What is Financial Responsibility?
Financial responsibility is the process of managing money and other assets in a manner that is considered productive and in the best interests of the individual or family. Being proficient at the task of finance and money management involves cultivating a mindset that makes it possible to look beyond the wants of today in order to provide for the needs of tomorrow. In order to achieve a high level of financial responsibility, it is necessary to understand several basic principles.
The process of fiscal responsibility begins with understanding the difference between needs and wants. Making this distinction helps to ensure that the more important purchases are taken care of, while goods and services that are not essential to maintaining a decent quality of life are acquired after needs are met. Some examples of needs that would apply to most people include food, clothing, and shelter. Many people would also feel that earning educational credentials that are at least university level is also a need in today’s world.
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 money left over once those basic living 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 the weekly paycheck is set aside in some type of interest bearing account, that amount will grow 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 for use later in life.
Creating and sticking to a budget is basic to financial responsibility. People are never too young to begin this process. For example, a teenager who is old enough and has a part time job is in a position to make efficient use of a budget. While food and shelter may not be line items for the time being, there is a good chance that setting aside money for meals out, dates, car payments and car insurance will be considered important. By creating a budget that addresses all relevant expenditures and then prioritizing those budget items, it is easier to understand where the pay from that part time job is going and how to use that money to better effect.
Resisting impulse buying is also key to financial responsibility. This can often be difficult for even the best of money managers. There are constant visual and audio stimuli through the various forms of media to entice people to purchase items they do not need and in some cases cannot comfortably afford. Choosing to shop with a list can cut down on impulse buying to some degree. Another way to stem 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 type of whim the individual desires. But once the free money is gone, there is no more impulse buying for the remainder of the budget period.
Because financial responsibility involves wise spending, the savvy money manager will learn to determine if the time is right to make a particular purchase. This often involves asking a few basic questions. Is this purchase to replace something of importance, such as a vehicle? Would it be possible to continue using the current item for a while longer and possibly be able to afford a replacement of greater quality later on? If replacement or acquisition is absolutely necessary at this time, will a product of equal quality but with a smaller price tag be acceptable? Purchases should never be made in haste, but only after weighing all the options.
No description of financial responsibility is complete without mentioning the wise use of credit. Far too many people assume that as long as it is possible to make the minimum payment on credit card balances, they are in good fiscal condition. That is not the case. Financial responsibility dictates that the less unsecured debt an individual has, the better their financial outlook happens to be. Make it a point to limit the number of credit card accounts you have, and make sure the balances are paid off each statement period or at least no more than within three periods. This will help to minimize the amount of interest paid to the credit card companies, and also provide you with a source of emergency funding in the event of an emergency.