Being fiscally responsible is important for all adults, especially small business owners who need to make every dollar count. Unfortunately, traditional education doesn’t teach us how to become fiscally responsible individuals or practice financial responsibility over the long term.
If you want to learn how to master your finances, you’ve come to the right place. This article will discuss what fiscal responsibility is and the financial strategies you can employ starting today.
It’s not a guessing game.
What is fiscal responsibility?
Put simply, fiscal responsibility means using your money wisely. This can include:
- Earning money in a sustainable way
- Not spending money irresponsibly
- Saving money and investing it for the future
- Not taking on too much credit card debt or taking out too many loans
As you can see, fiscal responsibility is an encompassing, comprehensive philosophy and skillset. It’s not one thing you do; it’s how you approach monetary use overall, including managing money for your business.
For individuals, fiscal responsibility usually means things like paying bills, saving for retirement, etc. For business owners, fiscal responsibility means saving up a nest egg for a bad economic period, not taking out predatory business loans, and so on. Fiscal responsibility is slightly different for everyone, but it’s universally important.
The importance of being fiscally responsible
Being a fiscally responsible individual is important because, unless you are extremely fortunate and wealthy from birth, you’ll have to be careful with your money to avoid running into financial trouble.
If you spend your money unwisely, you’ll eventually run into debt. Which can impact your credit score and cause you to be unable to take out good loans or open up new lines of credit. Bad financial habits have a way of snowballing on themselves. One big mistake can cause you to make another mistake, and so on. You’ll end up living paycheck to paycheck, unable to reach your short-term goals or manage your money and personal finances.
In contrast, good financial habits have a way of yielding dividends long into the future, which is part of why they can be tricky to adopt. In the end, though, being fiscally responsible is crucial. It will allow you to build up your business successfully. And make it so you don’t have to stress about money, no matter where you work or where your money comes from.
How to be fiscally responsible
Luckily, there are several ways in which you can be financially responsible. These strategies should be used simultaneously so that you can reap maximum benefits.
Set financial goals
First and foremost, be sure to set financial goals for your future. No money plan is complete without concrete goals you believe you can achieve in one, five, 10, 15, and 20 years or beyond!
For most Americans, common financial goals include:
- Saving up a certain amount of money for retirement. Many online retirement fund calculators can tell you exactly how much you should try to save, given your age and annual income level (including passive income).
- Saving up for college or the college education of your children
- Saving up enough money to start a business
- Paying down all debts to improve your credit score
- Getting your credit score high enough to qualify for a mortgage, etc.
If you don’t have these goals in mind, take a look at your life and ambitions and decide what you want to plan and save for. Then you can set some financial goals to achieve in the short-to-mid-term future.
Build a budget
Once you have your goals lined out, you should build a budget that will help you accomplish those goals.
Take a look at all your streams of income, including the paychecks you get from your steady job and income from side hustles. Then decide how much money you have to devote to necessities, like bills, debt payments, etc. Next, figure out whether you have any money left (and how much) for fun spending or saving.
Not sure where to start? Consider following the 50/30/20 rule. In a nutshell, this rule means your money should be divvied up and budgeted accordingly:
- 50% for all must-pay bills, like utility or mortgage payments. This also includes any debt payments.
- 30% for putting money into your savings or investment accounts
- 20% for fun
Aggressively pay down credit card debt
Part of being fiscally responsible means having as little debt in your name as possible. With that in mind, try to aggressively pay down all your credit card debt, starting with the lowest debt and working your way up to the debt with the most remaining money.
This is a good strategy since it will allow you to knock out small debts with separate interest rates early, reducing how much money you have to pay every month when all the debts come due.
Track your credit score and spending
Simultaneously, it’s a good idea to track your credit score and spending using online accounting software or your phone’s bank app. By tracking your spending, you’ll ensure you don’t accidentally slip up and spend money where you shouldn’t. Many of these apps also let you track your credit score, which will show you how quickly you’ll be able to apply for quality loans.
Build up an emergency fund
In the earliest days of becoming fiscally responsible, try to tuck away as much money as possible into a savings account for an emergency fund. Ideally, you want one to three months of money saved in case you lose your job or are injured.
Invest (wisely) in the stock market or savings accounts
You should also try to invest wisely in the stock market or put money into separate savings accounts for your retirement. The more money you have saved up, the more financially stable you’ll be and the less you’ll have to worry if you run into an unexpected problem in the future.
Diversify your investments
If you decide to invest in the stock market for retirement purposes, diversify those investments by buying stocks of multiple companies, exchange-traded funds, etc. A diverse investment portfolio protects you from stock market dips and plunges and prevents you from hinging your financial future on the success of a single company.
You could also consider investing in cryptocurrencies like Bitcoin or Ethereum, but be sure to keep the allocation of these risky assets under 5% of your portfolio.
Lastly, look into insurance, like life insurance and health insurance. Unexpected medical problems can bankrupt you even if you save a lot of money, but the right insurance policy will protect you from this negative outcome.
You can become fiscally responsible by making a financial plan and sticking to it. Plan out your financial moves well ahead of time, and you’ll be much better equipped to minimize financial headaches, whether you’re a business owner or an average American.
What does fiscally irresponsible mean?
Being fiscally irresponsible means being irresponsible with your money. For example, maybe you don’t save any money, or you spend new income as soon as you make it. Fiscal irresponsibility might also include taking out predatory loans that you know you can’t pay back or not paying down your debts on time.
Why is it important to be fiscally responsible?
It’s important to be fiscally responsible, so you don’t have any financial strain in your life. Fiscal responsibility can lead to financial stability in the future, allowing you to start a business, save for retirement, and much more.