The Modern Rules of Saving Money – A Complete 2022 Guide

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Saving money simply means setting money aside to spend in the future. There is not right way to do it and no amount is too small to save. Some people consider saving money to be putting spare change into a jar/container at the end of each day, while others transfer a certain amount from each paycheck/salary in a savings account.

It is important for teens to understand that the amount they save is not nearly as important as the habit of saving on a regular basis. Small amounts saved consistently over time can grow into
significant savings.

Why Save?

The need for instant gratification—wanting something NOW—is a part of human nature. It is this trait that may pose a problem to teens trying to save money. They may think, “Why set money aside instead of enjoying life and spending it now?” or “Why wait to buy it if I can get it with credit now?”

The following are some of the important reasons saving money could be a priority for teens:

  • To have an emergency fund to cover day-to-day expenses (in case of a job loss, etc.)
  • To pay for unexpected expenses (a car repair, auto accident, broken MP3 player, large cell phone bill, etc.)
  • To help achieve financial goals (e.g., buying a car, home, computer, vacation, etc.)
  • To pay for college
  • To take advantage of unexpected opportunities (e.g., a trip, hard to get tickets to a concert or sporting event, a great sale, etc.)
  • To avoid credit card debt
  • To cover extra expenses for special occasions (prom, birthdays, holidays, etc.)
  • To prepare for retirement (The sooner you start the less you have to save.)
  • To provide peace of mind and a sense of financial security

When Should You Save?

It is never too early or too late to start saving. People of all ages can benefit from saving. However, the younger teens are when they start saving, the less likely they will develop financial problems. Starting younger will also give them the advantage of time – time for their savings to add up bit by bit.

By putting savings in a bank or investing it, teens can let their money work for them. This is known as the power of compounding.

Compound Interest

Interest is money a financial institution pays a person for the use of their money. One method of calculating interest is called “Compound interest“. This method allows for earning interest on the interest as well as the principal. Over time, the money will grow depending on the amount saved and the rate of interest paid.

This growth is referred to as the “time value of money”. As an example, an individual who begins saving at age 22 and puts $2,000 per year into an investment earning 9% interest for nine years will have $579,471 at age 65, based only on their $18,000 investment.

An individual who waits until age 31 to begin saving $2,000 per year will only have $470,249 at age 65, even though they invested $70,000 – almost four times as much as the younger investor.

The Time Value of Money at 9% Interest

Age start – 22
Age quit – 30
Age Start – 31
Age quit – 65
Amount invested each year $2,000 $2,000
Total invested $18,000 $70,000
Value of investment at age 65 $579,471 $470,249

How To Save

For young people who have few expenses, the process of saving is fairly simple. They only have to decide whether they are going to spend their money or save it. It is simply a matter of committing to save. For others who have more financial responsibilities, saving may require more planning.

In addition to a commitment to save, they need to come up with a plan that allows them to both save money and cover their expenses. Two tools that are helpful in creating this plan are goals and a budget.


A goal is something to work toward. Simply knowing progress is being made toward achieving a goal can motivate teens to stick with it – despite the effort and sacrifice along the way.

That is why setting financial goals is an important part of the savings process. Teens who know exactly what they want to accomplish with their money have a far better chance of making it a reality.

The length of time it will take to accomplish a goal can vary. Goals can be:

  • Short-Term: accomplished in one month to one year
  • Medium-Term: accomplished in one to five years
  • Long-Term: accomplished in five years or more

It is important for teens to carefully think a goal through for it to be useful. A well thought out savings goal will specifically answer:

  • what they are saving for, including the cost and as many details as possible (e.g., I will buy a black iPod for $275 plus tax);
  • when they need the money, using specific dates (e.g., six months from now);
  • where they will find the money to save (e.g., by saving $40 of my lawn mowing money each month); and
  • why the goal is important to them (e.g., because I will be able to enjoy my music wherever I go).

A goal will also need to be realistic to achieve. Goals that are set too high will simply set teens up for failure and may discourage them from pursuing their goals further. (e.g., If they only make $50 a month from mowing lawns, and have $25 worth of expenses, setting aside $40 is not realistic. A more realistic goal is to save $25 each month for a longer period of time.)

Since teens will likely have several financial goals and limited money, it would be helpful to prioritize their goals to determine which one they want to achieve first.

It is a good idea to rank goals that meet needs first (essentials), and then pursue wants (extras that improve the quality of life). It’s easy to get into financial trouble when the focus is on having extras (e.g., designer clothes, fancy cars, etc.) instead of taking care of the basics (e.g., a decent pair of shoes to wear, basic transportation).

Teens can discover that long-term financial goals that may seem impossible to reach, can be achieved with discipline, patience, and commitment.

However, it is necessary to be flexible in the event that they find their goal is unrealistic or circumstances change which prevent them from sticking with their original goal. Instead of doing away with their goal entirely, help them learn how to make adjustments so that they can continue to work toward it.


While goals provide motivation to save and a target to shoot for, a budget is a plan for spending and saving that will help teens get there. Budgets are important for all stages of life and all income levels.

Whether teens make minimum wage now or $100,000 in the future, a budget will help them set spending limits and ensure that they don’t run out of money. Most people don’t use a budget, which contributes to the average national savings rate being so low and the average credit card debt being so high.

A budget will put teens in control of their money by helping them account for their income and expenses and then balance the two. A budget can also have a built-in savings plan that can prevent teens from acquiring debt (or help pull them out from existing debt) and help them reach their goals.

The best way to build a savings plan into a budget is to PAY YOURSELF FIRST (PYF)! The first expense everyone should put on their budget is the amount they plan to save each time they receive money. Setting aside money at the beginning of the budget period ensures there is money to save. Otherwise, the money may run out or be spent on something else.

To create a basic budget, teens must:

  1. Determine the time frame that the budget is set up for (e.g., weekly, monthly, etc.).
  2. List all forms of income – all money coming in after tax.
  3. Add up total income.
  4. Determine expenses – all money going out – including:
    1. fixed expenses – those which require approximately the same amount of money each month (e.g., PYF savings, rent, car payment).
    2. variable expenses – those that change from one budget period to the next (e.g., food, gas, clothes, cell phone bill).
    3. occasional expenses – those that occur infrequently (e.g., holidays, vacations, special events, major car repairs).
      To be sure expenses are realistic, it is helpful to track spending. Encourage teens to track their expenses for at least a week. If they pay monthly bills such as a car payment, insurance, rent, cell phone bill, etc., tracking expenses for a month would give them a complete picture of their spending. Suggest options for finding a system to record daily expenses to gain an accurate picture of actual spending.
  5. Add up total expenses.
  6. Determine if the income covers all current expenses by subtracting total expenses from total income.
  7. Adjust expenses so that income and expenses are equal.
  8. Continue tracking and comparing spending to the budget.
  9. Revise budget so that it is realistic and works.

Changes in income (e.g., a raise or change in the amount of hours worked), expenses (e.g., a new car payment, or a new cell phone plan), and circumstances (e.g., moving out on their own or starting college) will require teens to continually revisit their budget to determine if it is still realistic, effective, and helping them reach their goals.

If it is not, help them learn how they can make changes that will make the budget useful. Help teens understand that having a budget is useful only if they stick to it.

Stretching Your Dollars

Teens who never have enough money to cover their expenses or who are barely squeaking by on the money they have may wonder where their “Pay Yourself First” money will come from. As shown on pages 2–7 of the Savings Made Simple teen guide, there are many easy ways to save.

By taking lunch to school instead of buying it, or curbing a habit of downloading the latest song, money can really add up. Teens may find that their satisfaction from having money in the bank or achieving their goals will outweigh the things they had to do without.

Where Should You Put Savings?

Encourage teens to think about where they are going to put the money they save. Financial institutions have several savings account options. Reasons for using a financial institution to save money include: to ensure that money is secure, to remove the temptation of spending it, and to earn interest on the money.

Beware of Credit

Anyone, including teens, can give into the temptation to use credit cards as a substitute for saving money. Making a few bad choices when using credit cards can wipe out savings, sabotage a budget, hinder the chance of achieving financial goals, and build debt. Credit cards are best used for purchases within the budget that can be paid off each month.

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