As a high school student, you undoubtedly have a bright future ahead of you, and you can make that future even brighter by learning some simple principles of personal finance.
The key to understanding finance is to develop a long-term view of what you want to accomplish in life. Once you have a clear vision of what finance can do for your life, and your future, it becomes clear what you need to do now.
An excellent way to begin planning for your financial future is to think of the life you would like to have 5, 10, or 20 years down the road. Would you own a house? A car? Imagine the life that you would like to live, and this is the basis for how you will develop your financial plan.
WORKING BACKWARDS FROM THE OUTCOME – CREDIT
If you want to own a beautiful house and car, these things will likely require good credit. Good creditworthiness is a combination of low debt, high income, and a strong history of repayment.
You can begin developing a credit history by taking on small bills like a phone bill once you turn 18 and paying your monthly bills promptly. Doing so establishes a strong track record that will come in handy when it is time to buy a house. As you progress through your twenties, you will be able to use your track record of small payments to buy things like a house or get a credit card.
Once you acquire a credit card or any payments, ensure that you consistently pay these off on time, every time. Doing so will further begin to build up your creditworthiness and enable you to slowly build the life of your dreams.
Ensure however that you only use debt or credit whenever you have the money to pay off the credit that month. Doing so will enable you to build up a financial credit history without paying any interest. If you should neglect to pay off the credit in that month, you will start paying large amounts of credit card interest which are very bad for your finances.
GOING FROM YOUR DREAM LIFE TO REALITY
You should also consider what kind of financial shape you want to be in when you are 25, 30, 40 and so on. Think regarding things that you value.
Would you like to be financially independent? Would you like to have a large financial cushion with lots of savings or even be financially independent? If so then you can begin today by building habits that will bring you success throughout your entire life.
A simple principle of saving is to decide to save a certain percentage of your income regardless of circumstances. This principle is known as the idea of “paying yourself first.” What this means is before you pay any bills or spend money on fun things, you first put a percentage of the money aside for your savings.
You can even open up a stock market account with your parents if you are under 18 or by yourself if you are over 18. Once you open an account, you can begin investing your savings into low risk, reliable investments that will support you throughout your life.
A great choice is a low-risk index fund based on the S&P 500 at least this is the advice Warren Buffet, the world’s greatest investor, gave to high school students. By putting aside a percentage of your income every month and investing it, you will be building the same habit Warren Buffet started building at 12 that caused him to become one of the richest men in the world.
BUILDING A HABIT OF BUYING VALUE
One of the greatest habits you can learn as a high school student is how to buy things based off of value rather than off of the price. These little habits have a huge effect on the rest of your life. Value means buying things that are a great deal and are high quality.
When you buy clothes or anything really, try to pick clothes that are very high quality and are a good price. The reason this habit is so valuable is that it compounds. Overtime you keep acquiring high-quality items that you do not need to replace at a good price.
Example: Let’s say instead of the expensive sports car you pick a car you can afford that has great gas mileage and low maintenance. At first, this doesn’t seem like a big deal. However, it has a huge effect on your finances as a young person. Let’s look at how that works:
Let’s say you get 20 mpg instead of 10. That means you are paying 1/2 the price of gas you would have paid because you use half as much gas to go the same distance.
Let’s say the maintenance costs on the sports car are $2000 per year and on the value car it’s $200. That means over three years you will have saved $5400 on maintenance alone.
Your insurance costs are much lower on the value car than on the sports car because your insurance risk is lower, so every month you are getting an insurance discount as well
When you start adding up all of this, it gets into the tens of thousands over a few years, not to mention the higher cost of buying the sports car in the first place. This is just based on ONE purchase to buy based off of value, imagine how much money you save after 100 value purchases and you can easily see how this habit is essential to your future.
LEARNING TO BE FINANCIALLY SAVVY AND BUILDING A BUDGET
Being able to create a budget for yourself will make your life infinitely easier in your early twenties as you make your way through college and start out on your own. Budgeting is really about planning how you will spend your money before you actually spend it. Consider separating your monthly paycheck into separate buckets for different categories.
You might have a category for fun, and another for rent or food. Doing so enables you to experience much less stress, and even more important it reduces overspending so you can consistently save money.
A habit of saving can make you a millionaire even if you only earn a small income because of the effect of compounding. Likewise, a high salary with poor budgeting habits can leave you bankrupt, if you don’t believe this, consider Michael Jackson who had to declare bankruptcy with $400,000,000 in income over his lifetime.
It is never about how much money you make; it is about what you do with the money you make.
LEARNING TO BE FINANCIALLY SMART
One of the greatest keys you can use to unlock the prosperity of your financial future is to continuously learn. Some great books to help you get started is to read The Intelligent Investor, which will teach you the fundamentals of investment or the Millionaire Next Door, which gives you an insight into how Millionaires manage their money.
Temperament is also critical, learning to become a patient and calm person while everyone else is panicking is perhaps the greatest skill an investor can have. You can build this ability through mindfulness meditation and by learning stoicism, Warren Buffet credits his temperament as his greatest asset.
Try taking free online courses on personal finance and accounting to help build your abilities. Edx.org and Coursera.org offer free college courses you can take online to help you understand the language of finance.
Okay, now you have some great principles to begin working towards your financial future. To begin, try writing down what you would like your future to look like and begin thinking about the financial goals you would have to achieve in order to make that dream a reality.
From there, work backward to what you can do now to build the habits that will carry you towards your dreams. Remember that while you may only be able to save a small amount of money now, it is the habits that really count. Focusing on building these habits now will enable you to successfully execute your financial dreams when you are earning six figures.
If you don’t believe me, believe Warren Buffet, one of the richest self-made billionaires in the world, who began these habits in elementary school and said that building good habits was the most important thing a young person could do for their financial future.