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Making the most of your summer income

If you are planning to work this summer, have you thought about what you'll do with all that cash? You can really stretch it with a little planning. And, by developing good money habits now, you'll find it easier to handle finances as you get older and head off to college or to your first full-time job.

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The two keys to controlling your money and your life are planning and budgeting.

Do the math
Before you can develop a realistic spending plan you need to figure how much money you'll earn over the summer.

Begin by calculating your take-home pay for the entire summer. That first paycheck can be a real bummer when you see what is automatically taken out. Your gross income is what you earn before taxes and other deductions are subtracted. Your net income is the amount of your paycheck -- your take-home pay.

You can expect to pay federal income tax and FICA (that stands for the Federal Insurance Contributions Act), which are the withholdings for Social Security and Medicare.

Ask about the pay schedule at your job. Will you be paid weekly, biweekly (every two weeks) or monthly? Then, looking at a calendar, determine how many paychecks you'll receive over the summer break.

Multiply the amount of your paycheck by the number of paychecks you'll receive to calculate your net summer income.

Armed with your grand total, you're ready to set financial goals and a spending plan. The fun begins.

Plan for the future
Want to excel financially? Then learn to save.

A good rule of thumb to grow with you into adulthood is to save 10 percent of what you earn. Just commit to save a specific amount. And, get started!

It's more fun when you challenge yourself. Set a savings goal to reach by the end of summer. This goal might be $500 for spending money through the next school year or enough money to pay for a football uniform or to save $1,000 toward college. You be the judge.

Figure how much money you'll need to set aside from each paycheck to reach your goal. Divide your savings goal by your number of paychecks.

Always "pay yourself first" by putting this money into an interest-bearing savings account or a money market account. This is a perfect moment to open your own bank account if you don't already have one. Ask your mom or dad to guide you. But, most importantly, get the account ready before you are tempted to dip into the money you've decided to save.

It's much easier to find ways to save if you know how much you want to save. It also builds self-confidence and money managing skills when you reach your financial goal.

Plan for the present
You're ready to create a spending plan once your summer income, minus savings, is figured. A spending plan should be flexible and can be revised as needs and goals change.

Start by making a list of all the things you plan to spend your money on and put a price tag on it. Not enough money for everything on your list? Then it's time to sort and prioritize.

Sort things out
Check out your list and identify needs and wants. This is an important step in every spending plan. "Needs" are your unavoidable expenses. They could include such things as transportation to work, school supplies and car insurance.

"Wants" are up to you. What do you want to spend your hard-earned cash on -- the latest footwear, hottest CD or maybe a special gift for a friend? You get the idea. They should be treated as rewards for taking on the responsibility of a summer job.

Now what?
Okay, you've taken your paycheck and paid into your savings goal, budgeted for your needs, and you're left holding some extra money. Have some fun.

Yikes, there's not enough to cover all your expenses. Take a new look. Can you cut back on anything? Perhaps you can give up a little freedom and ride with your parents or a friend to work, ride your bike or walk. Or pack a lunch and save $5 by not eating fast food. You can even save more by scanning sale flyers and only buying items on sale.

Practice for bigger things
Now that you are becoming a financial wizard, read more about money. Familiarize yourself with the financial sections of your local newspapers as a start.

Create an imaginary "stock portfolio" of companies that make products you like. Track the results in the newspaper or online. When you feel confident, save some of every paycheck and then invest it. Be sure to speak with an adult whose opinion you respect for some guidance.

Check out this list of fun Web sites to learn more about managing and investing your money.

Remember Uncle Sam
Anyone over the age of 14 should be prepared to report investment income and possibly file a tax return. For 2003 returns, a young adult who earns more than $4,750 or has an unearned income of $750 is required to file a tax return. The good news is that you probably will get most of the money you paid in federal taxes back come the first quarter of 2004.

A refund is money that you worked for, not a present from the government. Consider saving a portion of it or to have it directly deposited into your growing bank account.

Enjoy your summer. Save some and spend some. Learn to control your cash flow, so your money will begin to work for you.


-- Posted: May 19, 2003




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