When I first heard the term fiscally responsible, I need you to you imagined a roomful of politicians talking about the fiscal policy! On the contrary, this concept applies to you come on more than you might think.
- What does it mean to be fiscally responsible?
- Ways of becoming fiscally responsible
What does it mean to be fiscally responsible?
To be Fiscally Responsible describes the ability to control your finances and find a balance between your income and your spending. It’s remaining accountable for your financial decisions and actions.
If you ask the government this question, it will probably have a different answer! For this article, we will focus on the above definition and your own personal finances.
Ways of becoming fiscally responsible
Understanding the definition of being fiscally responsible is just half the battle. The other half is to take it into practice and applying it to your day-to-day life.
1. You have an emergency fund
Nearly 3 in 10 (28 percent) U.S. adults have no emergency savings, according to Bankrate’s latest Financial Security Index. To make matters worse, almost half of Americans can handle a $1,000 emergency by dipping into savings. That is an alarming number.
Having an emergency fund might seem impossible at first when you are living paycheck-to-paycheck. With enough discipline in time, anyone can build an emergency fund.
The reason they call it an emergency is because it is unexpected. Life is a tendency to happen. When it does, don’t you think it’s better to be prepared for it?
Having an emergency fund to use absolutely crucial and it is one of the top ways of becoming fiscally responsible.
2. You follow a budget
Man, if I had a nickel for every time I said you needed to follow a budget, I could probably buy a nice pair of shoes by now 🙂
When being fiscally responsible, not only do you have a budget, but you follow it and stick to it.
When you have a budget, an interesting thing happens. Money suddenly doesn’t control you anymore. You control it. How many times have I heard the story of “I have no idea where my money goes.” That’s what happens when you don’t have a budget.
In that scenario, money enters your pockets and leaves just as fast. When you are fiscally responsible, you control your money, how it flows, and when it flows.
3. You have no bad debt
There is a big difference between bad debt and good debt. Do you know what the difference is? Let me give you an example.
Bad debt is buying a new pair of sunglasses on a credit card. Bad debt is also getting a $30,000 loan to buy a new car. Simply put, if it doesn’t make you money, it’s bad debt.
On the other hand, good debt is debts that you acquired to make more money. For example, getting a mortgage to buy a rental property that pays itself is good debt.
There are very few examples of good debt because it’s very easy to justify any kind of debt as good debt. To be fiscally responsible is to control your spending habits and eliminate all bad debt!
If you have a lot of credit card debt, using different if it looks like the snowball method helps you tackle your debt one debt at a time. You simply pay off your lowest balance first, then move on to the next when the first is paid off.
If instead, you have student loans, you might want to consider refinancing your student loans with something like Credible to get a lower rate. This will undoubtedly save you so much money in interest leave more in your pocket.
4. You invest your money
For some people, when they hear the word invest, they imagine a complex world of finance! Investing is much easier than you think!
If you simply have a day job and save your money in a savings account, you are doing yourself a disservice. You almost have a 0% chance of becoming rich saving your money this way.
Investing is when your money works for you. Instead of just sitting in a bank account, your money can actually earn you more money.
If you are just starting out, check out Acorns. With this handy app, it will invest your spare change for you without having to think about it! It just works! There are no minimums to start and it has super low fees. When it comes to investing, it’s better late than never!
If you are a bit more seasoned, then Robinhood might be the platform for you. I personally invest in stocks using this app and it’s super easy to use. Zero fees to get started and also has no minimums. They are also offering a free stock just for signing up, so definitely check it out!
5. You have more than one source of income
Solely relying on your job for income will not get you to financial independence and wealth. Unless you are earning seven figures that is!
Passive income is money that you earn without having to do much. You can still keep your day job, but earn additional money on the side. For example, you could drive for Doordash on the weekends and keep your day job on the weekdays.
Another great source of income would be real estate. You could either buy your own rental property or lease a part of your home. Services like Airbnb make this possible, requiring very little capital to get started.
There are so many ways to make passive income that I wish there was enough time in the day to do all thing! I wrote an article showcasing just some of the options that you have, check it out here:
6. You calculate your net worth
Although this is lower on the list, it is probably one of the most important ones. I’ll start this one off with a quote:
What gets measured gets improved. If you track your net worth, it will growTweet
Your network is a good indicator of how you are doing financially. It gives you a visual representation of your progress toward your financial goals. When you keep track of it, you will naturally have the innate desire to make it grow! That makes you fiscally responsible!
Net worth = Assets – Liabilities
Calculating your net worth is pretty easy. Let’s define a few terms:
- Assets: These are things you own that have value, such as cash in the bank, retirement funds, real estate equity, etc
- Liabilities: These are things you owe money to, such as Credit card debt, student loan debt, auto loans, mortgages, etc
When you’re young and just starting off, a minute with my actually be in the negative. That’s okay though. You have time to grow and have your net worth balloon in overtime.
The easiest way to keep track of your network is by using Personal Capital. I’ve used Personal Capital over the years to keep track of my net worth, and I have watched it steadily grow. It’s completely free to use and a must if you want to grow your net worth!
7. You have an estate plan
I’m sure you’ve heard of wills and trusts. For most of us, the thought is we are too young to worry about it right now or that only rich people worry about that. That is far from the truth.
If you have kids or plan to have kids, having these things in place can guarantee them having a decent life after you’re gone. It is one of the most fiscally responsible things you could do for your family while you’re still here.
8. You control your spending
I’ll end this article with a bit of a touchy one. Being fiscally responsible means that you have the ability to control your spending. For most people, it’s sadly harder than it sounds.
We live in a culture where impulse buying is much too easy to do. All you have to do is pick up your phone and log into Amazon or any other shopping website. With just a click of a button, you can spend your hard-earned money away.
Frugal and responsible people not only earn money, but they get to keep it! Money flies out of people’s hands too fast and irresponsibly. To be fiscally responsible is to control these spending urges and save your hard-earned money.