Whether you’re a high school or college student, you might rely on a weekly or monthly allowance — but there are right and wrong ways to spend your allowance. Some young adults don't care about money management. They believe they have the rest of their lives to budget and spend wisely. But developing good money habits early has long-term benefits. Here are seven of the worst ways to spend your allowance.
Believe it or not, spending money on a fancy phone every year is one of the worst ways to spend your allowance. Smartphones constantly evolve, and each year they feature newer and better features. As a young adult with few financial obligations, you may feel it's okay to buy a new phone every year, even if you pay the higher off contract price. But even if you have disposable cash, there are better uses for your money. Rather than fall for the hype that you need a new phone every year, wait until you're eligible for a discounted price and put your allowance into a savings account.
If you're a college student, cooking a meal every night might feel like a chore. And if you receive a monthly or weekly allowance from your parents, it might be easier to grab fast food. However, eating out on a regular basis is not only unhealthy, it's expensive. You’re better off learning how to prepare a few simple meals and putting most of your allowance into a bank account.
You may have freedom to spend your allowance money on anything, but you should also make smart choices. For example, if you already have a closet full of stylish clothes, do you really need to purchase additional outfits? Spending money just because you can is one of the fastest ways to go broke. Before shopping, take an inventory of your closet and only buy items you need.
It's okay to treat yourself to luxury brands from time to time. However, every item in your closet doesn't have to have a luxury tag. This is one of the biggest retail traps. For every luxury brand name, there's a cheaper alternative that’s just as good. You can check out high-end designs online, and then duplicate these styles at inexpensive stores such as H&M and Forever 21.
If your friend buys a new pair of shoes or clothes, this doesn't mean you have to go shopping as well. Trying to keep up or impress peers is one of the worst ways to spend your allowance. Your friends may not care about money management, or they might live off credit cards. Therefore, trying to keep up with their spending lifestyle can cripple your finances.
Even if you regularly receive a weekly or monthly allowance, always save a percentage of this money. Open a savings account at a nearby bank and save at least 10% of your allowance. It might be a small amount, but it adds up quickly.
If you receive a generous allowance from your parents, you might treat your friends to a good time. This is a nice gesture, but be careful. You'll blow through your money faster, and a few of your friends could become freeloaders.
If you receive an allowance, set a budget and commit to only spending a small percentage of this money. If you deposit the majority of your cash into a savings account, you’ll build a nice account within a year. What are other bad ways to spend allowance money?