Think of a budget as a financial road map. There are three essential steps to a successful budget:

1. Planning
2. Creating
3. Tracking

Planning

The planning process involves identifying your income and figuring out spending priorities and trade-offs (such as allowance, jobs and gifts).

An important exercise is to list essential expenses—these are considered needs. For a teen, these might include lunch or snacks, transportation, school supplies and a cell phone. If your teen is older and plans to move out of the house or start college, you'll want to expand this list to include housing, utilities and other expenses that may be incurred when living independently. For more information, see Leaving the Nest.

After you determine the essentials, it's time to think about goals. Younger kids might have goals like saving for a video game console, snowboard, even a car. Older teens may want to save for a computer, college expenses or a special trip. People who write down their goals are much more likely to reach them—so be sure to share this insight.

Once you have the answers, you're ready to create a budget.

Creating

With our Monthly Budget Planner, you can put your priorities into action. You and your teen will see firsthand how allocating expenses can offer some great lessons in making trade-offs. As you make spending decisions, be sure to point out the difference between "needs" and "wants."  This can vary from family to family. For example, while some families view a cell phone as an essential tool for keeping in touch, others might see it as a luxury.

Discuss spending habits and decisions with your teen. Your goal is to clarify where the money is going (fast food? video games? music downloads? school supplies?). If your child is having trouble tracking his money, encourage him to use our Spending Tracker to record spending on a daily basis.

Tracking

Once the budget is complete, it should be monitored regularly. Is spending on track with projections? Do daily spending habits need to be changed? Encourage your child to make amendments along the way, such as adding income, recording purchases, even changing goals. Keeping the budget up-to-date and sticking to it are often the hardest parts—but they're also key to its success.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of savings and investment strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction or strategy for his or her own particular situation. The examples mentioned are for informational purposes only and are not intended to represent results you should expect in the future. Data contained here is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.