While we often hype the benefits of being “fiscally responsible,” we don’t discuss what that actually means nearly as much.
This certainly had an effect on me when I was in the process of figuring out my finances. On a near-daily basis, I’d wonder whether I was making the right decisions and living up to the ideal of fiscal responsibility.
To save you from that headache, I’ve put together this list of 10 characteristics associated with fiscal responsibility. While there are many more traits one could include on such a list, these are the absolute essentials.
Don’t worry if you aren’t doing every single one of these things right now. Becoming fiscally responsible is a process. As long as you’re constantly moving forward, you’re doing well.
10 signs you’re fiscally responsible
1. You maintain a budget
Fiscally responsible people understand budgets are like roadmaps, guiding them towards a brighter financial future much faster than winging it.
The results speak for themselves. A soul-crushing 78% of Americans and 47% of Canadians are living paycheck to paycheck. Personal finances consistently rank among life’s top stressors in both countries, with many families just a single emergency away from having everything fall apart.
Of course, budgeting in and of itself doesn’t automatically mean you’re in the clear of potential speed bumps. But at least you can see the road ahead. As you continue to budget wisely, you’ll find yourself with increasingly stable traction.
You’ll also find yourself spending money more wisely by default since you’ll have a plan to actually hold yourself accountable to.
If you’re not there yet, check out this article about organizing your finances. In the first few tips, I highlight the actual steps involved in making a budget.
2. You have cash set aside for emergencies
In my opinion, this is among the most important signs of fiscal responsibility.
In fact, even if you do other seemingly fiscally responsible things (like invest), I’d still argue you’re walking on thin ice without an emergency fund.
After all, if a financial emergency happens to coincide with broader economic turmoil (i.e. you lose your job in the middle of a pandemic-fueled market crash), you’d be forced to sell investments at the worst possible time just to stay afloat.
Unfortunately, statistics regarding emergency funds in North America are quite abysmal.
According to a Federal Reserve survey, nearly 40% of Americans don’t have enough cash to cover a $400 emergency. Up north, a government report found 35% of Canadians described themselves as being unable to cover a $2,000 emergency.
If you don’t have an emergency fund, I recommend reading this article on how to save $10,000 in the next 12 months. Those 10 simple steps will help you establish a very solid foundation.
Most financial experts recommend keeping at least three to six months of expenses in your emergency fund. However, advice you receive one-on-one can vary depending on your situation, including your job stability. Speak with an advisor to identify the right amount for you.
3. You’re saving for retirement
Fiscally responsible people understand the importance of saving for retirement well in advance. They’re willing to sacrifice today for the sake of stability and security tomorrow.
Of course, there are many reasons people don’t save. It’s not necessarily all due to laziness.
However, you ultimately need to take responsibility for your own financial stability.
If you’re like most people, you earn the bulk of your income from an employer. Once your career ends, so will this source of revenue, at which point you’ll be left to survive on your savings.
It really is this simple. Yet, many people miss the inevitability of it. Perhaps they see retirement as being too far off into the future to worry about or simply can’t imagine the prospect of having to live off savings (remember, many people are still living paycheck to paycheck).
Whatever the reason, making little attempt to save for retirement is a sure sign of fiscal irresponsibility – and vice versa.
4. You have no high interest debt (or are working on it)
Avoiding high-interest debt is one of the keys to building personal wealth. Fiscally responsible people recognize this and limit their debt to low-interest loans (i.e. mortgages and auto loans, both of which typically come with single-digit interest rates).
Once again, much of the population fails short on this benchmark of fiscal responsibility. Americans carry an average credit card balance of $6,194 according to CNBC while Canadian averages hover around $4,465.
Now, if you have high-interest debt but are working towards paying it off aggressively, I’d argue you should also consider yourself to be fiscally responsible. While you may have made reckless decisions in the past, you’re moving in the right direction.
High-interest debt includes loans such as credit cards, payday loans, and personal lines of credit used for discretionary purchases.
Meanwhile, debt in the form of a mortgage or car loan typically comes with a much lower interest rate, allowing a fiscally responsible person to take longer with repayments while also saving and investing.
5. You pay yourself first
Fiscally responsible people make an effort to save a portion of every paycheck. This is what many refer to as “paying yourself first.” By doing this, you demonstrate having good financial priorities and goals.
The alternative would be living paycheck to paycheck, making others rich without ever getting ahead yourself.
Check out this article for some tips on saving money from your salary.
6. You track your spending
Tracking your spending is another clear sign of fiscal responsibility since it means you’re availing yourself of the information required to keep up with your goals.
This is especially important if you regularly spend with credit. After all, chances are your available credit greatly exceeds your monthly income, making it possible to shoot past your budget without even noticing.
Irresponsible individuals often avoid using trackers, however, because they fear having to confront their habits and make changes to them, especially if they know they’ve been living beyond their means.
You can’t fix what you can’t see, though, so get over this trepidation and take a peek under the hood.
7. You have financial goals
Having financial goals is a sign of fiscal responsibility because it shows you’re engaged.
Now, many people have goals involving money that aren’t actually properly thought-out financial goals. Allow me to explain.
Say you really want to buy a car. Great! However, in and of itself, that is not a financial goal. In fact, thousands of people buy cars without thinking about the financial aspect until they get into the dealership.
Fiscally responsible people, however, carefully consider the monetary ramifications and consider factors such as how much of a down payment they need to save in order to reasonably limit the amount of debt required for their purchase.
Of course, financial goals don’t always have to involve making a purchase. For example, you may aim to hit a certain amount of money in your brokerage account or something of that sort. Whatever the case may be, having goals is very healthy and responsible.
8. You know your net worth
A fiscally responsible individual knows their net worth and refers to it when making financial decisions.
This differs from how fiscally irresponsible people often make decisions, which is by focusing on their income alone.
At face value, this may not seem like an important distinction. However, paying attention to your net worth is important because it indicates whether you’re growing financially or running in place while making others rich.
It keeps you from thinking you can afford something simply because the monthly payment seems reasonable. Rather, you focus on how a potential purchase fits into your overall financial picture and whether you’re biting off more than makes rational sense.
Calculating your net worth is really simple. All you need to do is subtract your liabilities from the value of your assets. Liabilities consist of any debt you owe (i.e. credit cards, mortgages, etc). Assets include cash, stocks, and any other thing of value you own.
So if you had a $20,000 car loan, $40,000 in student debt, $3,000 in credit card debt (all liabilities) and a $100,000 401k, your net worth would be $100,000 subtract $63,000 for a total of $37,000.
9. You’re investing
Fiscally responsible people invest because they understand money has potential. It’s not so much that they see investing as a huge chore and sacrifice but rather a wise long-term play.
Irresponsible people, on the other hand, see money as simply a means to an end. They limit themselves to thinking about investing as being only for people with millions of dollars and degrees in finance.
This is one of the biggest hurdles on the path to fiscal responsibility given how easy it is to overcomplicate investing. In fact, I’m certain that if people knew how simple it actually was, they’d be investing a lot more.
It’s very important to draw a distinction between investing (which is responsible) and speculating (which isn’t).
Investing means holding quality assets for the long-haul while speculating involves attempting to day-trade and turn a quick profit, which is very difficult and statistically unlikely.
10. You’re constantly improving
Fiscal responsibility isn’t something you achieve once and then never have to think about again. It requires constantly reviewing your progress and looking for ways to improve.
Fiscally responsible people do this even though it’s very easy to make excuses and avoid accountability.
This point is closely related to several others on this list. When it comes to budgeting and investing, in particular, it’s imperative that you reevaluate every now and again to ensure prior decisions accurately reflect your current situation.
Of course, if you’re reading this article, there’s a decent chance you care about your finances and want to improve how you handle them. If so, you’re already doing well!
As mentioned at various points in this article, fiscal responsibility is a process. Very few people do everything on this list successfully 100% of the time.
However, as long as you’re moving forward and keeping yourself financially accountable, you’re doing well. Take the 10th point to heart and keep improving.
Check out more of my articles about personal finance here. I hope they’ll help you become a more fiscally responsible person!