Financial responsibility is a term that gets thrown around a lot, but few actually stop to explain what they mean by it.
This is partially due to how complex yet simple the explanation can be at times, but to put it in simple terms, being responsible would mean living within your financial limits.
What this refers to is not overspending and budgeting in a way that you only spend on necessities, leaving under 30% of your income to spend on miscellaneous things.
On top of this, if you wish to be qualified as financially responsible, you must also spend less than what you make, and with so many credit options out there, many have trouble grasping this concept.
The very idea of owning a credit card that you’re struggling to pay off is a clear-cut sign that you’re not financially responsible.
In fact, the only way you could potentially be responsible is if you were to actually pay off the balance in full every month.
Being behind on your payments lets you pile on debt, and this debt will grow the longer you’ve got it, making it that much harder to pay it off the following month.
Sooner than later, you may find yourself in the wicked cycle of making barely enough to make the minimum payment on your credit card, only to do the same thing the following month, with no way out.
Additionally, the concept of credit cards was created to be a convenience, not an option that you’d use to make ends meet.
The upside to owning one is that it saves you carrying a lot of cash around at all times, and every dollar you spend can get transformed into reward points later on.
Take interest rates into account
Much like paying off your credit card, any other recurring payments may also have an interest rate tied to them.
By being late on your payments, this interest rate will continue to pile on, essentially making you pay more for an item than you’d actually bought it for.
If you let this happen to you time and time again, you’re basically sacrificing money for the sake of convenience, and to top it off, you’re using that convenience irresponsibly.
Due to how much you can actually end up paying when it comes to interest rates, it’s crucial to do everything to avoid paying it, even if it means curbing your spending for a while until you’ve paid your debt off.
Naturally, this is impossible to avoid if we’re talking about housing or transportation loans, but even then you can save yourself some extra money by paying extra on your monthly rate for the loan/mortgage.
Contingencies can pop up at any time, and how you react to them is what separates amateurs from experienced financial managers.
Having an emergency fund is a great way to protect yourself from risk, and if tough times swing by, you’ll have something to rely on until you get yourself back on your feet.
This can range from sustaining an injury to losing your employment, so you’ll want to have enough money to last you at least 3-6 months without any other sources of income.
If you’re married or have two paychecks to live on, you may want to have enough set aside to cover any and all necessary bills, including mortgage payments, utilities, and food.
If a single missed paycheck is enough to completely shatter your financial security, it means you’re doing something wrong, and creating an emergency fund to fall back on is a crucial strategy on your way to success.
Learn to budget
Living on a budget does sound like a hassle, but it’s one of the key components to being financially responsible, as it teaches you not to spend on the things you don’t absolutely need.
Everyone’s budget is different though, and you’ll want to work out your own carefully, thoroughly examining all your expenses and monthly income, after which you’ll calculate exactly how much money you’ll be working with every month. O
f course, this means that you’ll set aside a significant portion of your money to invest or put in a savings account, whereas the rest will be used to cover monthly bills and necessities.
You must always have a full understanding of your cash flow, and budgeting may also help you figure out where all your money is going, and when you do, you’ll divert your expenses in a different direction.
If you’re constantly bleeding money, you can’t possibly expect to move forward, financially speaking, and you’ll want to patch up any leaks you may find.
It can vary from person to person
Of course, being responsible with your money is a subjective matter, and while it can mean one thing to you, it means something completely different to someone going through different circumstances at the moment.
You must understand what your financial state is to know what being responsible truly means, as the definition of “living within your means“ doesn’t explain a lot on its own.
Despite this, it’s always good to limit yourself to spending a set portion of your income on vanity and wants, leaving the rest for the future, and if you employ this strategy, your future self will be thankful for your dedication and perseverance in trying to accomplish the goals you’ve set.
Financial responsibility is a crucial skill for anyone looking to grow their wealth or simply amass enough of it to live comfortably in their later years.
On paper, it’s fairly simple, but when it’s put into practice, a lot of people stumble and fail to keep up with what true financial responsibility demands from them.
Staying true to your goals and never straying from that path is integral to success, and this also means sacrificing some other, less important things in our life.
Knowing when you’re able to spend on something you want, and when it’s important to save for what you need is what entails being financially responsible, and reaching this level will take years of practice.