Many people assume that as long as they can make the minimum payment on their credit card balance, they are in good fiscal standing.
Financial responsibility is the process of managing money and other assets in a manner that is considered productive and in the best interest of the individual or family. Being proficient in the task of finance and money management involves cultivating a mindset that allows you to look beyond the needs of today to meet the needs of tomorrow. To achieve a high level of financial responsibility, it is necessary to understand several basic principles.
Financial responsibility involves wise spending.
The fiscal responsibility process begins with understanding the difference between needs and wants. Making this distinction helps ensure that the most important purchases are taken care of, while goods and services that are not essential to maintaining a decent quality of life are purchased after needs are met. Some examples of needs that apply to most people include food, clothing, and shelter. Many people also find that obtaining educational credentials with at least a college degree is also a necessity in today’s world.
Financial responsibility includes evaluating purchasing decisions.
Once there is a clear understanding of the difference between wants and needs, the next step in financial responsibility involves learning what to do with the money left over once these basic life needs are met. Saving money should be a priority when evaluating ways to spend your surplus income. Even if no more than a small percentage of your weekly paycheck is set aside in some sort of interest-bearing account, that amount will increase over time and create a degree of financial security that would not be possible otherwise. Being good with money sometimes means saving a portion of available resources for emergencies or to use later in life.
Someone who is financially responsible limits expensive social outings.
Creating and sticking to a budget is critical to financial accountability. People are never too young to start this process. For example, an old enough teenager with a part-time job is in a position to use the budget efficiently. While food and shelter may not be line items for now, there’s a good chance that setting aside money for meals out, dates, car payments, and car insurance is considered important. By creating a budget that addresses all relevant expenses and then prioritizing those budget items, it’s easier to understand where the pay for that part-time work is going and how to use that money to the best effect.
Financial responsibility can sometimes include getting into debt for a car, house, or other need.
Resisting impulse buying is also critical to financial responsibility. This can often be difficult for even the best money managers. There are constant visual and audio cues through various forms of media to induce people to buy items they do not need and, in some cases, cannot afford comfortably. Choosing to shop with a list can reduce impulse purchases to some extent. Another way to curb impulsive purchases is to set aside a fixed amount in the budget that is considered “free” money – that is, money that can be spent on any kind of whim the individual desires. But once the free money runs out, there’s no more impulse buying for the rest of the budget period.
Financial responsibility may require you to save money to buy expensive jewelry instead of using a credit card.
Because financial responsibility involves wise spending, the experienced money manager will learn to determine if the time is right to make a specific purchase. This usually involves asking some basic questions. Is this purchase to replace something important, like a vehicle? Would it be possible to continue using the current item for a while longer and possibly get a higher quality replacement later? If replacement or purchase is absolutely necessary at this time, is a product of equal quality but at a lower price acceptable? Shopping should never be rushed, but only after weighing all the options.
A person’s financial responsibility extends to ensuring the proper care of pets.
No description of financial responsibility is complete without mentioning the wise use of credit. Many people assume that as long as they can make the minimum payment on their credit card balance, they are in good fiscal standing. This is not the case. Financial responsibility dictates that the less unsecured debt an individual has, the better their financial prospects will be. Make it a point to limit the number of credit card accounts you have and make sure balances are paid every statement period or at least within three periods at the most. This will help minimize the amount of interest paid to the credit card companies and will also provide you with a source of emergency funding in the event of an emergency.