You may have heard the term “fiscally responsible” before, which is generally during election season or coming from politicians.
I’m no expert in politics nor do I really care to talk about that subject at all. So don’t worry, this is not a post about the government or national debt.
But becoming a fiscally responsible person is key to living a much more comfortable and stress free life.
When you are worrying about money, paying your bills, or concerned as your debt is skyrocketing — it can be challenging to get control of your finances.
In order to break the funk, you’ll need to learn to be more financially responsible. Below are some of the best ways to get your finances in order.
P.S. If you think there will be secrets or magic formulas in this post, there won’t be.
What Does Fiscally Responsible Mean?
You probably have a general idea of what it means to be fiscally responsible, but there are actually two definitions (pending how you are referencing it).
If you recall in the intro, I mentioned that the terminology refers to the government often. As it relates to that, the definition is:
Fiscal responsibility is used to describe how the acting government plans and strategizes how to use the appropriate level of government spending and maintain an overall budget.
However, the term is also used to describe individuals who have mastered their own personal finances and have their own system in place.
Sometimes it is interchangeable with the similar phrase, “financially responsible.”
Being a fiscally responsible person means you have a plan for your finances and are setting yourself up for a comfortable and fulfilling life.
When you avoid your finances or start being irresponsible, the damage can have a lasting impact and cause you a ton of financial stress.
Why is it important to be fiscally responsible?
Being fiscally responsible is important because it impacts your current and future financial health. When you make the right financial decisions and make an effort to better manage your money, you set yourself up to be less stressed and a better chance to become financially independent.
The Ideal Fiscally Responsible Person
The basics of being a fiscally responsible person is pretty straightforward.
Do you think you fit the definition already? Here is a quick way to tell if you are or if you need to take more action.
Has a Budget
While you don’t need a fancy budget, you should have something that helps you stay on track financially. And not only does the fiscally responsible person have one, they utilize it and stick with it.
No need to over complicate your budgeting or make it more work that it needs to be. You can use various personal finance tools to aid your or use a simple spreadsheet.
For budgeting, I like using a combo of tools like Savology, Personal Capital, or even You Need A Budget if you need more financial guidance. And if you need more help, check out this ultimate guide to budgeting.
Built an Emergency Fund
You know why so many finance articles include or talk about emergency funds? Because they are critical to have!
It can take time to build one, but it is necessary to ensure you have a buffer of somewhere between three to six months of expenses covered.
I actually think you should have closer to nine to twelve months, but that’s not always feasible for everyone.
But this can help save you during unexpected expenses or job layoff.
Now, you may never face something where you need to use your emergency fund at all. But being prepared is key.
Plus, you can have your savings work for you with an online only bank, which tends to have better interest and less fees.
While having no debt is great, it’s generally pretty unavoidable in our society. This is especially true if you want to own a home, but that’s not necessarily bad debt.
But a fiscally responsible person knows how to manage their debt and is actively paying it down — not racking up more or ignoring it completely by spending more.
This person has a plan and is taking action to eliminate and maintain it as best they can.
If you want to consolidate your debt and find the best rates, I recommend using Credible. It’s completely free to use and does not impact your credit score.
If you want to build your wealth, future nest egg, and grow your income — you’ll be investing some percentage of your current income.
While there are circumstances where you might not be able to invest consistently, a fiscally responsible person will make this a priority.
The basic is contributing to your company’s 401k or opening your own IRA and socking away cash every paycheck for your future retirement.
You can invest without the stock market too, but this is still a great place to start.
Multiple Streams of Income
While a full-time job and managing a family can be time-consuming, a financially responsible person will work on building multiple streams of income.
The goal for some of these is that they make money while you sleep.
Investing in the stock market can be stream of passive income, but what else can you do? There is owning a rental property, investing in a crowdfunding platform like Fundrise, or starting a side business.
Having various income streams helps you:
- Diversify where your money is generated
- Helps you reach financial goals faster
- Protects you during job loss
You Know How to Spend Properly
Consumer debt and spending can be a big challenge for many people. I mean, just look at some of the statistics out there about this.
Like this one: One in ten adults says they carry a credit card balance over $5,000. [Source: NBC]
Being fiscally responsible by practicing good frugal tips, meaning you’re conscious of your spending but it doesn’t mean you never spend money at all.
This person prioritizes how they spend and on what, then cuts down on the things that do not matter to them.
How Do You Become Fiscally Responsible?
Not an ideal financially responsible individual yet? No worries, it takes time and effort to really make it happen.
While it might be painful to look at your finances and numbers — you’ll thank yourself later when the results pay off big time.
Here are some of the best steps you can take to get on the fiscally responsible path.
1. Start living below your means
Start living on less than you make, so you aren’t struggling to get by. Living paycheck to paycheck puts you in a dangerous position for financial disaster.
You may have heard the phrase, “Act your wage.”
The goal is to downgrade your cost of living, transportation costs, food spending, and anywhere else that can save you money.
You’ll hopefully find that you have money left over, are not adding more debt, and begin feeling less financial stress.
2. Start paying yourself first
If you want to start saving money and view your finances differently, you should be paying yourself first.
This simple mindset shift and process, helps you put a system in place to ensure you are putting money away first before paying bills.
Of course, you should be paying your bills and handling other expenses. But, figure out what you can save each month first and automatically send that your savings.
I found saving money to be much easier when I had this plan in place!
3. Invest for your future
While investing may sound complicated or scary, it’s a necessary part of life to help you elevate your finances.
Does this mean you need to be an expert investor?
No at all, but you should be investing in your company’s 401k (especially if they offer a company match) or opening your own IRA.
And if you find yourself struggling to invest a few hundred or thousand dollars a month, no worries.
Both are great options to build strong investing habits and get started with a few dollars.
4. Pay your bills on time
A straightforward and simple way to be fiscally responsible is to pay your bills on time — every time.
Stick to a schedule, so you know when things are due and how you can set your payments up.
This will avoid impacting your credit score negatively, ensure you aren’t accruing penalty fees, and gets you in a good financial rhythm.
If you want to save money on bills, negotiate lower rates, or cancel unwanted subscriptions — give the Trim app a try.
5. Monitor your credit report
By monitoring your credit report, you’ll understand your credit history, credit score, and if there are any fraudulent things on it or if you’ve been a victim of identity theft.
And it’s entirely free to do!
Two of the best options are to create free accounts on Credit Karma and Credit Sesame. You can login as many times as you want without affecting your score. Plus, they offer recommendations and have features to help you out.
I also recommend putting fraud alerts or freeze your credit to protect yourself from identity theft.
6. Understand the value of insurance
I know, I know insurance is not exciting or interesting to talk about.
While many will think it is a scam, there are actually a few valuable insurance options to know about and utilize.
Health insurance, renters or homeowners insurance, and car insurance being the common ones. You can use the free tool Gabi to compare insurances and find the best savings.
But as your family grows, term life insurance is something to consider too. Luckily, Bestow makes it easy to get a free quote and it’s quite affordable.
7. Use a debt payoff strategy
Inevitably, you may have some form of debt. Whether that is student loan debt, credit card debt, or debt from your mortgage.
While the first two can negatively impact your livelihood, you’ll want to put a debt payoff strategy in place.
A fiscally responsible person will have a plan and process in order to get out of this debt as soon as possible.
Two of the popular debt strategies to consider are:
I can’t tell you which option to choose, but using one of these will greatly impact your finances now and in the future.
8. Side hustle if you need to (or want to)
Too many people rely on one form of income, typically from the 9-5 job.
However, the economy can go into a bear market (or worse) and your job might not be safe. Or in general, you may face a layoff.
Suddenly that income is gone. Now what?
While you aren’t required to have a side hustle, it’s important to have another stream of extra income coming in from somewhere.
Your investments might certainly be one, but you want to potentially have another avenue that you can fall back on.
What are you skilled at? What side gigs can you do to bring in consistent extra money each month? You don’t need to work 80+ hour weeks, but spend a few hours make some extra income.
9. Read and understand the financial fine print
Yawn! I know, the financial jargon on pretty much anything is a bore.
But, it’s important to actually read it and understand what is happening. After all, it’s your money and finances so you want to trust the companies.
Look at the print in your bank statements, your credit cards, any fees, interest rates, minimum balances or payments. And look at your checking account, savings account, debit cards, etc.
What fees are associated with each? Minimum balances? Interest rates? Charges or fees for using an ATM or other bank? Transferring money?
Make sure you know the in’s and out’s of your accounts. All of your accounts.
10. Learn the basics of taxes
Needless to say, taxes can get a bit complicated. And this is especially true when every year it seems some tax forms or laws are being altered.
Personally, mine get a bit complicated so I have a CPA handle everything. But, I still ensure to understand the basics of the forms, what she did, and why I owe money or why I am getting money back.
Additional basics to know:
- Understand the difference between federal, state, and local taxes.
- Know what is taken out each paycheck and why
- Learn about tax deductions
- Know how to file your taxes.