I’m a fifteen-year-old Canadian. I have just under eight hundred dollars stashed away in cash. Most of it is Christmas and birthday money from the past few years. I also have an on-and-off job tutoring, so I have a little bit of regular income. My question is, what should I do with my money? I spend very little. I plan on getting a checking account soon, but I feel like I shouldn’t just let that money sit in there. Interest rates on savings accounts in brick-and-mortar banks seem so low I’d only get change every year, and unfortunately, as a Canadian citizen I can’t use SmartyPig and such. I know this is a lot of information, but do you have any advice for me? As you mentioned, you have a lot of teenage readers, so I can’t be the only one in this situation.

First, very good job saving some money! I wish all of my teenage readers were in your situation. It’s difficult to realize the importance of savings when you’re too young to have bills and other financial obligations.

Second, I would recommend you don’t do anything with that money, yet, and here’s why:

Interest rates stink right now, we all know that. But the only way to get a better return on this money, would be some sort of long-term investment. But you can’t think long-term right now. You have graduation, and college, and your first car, and your first “real” job all coming up in the next three or four years, not to mention all of the stuff that no one can plan for… you know, life.

Locking that money into an investment would only cause you to pay penalties (CDs and Bonds) should you need to cash them out before maturity, or the chance that the mutual funds or stocks you might invest in could be down at the time you need that money.

While it’s boring and won’t bring in much of a return, a savings account is the best place for your savings right now.

Think of this money as your emergency fund. Your emergency fund is a stash of cash that won’t earn you much of a return, but is there when you need it. I recommend everyone have three to six months worth of expenses in a savings account before investing, because, as you’ll soon find out, tires go flat, windshields get cracked, you get sick, water heaters stop heating, and anything else that could cost you money, will.

My goal, if I were in your shoes, would be to save up as much cash as possible over the next three years. You’re at a great advantage being as young as you are and being interested in taking charge of your money instead of your money taking charge of you. I can tell you from personal experience that having a cushion, even if it’s in cash earning little interest, hell, especially when it’s in cash, removes the majority of stress from your adult life.

Good luck, and thanks for writing.

Last week I had to write the About Me page for this blog. At the end, I wrote an overall goal for the blog. Without writing out a goal, I’d be tempted to let posts go off in all different directions. But a goal gives me focus and guides me when I feel at a loss of what to write about.

Goals will do the same for your personal finances. Especially specific goals.

If you say you want to “have money” or “be rich”, there’s no direction there. No definition. However, if you say you want to “have enough money to cover all of my bills for six months, just in case” or “have enough money to take a trip this summer to see my friends in England”. Those are specific goals, goals that you can attach a dollar amount to, and work towards.

Here’s an exercise to try, either privately, or down below in the comments section:

Write down your top five money goals. What do you want most right now? To never be overdrawn in your checking account again? To stop making payments on your car? or your credit card?

Write out your goals, and, attach a dollar amount to each goal.

The dollar amount will be easy if it’s a car loan or credit card you want to pay off, just write down the amount you owe. Other goals might require a little bit of fun research or planning. That trip to England I mentioned, look up flight costs, google a few hotels you might like to stay at. Not only will this research help you decide on a dollar amount to save for, but imaging yourself being there and visiting the various locations you find, will inspire you to sacrifice and actually save the money required to make your goal a reality.

Visualization helps so much with this. If there’s a certain dollar amount you want to reach, make a progress bar on a sheet of paper. Every time you put $50 in your savings account towards that goal, shade in a portion of the progress bar. When you can visually see your savings jump from 10% to 15% to 25%… you’ll stay motivated and on course.

Personally, I wrote two long-term goals, and three short-term goals:

• I want to be (and remain) consumer debt free. Which I currently am. Now I just need to work on my student loans to become completely debt free. Having no “easy, monthly payments” allows my money to work for me, rather than me working for my money. (10 years (for the school loans) and beyond)
• I want my small business’ sales to outperform the previous year, every year. When my business does well, the artists I work with do well, and, frankly, I do well. My record label will be exactly one year old next week, and first year sales have been incredible. It will be a personal and creative challenge to top them over the next year. (1 year and beyond)
• I want to put 20% down on my first house. Probably a condo. While living with Jenny is nice, and the rent for the two rooms here is cheap enough, I’d like my own place in the near future. (1-2 years)
• I want to pay cash for the production, studio time and hired musicians on my next album. Production costs look to be about $3,000 to $4,000. I’d like to pay this all in cash, up-front, no credit. (6 months)
• I want to be able to retire early and live off of the interest of my non-retirement investments. This is my biggest goal, which, if I’m able to save and invest at my current rate, will be attainable before I’m 40. (15 years)

It’s hard to start making changes in life. It’s less hard to continue, once you’ve made a change. Little sacrifices now can pay off huge later. But if you don’t have an attainable goal, you’re never going to have the motivation to make any changes… in your budget, in your career, or in your life.