Budgeting, Saving, and Building Your First Safety Net

Did you know that in a 2025 survey, more than half of high school juniors and seniors (54 %) said they feel completely unprepared to manage their financial futures. If you’re a teen staring at your first paycheck, it can feel tempting to blow it all on food and friends, but money choices you make now shape your adult life. This guide will help you master budgeting, saving, and emergency planning—three skills that will set you up for a financially successful future.

Budgeting & Cash Flow Management

Budgeting isn’t just for adults – it’s your financial baseline, without budgeting an excess of money will go to waste. Budgeting is a practice to help teens manage their money at a smaller scale before the complexities that come with being an adult. Proper budgeting allows for financial freedom, and can allow for the possibility of big purchases, or reaching financial goals.

Total Cash Flow = Cash Inflows - Cash Outflows

First and foremost, the most important part of budgeting is knowing your cash inflows and outflows.

Inflows can be anything from allowance, a job paycheck, or even a random $20 you find on the ground. One important thing to note is that the gross amount you agree on with the employer is not what you receive. The net pay you receive in your paycheck after taxes and deductibles like social security and Medicare is the amount you receive.

Outflows are any money coming out of your account that you use for purchases.

Track Your Spending

The first step to financial control is knowledge of where all the finances are. There are simple ways to track this like notes app or google sheets. These tools can be used to provide a simple visualization of what money comes in and comes out on a transaction basis. Conversely, there are more detailed, and yes, free apps like mint intuit that are much more advanced and track and visualize all assets, debts, investments, and categorized transactions. This is done automatically and is a hassle-free way to easily be able to track your income and spending. (see Figure 1)

Figure 1 (Source: https://mint.intuit.com/)

              There are many ways to break up your income into different means of spending. But no matter what method you use, you must balance your outflows with your inflows so you sustain financial stability.

50/30/20 Rule

One of the rules I prefer is the 50/30/20 RULE - it is one of the most reliable budgeting practices. First popularized by U.S. bankruptcy expert Senator Elizabeth Warren and her business executive daughter, Amelia Warren Tyagi, the 50/30/20 rule allocates a certain amount of each paycheck to the three major spending categories.

50% of your paycheck goes towards needs. This includes food, housing, transportation, and any other expenses vital to your survival. 30% of your income goes towards wants- anything that you personally buy that isn’t a necessity (jewelry, a nice car, or videogames). The last 20% of your income should go towards goals, also known as savings. That is primarily investing, but can also be things like an emergency fund, or a down payment on a house, it is money that is setting you up for your future.

The 50/30/20 strategy is a simple budgeting method that allows you to allocate your money in an effective way which helps keep you in a comfortable spot financially.

A simple formula to guide your spending:

• 50% Needs: food, transportation, essentials

• 30% Wants: fun purchases

• 20% Savings/Goals: emergency fund, future investments

  
  

 Example: If you earn $200 a month:

• $100 goes to needs

• $60 goes to wants

• $40 goes to savings

One major thing to avoid when working on budgeting is the effects of lifestyle creep. Lifestyle creep comes into play as your income starts to grow. As you start making more money, you will want to start buying more expensive items and live more lavishly, and people often suffer from the disillusion that if you make a lot of money, you can spend it on whatever you want. No matter how much money you make you need to always remember to be disciplined in allocating your money and stay humble within your purchases.

Savings & Emergency Funds: Pay Yourself First!

The best way to save? Pay yourself first. Move a portion of your income to savings right when you get paid.

Paying yourself first is the best saving strategy to make sure you always have money in your bank account. You put a certain amount of your paycheck in a savings or goals account as soon as you get the money instead of saving a leftover amount after other expenses. This will build consistent savings helping your money grow steadily and it will encourage financial discipline because your saving is unchanging and non-negotiable.

Long-term and Short-term Savings

There are two main types of saving:  long-term and short-term.

Short-term savings go toward your immediate financial goals, typically attainable within 1-3 years (e.g. saving for a new car or setting aside money for a holiday).  For short-term savings, liquidity is paramount. Liquidity is essentially how quickly and easily you can gain cash so it’s ideal to place your money in easy-to-access accounts (such as high-yield savings accounts) rather than more “fixed” (long-term) assets that are harder to “liquidize” (convert into cash). There are numerous benefits to saving for your short-term goals: it not only avoids debt but also builds discipline, reinforcing the idea of delayed gratification. If you have more exorbitant goals, then long-term savings may be more important.

Long-term savings are intended for financial goals that require more than three years of saving to achieve.  College funds, down payments on houses, and retirement funds (such as 401(k)s or Roth IRAs) are all very prevalent examples of long-term savings. These examples may seem foreign to you, but if you get a head start on learning the importance of long-term savings, the effects will cascade. By the time you start thinking of retirement funds or paying for a house, you’ll already have the discipline to put aside money and the knowledge of how to do so. Unlike short-term goals where you need high liquidity, when saving for long-term goals, you can instead make your money work for you. Growth comes from compound interest and investments, each of which takes a decent amount of time to have a significant impact. Long-term savings are necessary to live a financially stable life and require a lot of patience. Additionally, it may require you to accept higher risk (such as investing in stocks or mutual funds to grow your money).

Emergency Funds: Your Safety Net

Life is full of surprise expenses:

·       Cracked phone screen = $150

·       Car repair = $400

·       Last-minute road trip = $200

Of course, along with your short-term and long-term savings, it’s extremely important to have an emergency fund as well. Life throws curveballs at you: car repairs and medical bills, just to name a few. If you are unable to afford these unexpected expenses, then not only will you struggle to pay (often having to resort to loans and constantly falling in debt), but also, you’ll fail to have peace of mind. Having this “safety net” for these unanticipated events is called having an “emergency fund.”

Emergency funds don’t need to be thousands of dollars; but it’s important to just get started. After all, some money kept away is better than no money. You can start small, with simply $400. Over time, building up this fund to around 3-6 months of living expenses will give you this sense of security, reducing your stress and improving your financial stability.

If saving money was easy, then everyone would do it. The fact of the matter is that saving is hard. Nearly half of Americans cannot come up with $400 to cover an emergency. Saving requires strong discipline and knowledge of delayed gratification. To facilitate savings, a simple strategy you can use is automatic transfers into a savings account (“out of sight, out of mind”; see figure 2 for more money-saving tips). Saving money will lead you one step closer to financial independence, will open opportunities (such as traveling or starting a business), and reduce stress and anxiety. Paying yourself first is simple, but remarkably powerful. (See Figure 2)

Figure 2 (Source: https://newsroom.becu.org/the-next-big-talk)

By setting up a budget, saving early, and building an emergency fund, you’ll be in control of your money instead of letting money control you. It’s not about being rich today—it’s about giving your future self the freedom to say “yes” to bigger opportunities.