Last week, I was excited to get an email from my 12-year-old niece. She wanted my advice on saving and managing money she earned from babysitting. I was excited, to say the least. It wasn’t just that she asked me for advice that excited me. I was ecstatic she wants to get off to a good start with her babysitting money. It was a proud moment for this financial coaching aunt. Today, with her permission, I’m sharing my response to her email.

How I Answered My Niece’s Question About Saving and Managing Money

Dear M, When it comes to managing your money, the most important concept is spending less than you make and managing what you have well. It doesn’t matter how much money you have if you can’t control it. There are people with a million dollars but spend money like they have $2 million and go into debt. On the other hand, some people make $40,000 a year but have $100,000 in savings. That isn’t something you just read about. I see it all the time with people I coach. It’s not how much you make—it’s what you do with it.

Remember, keep costs low when saving money for financial goals

Sometimes people assume you don’t have money because you are managing what you have. Just because you manage money by saving and budgeting doesn’t mean you don’t have a lot of money—it actually leads to having more money. Check out this article about billionaires (I love it). They aren’t just spending money for the sake of spending money. In fact, they have developed the good habit of sacrificing small spending to save for their big goals. By cutting costs on things like packing lunches, it allows them to save money for the things they really want.

Remember, always save at least 10% of your earnings

A good rule of thumb for saving money is to save at least 10% of what you make. If you make $20 from babysitting, that means you should put $2 in savings. This applies more for adults who have household expenses to pay. Fortunately, you don’t have to pay for that stuff yet so you’re able to save more and I think you should. Right now you have the opportunity to get in the habit of saving a large portion of what you make. By doing so, you’ll be able to spend more and not depend on anyone else to give you the money to do it—and by the time you’re an adult, you’ll have financial freedom. Financial freedom is spending your money on what you want, when you want, without depending on someone else to do it.

Remember, have a plan for your money

To start your savings journey, I would “begin with the end in mind.” Know where you want to head with your money management. Start by setting three savings goals. The first will be your short-term goal something like a new outfit or something not too expensive. The second should be your mid-term goal (something 3-5 years away) such as paying for a down payment on your first car, maybe $5,000. Or you could save for a senior graduation trip. The third should be your long-term goal (anything over five years). That’s retirement savings for most adults. For now, make your long-term goal a savings goal—something like “save $12,000 in 12 years”. That said, as soon as you’re old enough to have a part-time job, you should start saving for retirement. When you start working, you’re earning money for two people—yourself and your 85-year-old self. Unfortunately, a lot of adults spend more than they make and aren’t saving money for when they’re older. When you get your first job, you should get in the habit of saving for retirement. But we can talk Roth IRAs later!

Remember, find a good place for your money

You should open a savings account instead of a checking account because you don’t have a bunch of bills and just need a place to save your money. Part of money management is getting the most out of your money—make sure to get a savings account with a good interest rate. Also, look for an account with no fees. You don’t want the money you’re saving eaten up with little costs. Decide if you’re going to use an online bank or a local bank you can physically enter to deposit money. Online banks usually offer higher interest rates, but you don’t have a place to deposit your cash in person—they allow you to deposit checks using an app on your phone. Don’t forget to make sure the bank is FDIC insured.

Remember, life has hiccups

No matter how much planning and preparation you make, life’s going to happen. There will always be situations (good or bad) that cause you to spend more than you planned. Make it a habit of going into each situation with a can-do attitude, and you’ll adapt and overcome every time. Your saving and managing money skills will pay off when you get hiccups. Let me know if you have any more questions. I’m very impressed and proud that you’re starting your finances off on the right foot. I’m always here if you need anything! I love you lots. Aunt Lacey