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What is financial responsibility and how to achieve it

Posted 24.11.2020
What is financial responsibility and how to achieve it

So, what exactly is financial responsibility? It’s a question that makes you pause for thought, but as with most things, the best answer is always the simplest one. In this case, achieving financial responsibility is simply a matter of maintaining a lopsided balance between your income and expenses. With the balance in favour of your income, of course!

In short, what you earn should always outweigh what you spend.  

Calculate your budget to the tiniest detail

The first step to financial responsibility begins with shining a huge, bright, and unforgiving spotlight on what you spend. Make an appointment with yourself to go over your receipts, bank notifications, cash withdrawals, and any other financial record with your prints on it. By the end, you should have cleared the mystery of where all your money disappears to. Down to the last rand. Only then can you start working on your budget.

Create a ‘real-life’ budget

Most people focus on creating budgets that make them feel virtuous, similar to what happens with New Year’s resolutions. Yet, coming up with a workable budget shouldn’t be about what looks good on paper.

That’s because you’ll end up struggling when it comes to executing the plan. For instance, it’s easy to cut out all your favourite treats and self-indulgences. But, when the cravings finally come in full force, you’ll find that the illusion of iron control and willpower quickly evaporates. Clearly, the better solution is to craft a budget that accommodates your habits and lifestyle.

Getting back to the matter of treats, give yourself a small allowance to cover those, so you don’t end up rebelling against your own creation. Just make sure you scale the expense down, so it fits within the balance you’re trying to maintain.

Keep a tight lid on your debt

A big part of financial responsibility is trying to cut back on spending money that doesn’t belong to you. After all, that’s what happens every time you borrow money from friends and family. Or when you take out a loan. Or when you add new outfits to your wardrobe using a clothing account. To live within your means, start by tracking every cent you owe. Next, incorporate a workable and flexible payment plan into your budget. Once your debt is paid off, the goal should be to avoid building up more unnecessary debt.

Understand the cost of borrowing

Yes. Sometimes debt can be absolutely necessary. Home loans, car loans, student loans, and personal loans are all financial tools that bridge the gap between your savings and the asset or investment that gets you ahead in life. A credit card can help to build your credit score or provide cover when an emergency occurs.

The trick to proper management of debt lies in understanding the costs involved. Typically, when you borrow money or goods, you have to pay back everything with extra on top because of interest and other associated fees. That means for every item you spend borrowed money on, you end up paying more than the actual price or value of that particular item. This extra cost should make you hesitate every time you want to spend borrowed money on things you don’t necessarily need. Like the latest car, an extravagant wedding, or a luxurious holiday in Dubai.

The bottom line? Debt comes with extra cost. But, if it has to be a part of your life, minimise costs by carefully separating essential needs from non-essential needs.

Roll out your savings plan

Financial responsibility will always circle back to you spending less than what’s coming in. The truth is, you’ll never run out of things to spend money on. But, sometimes, you just need to keep your hand out of that cookie jar. Instead, consider every rand put away as money that you have paid yourself. Your future self will definitely thank you once you’ve built enough financial protection. 

Build your “nest egg” or emergency fund

Financial experts recommend having at least 6 months’ worth of savings tucked away. That way, when emergencies pop up and your boss suddenly hands you a termination letter, you’ll still have a financial rescue rope that keeps you from sinking under the weight of debt.   

Work on financial growth 

Being financially responsible doesn’t mean you have to scrimp and save all the way. Avoid a lifetime of frugal living and expand your financial freedom with these tips:

  • Invest in the stock market
  • Negotiate a raise at work or look for a better job
  • Create another stream of income by starting a business or finding a suitable side gig     

Stay in your financial lane

When you embrace your unique financial standing, you won’t keep yourself busy with thoughts of Twitter or Instagram friends who’re showing off their latest iPhones. Neither will you waste your energy trying to one-up them. Instead, you’ll keep the focus where it should be – on your immediate needs and the needs of those who depend on you. Buying the latest gadgets to match what other people are doing instead of buying groceries for you or your parents is NOT the way to financial responsibility.

Financial responsibility: Reaching the “endgame”

In the final analysis, achieving financial responsibility is about teaming up several behaviours that support the concept of living within your means. This applies whether you’re earning peanuts or sitting pretty with millions in your account. So, go ahead and take stock of your financial ins and outs, then adjust your earning and spending habits to create a responsible financial balance.