The phrase “fiscally responsible” might conjure images of tweed jackets with elbow pads and old-school calculators. But this concept is more relevant than you may think. And it's definitely applicable to you!
Let's get into it.
What does it mean to be fiscally responsible?
Anytime money is involved (that’s where the “fiscal” part comes in), some level of wise decision-making (aka “responsibility”) is required. That's why people always mention fiscal responsibilities alongside money and budgets.
Accumulating wealth doesn't have to be the ultimate goal. It could just be a means to an end. Because the truth is you need cash to fund the life you want to lead and for the change you want to bring to the world.
So, the "fiscally responsible" meaning boils down to conscientious spending. How money gets spent matters, not just for you and your family, but also in the context of the global economy.
This way, we can hold ourselves, our loved ones, the companies we invest in, and our government accountable for being fiscally responsible.
Fiscally responsible meaning in politics
We expect our politicians and appointed officials to uphold their fiscal responsibilities. This includes fundraising, allocating, and spending money appropriately.
Parks and activities, police, roads, schools—they’re all funded by your taxes. And your elected officials allocate taxes depending on their fiscal policy.
So, being fiscally responsible means sticking to approved budgets. They shouldn't be using public funds for personal use either.
Fiscally responsible meaning in government
In the government, we often think of fiscal responsibility as avoiding overspending. Ideally, we like our leaders to spend only what the country earned through taxes. So we have a balanced budget. But this isn't always the case.
One of the biggest questions surrounding fiscal responsibility is the national debt.
Most people support one of two solutions with the same end result which is lowering the national debt. Some people believe we should raise taxes for the wealthy to pay down the debt. Others feel we should cut spending to bring down the national debt ratio, generally in the form of social services.
While it’s easy to feel disempowered and disconnected from how the government spends, you do have some say in the matter.
So speak with your representatives and make sure you vote, especially locally. By doing this, you highlight the causes that are important to you.
How can you be fiscally responsible with your personal finances?
Fiscally responsible meaning comes down to two pillars when it comes to your personal finances. First is taking responsibility for your everyday choices. And then, creating a vision for the future. The main strategy is controlling what you can and planning for what you can’t.
Here are some key ways in which you can be fiscally responsible:
Create a budget
When it comes to budgeting, the easiest formula you can follow is 50% for essential expenses, 30% for non-essential expenses, and 20% to save and invest. However, this is just a guideline.
Budgeting is highly personal. Create yours based on your income, season of life, and your money goals. It's all about finding the budgeting method that works best for you.
But it's an important document because it helps you become fiscally responsible. It tells you how much money you're bringing in and how much you're spending.
Track your spending
There’s no point in making a budget if you’re not going to track to see how it aligns. Tracking your spending not only informs future budgets, but it can also serve as a gut check as you evaluate your spending.
For example, "Oops, I spent $45 more dollars than I expected on coffee this month—I need to cut back next month". Or, "Wow, I’m consistently spending $20 less on gas each month—I can put this toward my debt instead".
These are reflection points that can help you become aware of your fiscal responsibilities. To be more mindful of your spending in the future, make sure your monthly expenses are all accounted for.
Create categories such as housing, transportation, food, and so on to make it easier. Then, start listing your expenses like rent, car insurance, groceries, and Netflix subscription under each category.
Establish emergency savings and sinking funds
Unexpected expenses happen. There’s no avoiding them. But you can build up savings so that when disaster strikes—or even happy surprises pop up—you aren't left scrambling for cash.
Here are two ways to save:
Build up your emergency fund so you have money when "life happens." Think of moments such as when your water heater stops working, your car breaks down, or you lose your job and you can't find a new job right away.
Aim to save at least the equivalent of your three to six months of expenses. Start with the amount you need for basic living expenses. This includes the minimum you need for food, housing, core utilities, and transportation.
Sinking funds are for your planned upcoming one-time or irregular expenses like a vacation or routine car maintenance. Being fiscally responsible means you plan ahead and put aside money for such expenses.
Pay off debt
If you are paying interest on your debt, it's sucking the potential out of your long-term savings and investments. Especially if you have high-interest debt.
So focus on getting rid of your debt as soon as you have an emergency fund built up. You'll be relieved to be free from the weight of debt, whether it's credit card debt or student loan debt. And paying them off is definitely the fiscally responsible thing to do.
If you use credit cards, ensure you have a plan to use those credit cards wisely. Budget your spending. And pay off your balance every end of the month.
Monitor your credit score
Paying off your debt improves your credit score. Hopefully, you've been tracking it and you're aware of your current credit standing.
Your credit matters when you're making big purchases like buying a home. It’s also used to determine your interest rate on your credit cards and loans. Lenders also use it to check if you're eligible for services like your contract cell phone or your apartment rental.
Some employers may even look at your credit report when considering you for a job! This is why tracking and understanding your credit is one of your core fiscal responsibilities.
Create multiple streams of income
Rather than being entirely reliant on a single source, having multiple streams of income is a great idea. Keep in mind that it's not just for business owners and social media influencers.
Whether you have a special skill, an artistic passion, or any other potential source of revenue, why not leverage it? You can also make some passive income if you have extra real estate in your house to rent out.
While your time is precious, you likely have a small amount to spare that’s worth the extra income. If you’re not totally sold on the idea, consider putting your side hustle paycheck toward something specific like a fancy gadget. You may also use it to reward yourself with a day at the spa.
You don’t need to be a millionaire to start investing. Remember, there’s no “right” way to invest. One of the first things you should tackle is regular contributions to a retirement fund, especially if your employer has a match program. (That’s free money that will compound over time!)
In general for other investment options, decide how much you’re willing to risk and try it out. There’s always some level of risk.
Remember that leaving your life savings in cash is also risky because it loses value over time with inflation.
Seek professional help if you’d like the support, but also consider the Robo-investing options.
Leverage technology and Robo-advisors to invest as little as you can, without the overwhelm of having to know all the inner workings of the stock market. Check out Robo-advisors like Acorns, Robinhood, or Wealthfront.
The process is fairly simple—you answer a few questions to set up your investment account. Then, you deposit or transfer funds from your bank account. And they'll do the rest.
Robo-advisors choose your portfolio for you and manage it, reallocating your funds as necessary. So, you can be fiscally responsible without doing all the work.
Get the right kind of insurance
Having the right insurance is quite possibly the most boring topic, but it's a very important part of your fiscal responsibilities. These are the different types of insurance you should consider.
You want to make sure you’re covered with disability insurance so that you have an income if you can’t work. This is especially relevant if you’re self-employed or your job doesn’t have policies in place to protect you from injuries or serious illnesses.
Homeowner's insurance protects your home and possessions against damage or theft. So, make sure your coverage is comprehensive enough.
Renters, don’t think you’re exempt—all the stuff inside your rented home can be covered at an affordable rate with renters insurance.
If you have a family that’s partially or fully dependent on you, consider buying life insurance. If you die unexpectedly, then you know they have money to support themselves.
Even if you don't have dependents if you are carrying some debt, a life insurance is good to have. It protects your family from needing to cover your debts. You don’t want to saddle your family with expenses they might not have the means to pay for.
Build generational wealth
Your way to building generational wealth is knowing your fiscal responsibilities. Life insurance is one way to pass down wealth to future generations.
Owning assets like rental properties, arts, or jewelry is another. Your investments, both retirement and otherwise, can also leave a legacy of wealth for your descendants.
Although it sounds grim, make a will and estate plan early in life. It’s worth the small investment now to guarantee that your family members will receive what you intend to leave them.
Become a fiscally responsible person and live stress-free
Remember, being fiscally responsible is not just a term you hear on the news. It doesn't just apply to the government either.
You can apply the same ideas to your life by taking control of your finances. Your future self will thank you for all your work toward being a fiscally responsible person.