Financial responsibility involves managing money and assets in a productive way, understanding needs vs wants, saving money, creating and sticking to a budget, resisting impulse buying, making wise purchases, and using credit wisely.
Financial responsibility is the process of managing money and other assets in a way that is considered productive and in the best interest of the individual or family. Being proficient in the task of finance and money management means cultivating a mindset that allows you to see beyond today’s needs to meet tomorrow’s needs. To achieve a high level of financial responsibility, it is necessary to understand several basic principles.
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 once needs are met. Some examples of needs that would apply to most people include food, clothing, and shelter. Many people would also feel that getting educational credentials that are at least college level is also a necessity in today’s world.
Once there is a clear understanding of the difference between wants and needs, the next step in financial responsibility is to learn what to do with the leftover money once those basic life needs are met. Saving money should be a priority when considering ways to spend your excess income. Even if no more than a small percentage of your weekly pay is set aside in some type of interest-bearing account, that amount will grow over time and create a degree of financial security that might not otherwise be possible. 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 start 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 starting items just yet, there’s a good chance that putting money aside for meals, dates, car payments, and car insurance will be 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 job is going and how to use that money to best effect.
Resisting impulse buying is also key to financial responsibility. This can often be difficult for even the best money managers. There are constant visual and audio stimuli through the various forms of media to entice people to buy items they don’t need and, in some cases, can’t comfortably afford. Choosing to buy from a list can reduce impulse buying somewhat. Another way to stop impulse 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 are no more impulse purchases for the rest of the budget period.
Because financial responsibility implies wise spending, the savvy money manager will learn to determine if the time is right to make a particular purchase. This often involves asking some basic questions. Is this purchase to replace something major, like a vehicle? Would it be possible to continue using the current item for a while longer and possibly be able to afford a higher quality replacement later? If replacement or acquisition is absolutely necessary at this time, will a product of equal quality but at a lower price be acceptable? Purchases should never be made in a hurry, but only after weighing all the options.
No description of financial responsibility is complete without mentioning the wise use of credit. Too many people assume that as long as they can make the minimum payment on credit card balances, they are in good fiscal shape. That is not the case. Financial responsibility dictates that the less unsecured debt an individual has, the better their financial outlook will be. Be sure to limit the number of credit card accounts you have, and make sure balances are paid each statement period or at least no more than three periods. This will help minimize the amount of interest paid to credit card companies and also provide you with a source of emergency financing in case of an emergency.
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