When our son was old enough to get a job and start thinking about his future, we wanted to start him off right with a plan for saving, both short-term and long-term. We taught him how to make a budget, and include saving as part of that budget.
Our first recommendation was to open a savings account and build up enough in the account to cover his monthly expenses for at least three months but preferably six or more months, so if anything happened, he would be covered.
The next step was to build up a ‘slush’ fund for things that come up, like car repairs, shorter illness or injury, and other incidentals that inevitably occur as part of every day life. This is a short-term savings plan to address the experience of living on your own.
We then explained the need to also begin saving for the future, for major purchases, like a car and home, and then for eventual retirement. Initially, we did not explore or explain all the long-term investment options. We wanted to get the basic ideas and concepts of having different saving strategies and goals.
The idea was that we wanted him to understand the need to have a budget, goals, and a foundation to build from. Learning to save as part of your budgeting from the beginning makes it easier for it to become a habit and part of your routine. Plus, starting early gives your child the chance to build and meet the financial goal they will set throughout their lives. We had him set his savings based on a percentage of his take home pay as part of his bills, and thus, something that cannot be ignored.