From Broke To Millionaire: 7 Money Steps For Teenagers

If you’re a teenager, you are in a very powerful position. 

Starting good money habits now will put you ahead for the rest of your life. 

Whether it be saving for life goals or big purchases, it is a great way to understand the value of money. 

Not to mention, these habits might stick with you for the rest of your life. 

It will become much harder to learn when you are older with multiple financial obligations. 

If you haven't already started to work on your savings, it's never too late to get going, whether you're 14, 25, or somewhere in between. 

Here are the steps to get started, and how you can replicate these exact steps in your life.

Step Number #1

Now the first step is to decide for yourself how much of your income you’re going to put away. 

If you’re new to this, you might be asking yourself how much should you save or invest, or if you even have enough money for that. 

The truth is: 

you don’t have to wait until you have hundreds of thousands of dollars in the bank to start. 

You just start, even if you are getting, you know, 50 dollars a week of pocket money or maybe you have a side gig or part-time job that pays you. 

Whatever the figure is, you need to decide how much of it you are going to put away. 

Right now, you might be making 50 dollars a week, and if you decide to put away 10 dollars a week, that’s not really going to be noticeable. 

And you’re right, but a few years down the line, you could be making 2,000 dollars a week and when that happens, the habit that you have been nurturing for countless years of putting away, say 20% of your income will pay off. 

So while you were putting away 10 dollars a week to invest in your teens, you can be putting away 400 dollars a week, which is a lot of money to set aside for investing. 

To help make things easier, many of the experts suggested, as a general rule, to invest a set percentage of your after-tax income. 

Although that percentage can vary depending on your income, savings, and debts. 

Ideally, you’ll invest somewhere between 15 and 25% of your post-tax income. 

Think of it not so much in terms of the amount of money but in terms of the percentage of everything that you receive and how much you're going to invest. 

Keep in mind this amount might be very small when you’re not making a lot of money, but even if it's just 10 or 20 dollars, that's okay, remember we’re just getting started.

Step Number #2

Now the second step is to stop yourself from spending the money in your savings account. 

This is more so for teenagers that are starting out, as they might not be familiar with the whole process of putting money away for future use. 

Have you ever diligently set aside money in a savings account for a few months only to take it out when an unexpected expense came up? 

I’ve done it more times than I can care to admit. But I don’t have trouble depositing money into savings, I have trouble keeping it there! 

When I first started an emergency fund, it quickly became my everything-fund, because I never defined why an emergency fund mattered to me. 

Now a few quick tips for this, know why you are saving that money. Not having a clearly defined reason or goal is a huge mistake. 

In the past, the best answer I could have given you for my emergency fund was:

It’s what you’re supposed to do when you’re an adult

Which is technically true, but it’s horribly unconvincing. 

Another tip would be to make it hard to access, now you could open another bank account, and I mean with a different bank, and keep your money there. 

Out of sight, out of mind. 

So this would drastically reduce the chances of you accidentally dipping into your savings if you’d kept your spending money and saving money in the same account. 

If you are still a teenager and don’t have access to a bank, then what you can do is you can tell your parents that you are serious about investing and give them your money to safekeep and make sure you don’t take it out for stupid stuff. 

Even though it is a small amount today, in your early 20s, it can become a huge sum of money. 

So this way, you can train yourself and get used to it, because you know, things come up. 

Maybe you want that brand new gaming console, or you might be tempted to go to your favourite singer’s concert. 

The good news is you won’t have to do this forever, I definitely don’t give away my money to someone to safeguard because I am worried that I will spend it all. 

This is mainly just for those early years until you are able to do it yourself.

Step Number #3

Now the third step for teenagers is to get a credit card as soon as you are able to and just spend a little bit on it every single month. 

If you don’t have a credit card yet, you might not know that it actually has a lot of benefits. 

Some people even see credit cards as a risk. 

However, contrary to popular belief, if you can use the plastic responsibly, you're actually much better off paying with a credit card than with a debit card and keeping cash transactions to a minimum. 

Using a credit card comes with a myriad of benefits like improving your credit score, cashback and rewards, and also safety compared to debit cards. 

First, let’s talk about your credit score and why it’s important. 

A credit score is a number that shows how effectively you repay loans. Banks assess your credit score before issuing a loan. 

And if you plan to buy a house or a new car at some point and you’re going to take a loan, your loan’s approval will depend on how good your credit score is. 

But how does using a credit card, which is an added financial commitment, improve your credit score? 

It all comes down to how quickly you repay your credit card debt. 

So, if you have a credit card and you diligently settle its amount on time, this will reduce your debt which in turn will increase your credit score. 

And understandably, being late with payments will only have a negative impact on your credit score. So to avoid this, make sure you don’t overspend and be mindful of your repayment dates. 

Besides, credit cards offer additional benefits for their customers. 

Several discount deals, cashback, and reward points are provided on payments that aren’t available in other financial instruments. 

Some credit cards also offer numerous privileges such as complimentary lounge access at domestic and international airports, complimentary insurance, frequent-flyer miles programs, access to golf courses globally, and birthday benefits. 

But if you don’t care about the sunshine and rainbows, credit cards also provide higher safety compared to using debit cards or cash. 

Paying with a credit card makes it easier to avoid losses from fraud. 

When your debit card is used by a thief, the money is missing from your account instantly. 

And it can take time for fraudulent transactions to be reversed and for the money to be restored to your account while the bank investigates. 

In contrast, when your credit card is used fraudulently, you just need to notify your credit card company of the fraud and don't pay for the transactions you don't make while the credit card company resolves the matter.

Step Number #4

Now the fourth step is to live below your means. 

Living below your means isn’t always easy, but it’s essential for financial security. If you’re regularly dipping into your savings or overdraft, you are living above your means. 

The only way to combat this is to do the complete opposite and live below your means. To make this work, you must spend less to have money left over each month. 

Living below your means requires dedication and discipline, and you’ll have to leave your habit of impulse buying at the door. 

It can be tough to admit that you don’t have the budget to live in a certain way. But accepting your situation and taking control of it is the first step to financial freedom. 

The first step in this requires you to build self-discipline with spending. To be disciplined with money, you must be organised with your earnings, spending, and investing. 

A budget is just a way to track how much money is coming in and how much money is going out each week or month. The budget can be done by hand or on your computer. 

The idea is to watch exactly how much is coming in, in the form of income and how much is going out in the form of expenses. 

Another way of helping you to live below your means would be to improve your money mindset. 

Attaining the right mindset to build wealth means working on the way you think, working on discipline, getting uncomfortable, and doing what it really takes to get to your end goal. 

Improving your mindset is not a one off thing. 

Just like the muscles in your body, you have to work to maintain it continuously otherwise it will begin to deteriorate. 

Getting wealthy actually starts way before you open that investment account or make that first deposit into your savings account. 

It starts with a simple decision, which in itself is a very profound one. 

It's deciding that you are going to be wealthy and that in turn means deciding to commit to the journey and trust the process. 

Deciding you are going to be wealthy with full conviction is an incredible boost to your mindset. 

And that’s because with this decision, you are telling yourself you can do it. 

Unless you believe you can be wealthy, you probably won't be inclined to do what it actually takes to build wealth.

Step Number #5

Once you’ve decided that you are going to be wealthy with the mindset of committing fully to it, the next course of action is to actually open an investment account to start putting money into it. 

This is important as the earlier you start your investment journey, the more time you will have for the money to compound. 

You can start by opening your own brokerage account, now if you are below the age of 18, no worries as there is a workaround for this. 

The most effective way would be to ask your parents to open a custodial account with you. 

With this type of account, an adult custodian opens an account and can save and invest money on behalf of the child. 

Then, when the child reaches adulthood—either 18 or 21, depending on the state—they'll take full control of the account. 

Keep in mind that the assets in this custodial account legally belong to the beneficiary of the account which is the child, the parents are acting as a placeholder until the child reaches the age of adulthood. 

If you are a teenager already of legal age, then great! All you have to do is to open an investment account and start. 

But before you start, you need to commit to finding more education about money and investing. A thirst for knowledge is critical if you want success. 

Learn how to research stocks, how to read balance sheets, how to avoid value traps. 

On top of that, learn about as many investing strategies as you can. Don’t stop at the first one you learned. 

Learn about value investing, growth investing, momentum investing, trend following, index investing, and asset allocation. 

Figure out what makes the most sense to you, and apply that to your strategies. Don’t just blindly follow what anyone says, including me.

Step Number #6

And this leads us to step number six which is to increase the percentage of income that you invest. 

There comes a time when you get a raise and start to earn more income, you will need to increase your savings rate as well. 

This is important to prevent lifestyle creep which can easily upset all the progress that you’ve made bit by bit. 

Lifestyle creep occurs when your standard of living improves due to higher discretionary income and former luxuries become new necessities. 

It has the potential to derail retirement plans and debt reduction, as frugality is replaced by spendthriftness. 

Lifestyle creep can start small—ordering a more expensive bottle of wine at dinner, or buying a bag or electronic item you don’t really need—but can quickly extend to more extravagant habits. 

Easily accessible credit and the use of credit cards, which enable bigger purchases, may contribute to lifestyle creep. 

This ties closely to the last step where you have to be able to achieve the financial freedom we have all been dreaming of. 

The final destination, the end goal that everyone wants to achieve! 

You wouldn’t want to get stuck being a HENRY, otherwise known as high earners, not rich yet. 

This refers to people who have significant discretionary income, but all or most of it goes towards expenses and liabilities which means they are left with close to nothing at the end of the month.

Step Number #7

Now the final step is where you would be able to achieve the truest sense of financial freedom, where you live off of your portfolio yields. 

If you invest your money in income-producing investment vehicles, you can create an income for yourself that will allow you to live without working. 

The trick is to have enough time to avoid having to withdraw any principal for living expenses. 

If you achieve this, you can count on your portfolio to maintain its value and possibly even grow through the years. 

To do this, you would need to plan ahead for a few things, which includes knowing your living expenses, calculating how big a portfolio size you need based on your living expenses, and planning your withdrawals while factoring in your portfolio growth, inflation which increases your living expenses, and also taxes depending on your location when you withdraw from your portfolio. 

So this is it. 

This is the end goal. 

This is how you do it, how you free yourself and your family. 

So I hope you realise how significant these steps are, and enjoy it as much as I did. 

Now if you did, please do share it with your family and friends!

- Ivan