Financially responsible is not how I would’ve been described in my twenties.
Getting in over my head was fast and easy since I never tracked my spending, built a budget, or reviewed my bank statements. I was lazy and unaware. Like many young adults, I lived in the moment (hashtag YOLO).
I was sick of working hard and struggling financially, even though I knew I had enough income to pay my bills. I needed to change my entire attitude toward money. Fixing my poor credit score and undoing all the damage I did to my finances took years of responsible money management.
Nowadays, a financially responsible person is an accurate description of me. I pay my bills on time, I’m prepared for emergencies, my retirement accounts are growing, and I have an excellent credit score. I finally feel like a responsible adult, even though my mom still talks to me like I’m five.
If you’re not quite there yet, you can get there. It just takes time, dedication, and a few straightforward behavior tweaks.
What Does It Mean to be Financially Responsible?
Being financially responsible means you manage your money to lead to financial stability and security for you and your family. You stick to a budget, live within your means, pay bills on time, avoid debt, prepare for financial emergencies, and save for the future.
What are the Benefits of Being Financially Responsible?
Being financially responsible has benefits that go beyond your bank balance. The benefits of being financially responsible include less stress, better relationships, and more freedom. Being financially responsible positively affects your health, the people you love, and what you care about.
Let’s take a closer look at the benefits of being fiscally responsible:
6 Benefits of Being Financially Responsible
Looking past the obvious monetary benefits of being financially responsible, like keeping more of what you earn and not having bill collectors hounding you, there are other rewards. Here are six things you get to enjoy when you’re responsible with money:
- Less Stress – Being financially stable helps reduce stress. In a Northwestern Mutual survey, 44% of respondents ranked financial stress as their number one source of stress, well above personal relationships (25%) and work (18%). Being financially responsible can reduce the effects of stress on your body and mind.
- A Stronger Marriage – Money can be a significant source of tension in a marriage. Along with open communication, being financially responsible helps create a happier relationship.
- Setting a Good Example for Your Kids – Teaching your kids about money will serve them well throughout their lives. Being a role model is one of the best ways to give your kids the foundation they need to be financially responsible in the future.
- More Freedom – When you’re financially responsible, you have the freedom to live life on your terms. You can take calculated risks, like starting a business or changing careers. You might want to go back to school, move somewhere else, or retire early. Being financially responsible makes those things possible.
- Being More Generous – Sometimes, bringing about change or helping others requires money. People who aren’t financially stable or are bogged down with heavy debts can’t support the people, causes, and organizations they believe in.
- Leaving a Legacy – When you make better financial decisions and practice responsible money management, you can leave something behind for those you love. It might come in the form of life insurance, property, a stock portfolio, or other savings and investments. Knowing that the financial future of those you leave behind is more secure provides comfort for you and them.
How Do You Become Financially Responsible?
You become financially responsible by living below your means, paying your bills on time, having an emergency fund, eliminating debt, and saving for your future. Spending less than you make, budgeting your money, and thinking long-term are the key strategies for becoming financially responsible.
Here’s how you can become a more financially responsible person starting today:
Live Within Your Means
Not spending more than you make is a sign of being responsible with money. It sounds simple, but it’s not. With easy access to credit cards and personal loans, spending money you don’t have is not difficult.
When I wasn’t tracking expenses, being broke all the time and filling in the gaps with credit cards became the norm. That’s not what anyone would call responsible adult behavior.
Create a monthly budget you can stick to.
A budget tracks your income and monthly expenses, but it’s more than that. Your budget is your plan for getting where you want to go financially. It should reflect your priorities.
If you want to get out of debt, save for a house, invest in the stock market, put your kids through college, or take a vacation, budget for it.
If you’ve never budgeted before, here’s a guide for creating a monthly budget from scratch:
How to Create Your First Budget in 4 Simple Steps
Evaluate Your Spending
Make sure you review your budget every month. Compare what you planned on spending with what you spent.
You might spot minor money leaks and things to stop buying to save money. Unused subscriptions, being loyal to expensive brands, and rarely cooking at home are leaks you can quickly remedy.
You also have to consider what you spend on necessities. You can lower your cost of living by focusing on reducing major unavoidable expenses like housing costs, utilities, transportation, insurance, and your food budget.
Once you cut expenses where you can, put any extra money you free up toward your goals.
Start an Emergency Fund
Starting an emergency fund will help you avoid taking on debt when faced with an unexpected expense. If you don’t have emergency savings yet, make it your top priority.
Every payday, make sure you transfer a set amount into a savings account you don’t touch unless there’s an emergency. You can focus on other financial goals when you have 3-6 months of living expenses tucked away in your emergency fund.
There are plenty of reasons for having an emergency fund. Emergency savings protect you in the event of a medical emergency, a job loss, or a major car or home repair.
Even with health insurance and auto insurance, you might have to come up with money out of pocket. Having emergency money put aside can help you avoid going into debt or wrecking your financial plan when these unexpected expenses pop up.
If you’re starting from scratch, it takes a while to save up 3-6 months of expenses. Don’t get discouraged. Make it a priority and save what you can.
Save for the Future
Saving for your future is probably not something you think about if you’re young or haven’t started a family of your own. I know I didn’t give retirement savings any thought in my twenties. But whether it’s saving for retirement, a down payment, or some other goal, saving money is essential.
Even if retirement is a long way off, start saving for it now. If your company offers a 401k with an employer match, you’re leaving money on the table if you don’t take advantage. Employer contributions amount to free money with no risk.
Get the full match if you can, but at least put a little something into it. The money comes out of your paycheck before taxes so that you won’t miss it.
Pay Your Bills on Time
The easiest way to ensure that you pay your bills on time is to automate them. You can set up auto-pay with most banks and service providers.
Set your automatic bill payments to coincide with your paydays, so you’re not tempted to spend money that’s supposed to go toward your bills. You’ll make all your payments on time. You’ll never be tagged with late fees again.
Get Your Impulse Spending Under Control
One of my biggest problems was giving in to my impulses. Impulse spending is often lumped in with discretionary spending. In my case, I didn’t use much discretion. It was a huge drain.
Eating out, drinking with friends, and buying gadgets or other stuff I didn’t need were my worst spending habits. I rarely had cash, so I used my credit cards instead. I didn’t know how to say no.
If you have to avoid certain places or websites, do it. Make a list of items you need before every shopping trip and stick to it. Save up for wants by incorporating them into your budget.
Get Out of Debt
You are what your credit report says you are to banks, landlords, and some employers. If your credit report shows heavy debts and late payments, you’ll have trouble qualifying for a mortgage, renting an apartment, or working in some industries.
If you’re carrying credit card debt or personal loans, start working on getting out of debt. If you’re debt-free, keep it that way.
For getting out of debt, you can do the debt snowball, a strategy where you list out your debts from smallest to largest and then pay them off. To do the debt snowball:
- Throw as much as you can at the first one on your list, even if it’s just $20 extra.
- Pay the minimum payment on all of your other debts.
- Work your way down your list by combining the minimum payment from the previous debt with the $20 extra plus the minimum amount from the next one.
I like the debt snowball because you zero out accounts faster, which keeps you motivated. Instead, you could do the debt avalanche, which works the same except you order your debts from the highest annual percentage rate to the lowest. You pay less interest with the avalanche, but it might take longer to get your first win.
Set Financial Goals
Setting goals helps you focus, keeps you motivated, and triggers new habits. If your current financial situation is unbearable, you will need focus, motivation, and new behaviors.
Before you set goals, clarify your priorities. Most people have a mix of short-term and long-term goals. Common financial goals include:
- Building an emergency fund
- Getting out of debt
- Owning a home
- Paying for college
- Starting a business
Whatever your goals are, learn to set SMART financial goals. Write them down, make them specific, make sure they’re realistic, and set a time frame.
Break each goal down into more manageable action steps. Review your goals regularly to ensure they’re still relevant and measure your progress.
Have Adequate Insurance
As a responsible adult, you need insurance. In addition to health insurance and car insurance, renters insurance or homeowners insurance are also necessities. If you have dependents or someone in your life who would financially suffer if you passed, life insurance is a must.
Read as much about personal finance as you can. Research financial terms you don’t understand. Your local library is a fantastic, free resource for personal finance books you can study.
You can also take a personal finance course. Here is a top-rated online courses you can take from home at your own pace:
The more you learn, the better off your finances will be.
Final Thoughts on Financial Responsibility
Being financially responsible is not just about being able to pay rent or your credit card payment on time. Being financially responsible is about making financially sound decisions and acting in your own best interests.
You won’t completely transform your finances in a single month. If you adopt good money habits and stick with them, becoming financially responsible and improving your financial situation will happen.
Featured Image Credit: Pexels
Jerry is a personal finance enthusiast, side hustler, and freelance web developer who began his career in financial services. He co-founded KindaFrugal.com, a personal finance and frugal living blog. His insights have appeared on MSN, Newsweek.com, HerCampus.com, Mashed.com, and many others.