Depending on your family’s circumstances, finances could be a significant cause of stress – even for young kids and teenagers. When your household is living paycheck to paycheck (and 78 percent of working people are), that stress can be unrelenting. That’s why it’s important to take charge of your money and build a financial foundation to carry you into adulthood. Follow these steps to do just that.

 

Start Saving for an Emergency Fund

Emergency Fund

Start with a goal of $1,000 in your emergency fund. Most kids have never seen four digits in a bank account before. Emergency funds are great for covering unforeseen expenses that might otherwise tempt you to go into debt. If you are responsible for some of your expenses, you want to eventually grow your savings to at least 3 months of those expenses, in case there’s an interruption in income.

 

Related: CAN THE SECRET OF THE GOLDEN BUCKETS SOLVE YOUR MONEY WOES?

 

Don’t Cash Out a 529 or Retirement Account

Before your emergency fund is in place, any minor financial mishap becomes a disaster. Especially if you have annoying debt collectors harassing you nonstop, the pressure can rise and tempt you to make poor financial decisions. For example: paying a credit card bill when you don’t know where your next meal is going to come from, or borrowing against an investment. High on this list of financial foibles is early withdrawal from a 529 or retirement account. Early withdrawal penalties (on top of taxes, if your income is high enough to be taxable) will seriously cut into your investments. Besides that, emptying a 529 account could jeopardize your chances of being able to go to the school you want.

The only exception to this rule might be if it was the last available option to avoid a bankruptcy. Bankruptcy Law Office says that a bankruptcy can have a long-term adverse effect on your credit, so much so that it should only be seen as a last resort. In such a dire circumstance, cashing out an investment account might be the lesser of two evils, but that depends on how deeply you’ll need to cut in order to bring everything current.

 

Eliminate Any Non-Mortgage Debt

Credit Card Debt

Young teenagers don’t have the legal ability to incur debt, but older teenagers do. If you’re dealing with debt, you’re not alone! According to financial expert Dave Ramsey, more than 80% of Americans are struggling with unwanted debt, and an increasing number of those are young people. Millions of young people struggle to pay back their student loans, and car loans are the single most significant factor that prevents people from reaching the upper-middle class. Your goal should be to eliminate your debt if you have any, and avoid it at all costs if you haven’t yet made this mistake.

If you have multiple debts to pay off, there are two popular methods. Harvard Business Review suggests that, while it might be intuitive to try and pay off the debt with the highest interest rate first, this method actually takes much longer. This is because “focusing on paying down the account with the smallest balance tends to have the most powerful effect on people’s sense of progress – and therefore their motivation to continue paying down their debts. This aligns with other research on the power of small wins to keep people motivated.” Paying off debts isn’t a math problem – it’s a behavior problem.

 

Invest Money Towards Retirement

Once your emergency fund is funded, you have successfully avoided or eliminated debt, and you have secured enough in savings and scholarships to get you through college, you should start putting at least a small portion of your income every month towards your retirement. You can invest in a 401(k) or an IRA plan through your employer, or open a retirement account on your own. Either way, you want to look for these four little letters: R-O-T-H. A Roth IRA or Roth 401k is likely to represent literally hundreds of thousands of dollars in tax savings when it comes time to live off of your investments. The goal is to eventually save at least 15 percent of your income every month and have that going towards your retirement, which will give you a nest egg large enough that you’ll be able to live mostly off of the interest.

Throw as much towards retirement as you can! This will ensure that when time catches up to your body, you will be able to retire in comfort and be obscenely generous with our excess. The sooner you begin this process, the better off you’ll be when that time comes. As retirement expert Chris Hogan says, “There’s no present like time.”

 

All these tips are simple enough to understand. The challenge is committing to them and following through with them. It can be challenging to buckle down on getting rid of your debt and saving money every month, especially when you’re used to spending every penny you make. But it’s the smart thing to do to build your financial foundation for the future.