Top 8 Ways To Become Fiscally Responsible

When I first heard the term fiscally responsible, I imagined a roomful of politicians talking about fiscal policy! On the contrary, this concept applies to you far more than you might think.

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 about 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’ll focus on the definition above 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 putting it into practice and applying it to your day-to-day life.

1. You have an emergency fund

Nearly 3 in 10 U.S. adults have no emergency savings, according to Bankrate’s Financial Security Index, and roughly half couldn’t cover a surprise $1,000 expense from savings. That is an alarming number.

Having an emergency fund might seem impossible at first when you are living paycheck to paycheck. But with enough discipline over time, anyone can build one. The reason they call it an emergency is because it’s unexpected — and life has a tendency to happen. When it does, don’t you think it’s better to be prepared for it?

Having an emergency fund is absolutely crucial, and it’s one of the top ways of becoming fiscally responsible. The emergency fund calculator shows your exact target, and the where-to-park-cash tool helps you keep it somewhere that actually earns interest instead of sitting idle.

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 you’re 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’re fiscally responsible, you control your money: how it flows and when it flows. If you’ve never built one, start with the beginner’s budgeting guide or the simple 50/30/20 rule, then keep it honest in the free money dashboard.

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 debt you acquire to make more money. For example, getting a mortgage to buy a rental property that pays for itself is good debt. There are very few examples of good debt, though, because it’s very easy to justify any kind of debt as “good.” To be fiscally responsible is to control your spending habits and eliminate all bad debt!

If you have a lot of credit card debt, the snowball method helps you tackle it one debt at a time — you pay off your lowest balance first, then roll that payment into the next one. Our credit card tips and guide to escaping debt walk you through it, and the debt-to-income calculator shows where you currently stand.

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’re doing yourself a disservice. You have almost a 0% chance of becoming wealthy saving your money that way, especially once inflation eats into it year after year.

Investing is when your money works for you. Instead of just sitting in a bank account, your money can actually earn you more money. The stock market’s long-run average return is the reason starting early matters so much — compound growth needs time. If you’re just starting out, apps with no minimums and low fees make it easy to begin with small amounts; if you’re more seasoned, a simple low-cost index fund is hard to beat. When it comes to investing, it’s better late than never!

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’re 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 a delivery app on the weekends and keep your day job on the weekdays.

Another great source of income would be real estate. You could buy your own rental property or lease out part of your home. Services like Airbnb make this possible with relatively little capital to get started. There are so many ways to make passive income that I wish there were enough hours in the day to do them all! I wrote a whole article showcasing your options: Top Creative Ways To Earn Passive Income, plus a list of side gigs that pay really well.

6. You calculate your net worth

Although this is lower on the list, it’s probably one of the most important. I’ll start this one off with a quote: what gets measured gets improved. If you track your net worth, it will grow.

Your net worth is a great indicator of how you’re doing financially. It gives you a visual representation of your progress toward your financial goals. When you keep track of it, you’ll 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: things you own that have value — cash in the bank, retirement funds, real estate equity, etc.
• Liabilities: things you owe money on — credit card debt, student loans, auto loans, mortgages, etc.

When you’re young and just starting out, your net worth might actually be negative. That’s okay — you have time to grow it and watch it balloon over the years. The easiest way to keep track of it is right here: the free money dashboard has a private net-worth tracker (no bank linking, ever), and you can see how your net worth compares to others your age. Tools like Empower (formerly Personal Capital) work too, but I prefer keeping it where nothing leaves my browser.

7. You have an estate plan

I’m sure you’ve heard of wills and trusts. For most of us, the thought is that we’re too young to worry about it right now, or that only rich people need it. That is far from the truth.

If you have kids or plan to have kids, having these things in place can guarantee them 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. All you have to do is pick up your phone and log into Amazon or any other shopping website, and with just a click of a button, you can spend your hard-earned money away.

Frugal and responsible people don’t only earn money — they get to keep it! Money flies out of people’s hands too fast and too irresponsibly. To be fiscally responsible is to control these spending urges and hold on to your hard-earned money. The simplest trick? Watch the number. When your spending and savings are sitting right there in the dashboard, those impulse buys get a lot easier to resist.