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It’s time to clear the air. I write so much about my ideas on social programs that would lift people up, policies that hurt poor people, and other somewhat political financial topics that you might think I don’t care about personal financial responsibility.
That couldn’t be further from the truth. Financial responsibility is immensely important for everyone, partly because we don’t have those policies that I advocate for so there’s no other option, but partly because that’s what being an adult means. So let’s dive into what financial responsibility means, and how it shapes our financial goals.
What Does It Mean to Be Financially Responsible?
Being financially responsible means paying your bills on time, not taking on more debt than you can afford, and generally just being responsible for your own life. It also means being prepared for the unexpected, so a financial liability won’t destroy you. Financially responsible people live within their means and pay their bills on time. They manage their money in productive ways that will help ensure a secure future.
Financial Responsibility and Insurance
A huge aspect of financial responsibility relates to insurance. You need to prove that you have accepted responsibility for the immense privilege of driving a motor-vehicle, in case something goes wrong. That could mean a car accident, property damage, or any other type of incident you might be responsible for while driving.
Many people prove that they are accepting financial liability with auto-insurance (and most states require you to show proof of liability insurance prior to registration). Lien-holders also require insurance coverage, in order to protect their investments.
The same idea applies to home owners insurance. If you have a mortgage, you have to protect the lien holder’s investment with insurance. Even if you don’t have a lien, it’s smart to carry home-owners insurance to protect against injury and property damage. If someone is injured at your home, you may be liable for the medical payments.
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Why Is Financial Responsibility Important?
Financial responsibility is important -and not just for insurance. You want to be fiscally responsible in your personal life for a ton or reasons. This includes mature, adult reasons such as increasing your credit score, being able to buy a house, and having an emergency fund. But it also includes fun reasons like being able to afford that trip, and having the ability to nope out of a job you hate.
Being responsible for your financial life is important because pretty much everything in our lives is related to money. We need to pay for a place to live, food to eat, clothes to wear, and heat to keep us warm. We also need to plan for a future where we no longer need to work.
I had a boyfriend who was incredibly irresponsible. He would blow all of his money on video games or going out, and then be surprised that rent was due and he didn’t have any money. He had poor credit and was unable to finance even a phone.
It was even worse than that though – he was financially abusive towards me. He would steal from me and gaslight me about it. But he’d also somehow turn his lack of financial responsibility into my problem. He couldn’t cover rent or afford the things that he needed, and he’d guilt me into “helping him out”. As it turned out, he was just a manipulative man-child who saw my vulnerability and exploited it, but he is an excellent example of what not to do.
Don’t spend all your money on stupid crap when you have bills to pay. That’s the gist of financial responsibility.
Financial Responsibility and Savings
Another key component of financial responsibility (and personal finance in general) is having a savings account.
A savings account can help you weather financial storms – whether that be a one-time financial emergency such as a vet bill or broken appliance, or a long-term emergency such as a job loss. Some experts recommend that your entire focus should be to get $1000 in an emergency fund, but I don’t think that’s enough. I’ve never met an emergency that costs less than $800, and most of them are over $1000. I think $1500 or even $2000 is a better goal, but that’s just me.
How Can I Be More Financially Responsible?
Some of us may recognize that we need to be more responsible with our money, but man is it tough to get there sometimes. We work hard, don’t we deserve a treat – like a night out or that fancy new top you’ve been eyeballing?
I understand that thought process, and I understand that it’s tough out there right now. We shouldn’t have to work so hard and never have anything fun. But there is a way to balance that – to ensure that you are taking responsibility for your adult life while also enjoying yourself. There are a few things you can do:
The first thing you need to do is prioritize your spending. This means you need to take a really long hard look on what really is important to you. What are your future goals, and how does your spending support those goals?
James Frick said it best “Don’t tell me where your priorities are. Show me your budget and I’ll tell you what they are”.
This saying basically means that your spending showcases your priorities. Are you prioritizing fun over paying the bills? Drinks over buying food?
If that’s the case, it’s time to reexamine what’s important to you. It may be that you are more than happy to not be able to afford rent and couch surf if that means you can party every night. If that’s your priority, fine, but don’t expect others to pick up the slack for you. Don’t get into a relationship, don’t have kids, and don’t leach off of everyone else.
But if you realize that you’d rather have more financial security, you can make break those bad habits and make changes. It starts with a budget.
Budgets have a bad rap. Just hearing that word makes us all sigh out a collective groan. But it doesn’t have to be a dirty word. In fact, a personal budget can help you ensure that your spending is in line with your priorities, and lead you to a financially responsible life.
Budgets can help you make adult decisions like “I can’t afford to go out tonight” or “I need to buy groceries instead of that new game”. It can also help you determine how much money you can reasonably afford to start saving out of each paycheck.
If you need help making a budget, check out this awesome post by Money Saved is Money Earned. They also give you the opportunity for a free monthly budget sheet! How to Fire also has a complete Budgeting Guide. There are a plethora of online resources that can help you build a budget, even if your income isn’t consistent.
Don’t Spend Money You Don’t Have
A major part of budgeting is making sure you don’t spend money that you don’t have. Yep, that means you need to stop using your credit card to pay for your wants.
I mean, I’m not really one to talk. I racked up tens of thousands of credit card debt in the last two years – but most of that was due to financial emergencies. Life can be difficult sometimes, and in those times it’s okay to rely on credit to pay for things you need.
But what I don’t do, and you shouldn’t either, is buy something with my credit card just because I want it. Recognize wants versus needs, and make sure it’s a need before using credit.
Increase your Income
The third step to becoming more responsible is to increase your income. Making more money will ensure that you are able to pay your bills, and will also give you the opportunity to put more fun money into your budget.
You can either increase your income by improving your skills and getting a better job, or through a side hustle. I personally love the idea of a side gig, because it gives you more control over your income. If you aren’t sure how to start; I recommend Launch Your Side Hustle – an amazingly thorough course that teaches you everything you need to know about it.
Improving your skills will also help you increase your income. Check out online certification programs to gain skills in growing industries. Emeritus offers an amazing professional certification in growing industries such as data science. Click here to find out if that’s the right program for you. Having a professional certification under your belt can really help make your resume stand out.
Reconciling My Views on Personal Responsibility vs the Policies that I Support
You might have thought that I don’t believe in personal financial responsibility, due to all the content that I write about UBI, healthcare, and our messed up financial system in general.
That couldn’t be further from the truth. I do believe in personal responsibility. However, I think we can find a balance. The point of living in a society is to help one another. Nobody should be hungry and homeless in a society of plenty. In addition, I don’t think people should have to toil for their entire lives in meaningless, backbreaking jobs just to survive. I think we can do better than that.
But that doesn’t mean I think that everyone has the right to have whatever they want. If you want fancy cars, meals out, lush vacations, and many of the other luxuries that life can offer, you do need to figure out a way to pay for it. That may mean working hard, investing smart, or being frugal in other aspects of your life.
I also have to consider the very real problem that it’s difficult to be responsible with your money in this day and age. Life is expensive. According to an Axios analysis of Department of Labor statistics, the majority of jobs that have been created since the last recession are low wage service jobs. Meanwhile, the costs of necessities such as housing and education continue to skyrocket. Financial responsibility is great when it’s possible, but we need to realize that it’s getting less and less possible, especially for our poorest citizens.
Financial Responsibility vs Lack of Opportunity
It’s also incredibly easy to say “they should have planned better” or any of the thousands of dismissive things we hear about the poor when you’ve had plenty of opportunity to succeed. The harsh truth is that the US is not actually the land of opportunity for everyone. Systematic racism keeps entire communities trapped in poverty. The gender wage gap prevents women from getting ahead. Even if you’re in a group that doesn’t face discrimination on a daily basis, getting ahead is harder and harder.
I think telling the people that are affected by these unjust systems that they should have tried harder is tone deaf at best. We need to acknowledge the systems that are in place that hurt people, and we need to do the work to dismantle those systems.
Surviving in the World We Have
It’s also important to acknowledge that although I long for a society where we take care of each other and everyone is equal, that’s not the reality, and it probably won’t be for a long time. Because of that, we have no other option but to rely on ourselves for survival.
We need live in the world we have, and fight for a better future so that those who come after have it better. Doing our best to be financially responsible in our own lives while fighting for those without the same opportunities is the best way to go about that.
Melanie launched Partners in Fire in 2017 to document her quest for financial independence with a mix of finance, fun, and solving the world’s problems. She’s self educated in personal finance and passionate about fighting systematic problems that prevent others from achieving their own financial goals. She also loves travel, anthropology, gaming and her cats.