving for a new toy, or a long-term goal such as saving for their first car, it’s important that you point them in the right direction.

Now that you've taught them the three ways to allocate their money and you have established a source of income, it’s time to budget. First, divide a paper into three parts – save, spend, donate. Divide the savings column into two sections – short-term goals and long-term goals. You will also want to divide the spend column into two sections – expenses (lunch money, bus fare, school supplies) and fun (movie, toys, video games).

Work together to decide what portion of their income is going to go to each column. As a general guideline, start with 40% in expenses, 20% in fun, 10% in donate, 20% in long-term savings and 10% in short-term savings. Adjust these percentages as needed, based on the goals you have worked with your child to establish.

After you've decided on the appropriate allocations, help them calculate the dollar value for each portion in regards to their income. This will tell them exactly how much they should have at the end of the week (or month, depending on how you record their income). Once you calculate the actual dollar amounts, you can further adjust these numbers based on their age and goals. Remember that the overarching goal of a budget is to help build long-term savings, so remind your child that this portion should be viewed as the "untouchable" part of the budget.

What if the budget isn’t working? Remember that as a parent you should have two goals yourself; helping your child reach his or her long term goals, and teaching your child how to use and save money. If they’re reaching into the piggy bank too much and it’s hurting their long term goals, consider having them put that portion of the money into a place harder to access on a daily basis, such as their savings account.

Then stand back and prepare to let them make some mistakes with the other money. Review their goals and budget with them often, as this will give you an opportunity to discuss what is and what isn’t working. You can discuss how impulse buys hurt other goals they may have had and do practice runs of what they might try differently next time.

Don't get discouraged if your child has a hard time keeping to the budget – there are many influences in the world they’re up against! But with consistency and your coaching, they’ll start learning how to think critically about how the use and save their money - lessons they’ll keep with them for the rest of their lives.