You’ve probably heard the term countless times: As an adult, you should be fiscally responsible. It means good with your money, right? Well, yes and no.
Fiscally responsible certainly means responsible budgeting and adhering to the basics of personal finance. But it also means much more than that—fiscally responsible means preparing for financial emergencies and your financial future.
As such, let’s look at fiscal responsibility and how you can be a fiscally responsible person with your personal finances.
Build an Emergency Fund
One of the critical tenants of being fiscally responsible has nothing to do with paying down your debt, how you spend your money or lowering the interest rates you pay.
Indeed, a good part of protecting your future financial health is all about preparing for emergencies, including an economic downtown such as preparing for an upcoming recession, an unexpected expense, or abrupt job loss. To become fiscally responsible, you must establish emergency savings.
What does this mean? If you abruptly lose all of your income, you must have an emergency fund that will allow you to pay basic expenses until you can reestablish yourself. It means, quite simply, that you will be able to live. Emergency funds can help you do so in the event of an economic downturn. Indeed, an emergency fund is one of the most critical components of properly caring for your finances.
How big of an emergency fund should you have? It’s tough to say, but experts generally advise that you build 3-6 months of expenses that you can access at any time. Remember that you don’t need 3-6 months of your expenses today. Instead, build out a budget that would be 3-6 months of the essential expenses, including rent, food, gas, etc. The budget would assume that you would cut out any expenses that are not truly necessary, like eating out or traveling.
Not only can this emergency fund help ensure that you are prepared to deal with unemployment potentially, but it can also help to ensure that you are prepared for a significant and sudden expense.
One of your chief financial goals needs to be able to afford such unexpected expenses, and an emergency fund can help you get there.
Protect Yourself and Your Family
Being fiscally responsible means not only protecting your own financial future but doing so for the sake of your family. One of the most common tragedies in the world, from a financial perspective, is when a person who is the primary breadwinner dies, leaving behind a financially endangered family. You must protect yourself and your family if a similar tragedy occurs.
What does this mean? Consider the following:
Develop an Estate Plan
An estate plan is not limited to passing generational wealth to your children. It means that you have a will that lays out who gets what. Also, you plan for what will happen to your children in the tragic event that something happens to you and your spouse. Consider a revocable living trust if you live in a probate state like California.
Trust & Will provides state-specific trusts to protect and transfer your most important financial assets. You can also nominate legal guardians for your children to ensure they are looked after by someone you know and trust in case something happens to you.
Accessible Financial Information
Ensure you leave behind all financial information on any bank account, savings account, investments, and more. It ensures that your survivors know where your money is and how they can access it.
Make sure that you have all of the appropriate insurance. It includes health insurance, homeowners insurance, disability insurance, car insurance, and more. Remember, even if you live in a rental property, you still need renter’s insurance to protect your belongings.
Often health insurance might not cover all expenses, so have a health savings account (HSA) to pay out-of-pocket healthcare costs. HSA provides a triple tax advantage so ensure your funds in the HSA are invested for growth. Not all HSA accounts have investment features.
One option for an HSA provider is Lively. Lively HSA is free and has no hidden fees. Also, Lively won’t charge you any fees to roll over or transfer your HSA to them. You can transfer your full or partial balance directly to Lively from your existing provider. Lively will contact your previous provider and handle the transfer on your behalf.
You also want to make sure that you are regularly monitoring your finances. Check your checking and savings accounts periodically and ensure that you don’t see any transactions that don’t belong and that only authorized users can access the account.
Also, transfer unused cash to safe investments such as a high-yield savings account.
Personal Capital offers some of the highest savings rates today, with 2.02% APY for standard accounts and 2.15% APY for financial management clients with no minimums in the market.
Monitor Credit Reports
You should also regularly check your credit report for any fraudulent activity. Even if you have excellent credit habits, identity theft and errors in credit reports can cause your score to tank, and you might not even know about it.
Credit Karma partners with Equifax and TransUnion and offers free credit reports and free credit scores updated weekly. It also provides alerts when it detects unusual activity on your credit files.
You can also sign up with Transunion with a paid subscription for additional monitoring and peace of mind.
If you do not have an excellent credit score, follow the Credit Karma recommendations on improving your credit and thus reducing your debt. All of this can help you save money and provide for future growth.
Figuring out how to invest money can be overwhelming, especially if you’re a beginner. Knowing where to start, what to invest in, and how much risk you’re comfortable taking on is challenging.
Several income-producing assets have different returns, risks, and volatility. Before investing, take a step back, ask yourself “why,” and define your financial goals.
Learning how to start investing in stocks should not be difficult with the advent of low-cost index funds. In fact, investing in the S&P 500 has provided adequate diversification and asset allocation with a blend of growth stocks and value investing.
There are several ways to invest in real estate, including real estate investments with little to no money.
One can get passive income from real estate by becoming a landlord. Because of a small supply of available rental homes, rental prices are increasing. Understand the real estate metrics used to evaluate a rental property. Since one must maintain rental homes, it can take some hands-on work to be a landlord.
Many investors who like real estate don’t want to be house flippers or a landlord but want to invest in real estate. Investors can buy real estate investment trusts (REITs) that invest in real estate.
You can buy publicly-traded REITs like VNQ using no-fee platforms like M1 Finance for as low as $10.
Fundrise has one of the lowest minimums (only $10 for the Fundrise Starter Portfolio and is available for accredited and non-accredited investors.
PeerStreet has equity or debt investments on its platform. For debt deals, you provide hard money loans for others to buy the property. The advantage of PeerStreet is that you can filter debt deals by Loan To Value (LTV) and also stressed LTV. PeerStreet has a low $1,000 minimum and has an optional automated investing feature that automatically places you into investments that match your criteria.
Platforms like Yieldstreet provide investment options in art, structured notes, supply chain financing, etc. They also have fixed-income portfolios spread across multiple asset classes with a single investment with low minimums of $2,500.
Pay Down Your Debts
The simple fact of today’s financial world is that the vast majority of us have a debt of some type. Debt comes in many forms, and there are vast differences in the kind of debt we have.
Some kinds of debt occur as part of life and are extremely difficult to avoid. It includes student debt (college loan debt), car loan debt, or mortgage debt. Most people will lack the financial resources to afford college, an automobile, or a home without taking on debt. This kind of debt is normal, acceptable, and manageable.
Fiscal responsibility means making your payments on time. As such, it is incumbent upon you to ensure that you keep an eye on these debts, refinancing for lower interest rates whenever possible, and never miss a payment.
To be clear, you should try to pay down your student loan debt as fast as possible. It will free money up and allow you to invest in other priorities. Keep in mind that some states will enable you to write off the interest you pay on student loan debt, and you can also write off the interest you pay on your mortgage as a tax planning strategy. Thus, it would help if you tracked all of your student loan debt payments.
Other consumer debt — like credit card debt — can be more problematic. In these cases, you make purchases with your credit cards and cannot pay off your credit card debt. Balances on credit cards are high-interest debt, as credit card companies make their money by charging you high-interest rates.
In such instances, your monthly expenses will soar, and you may be unable to save money. One of your chief goals should be to pay down this debt and reform your spending to avoid going into credit card debt in the future.
Plan for the Future
Make sure you monitor your kids’ future and start a college fund as soon as they are born. It protects their financial and educational options and allows them to do what they want with their financial future.
A retirement plan is one of the top things you can do to be fiscally responsible. Even if you have no plans to retire early, the ideal fiscally responsible person constantly keeps their eye on the future. They are prepared for when the day comes that they are either unable to work or choose not to work.
In these instances, you’ll have to invest in an investment account to create retirement income. Thankfully, there is no shortage of investment vehicles that will allow you to save for the future or investments for monthly income.
Many retirement accounts are tax-advantaged, as the federal government has created tax incentives to encourage people to invest in their retirement. This will allow you to earn a return on investment at a healthy interest rate, thus ensuring that your retirement savings will last well into the future.
Building a retirement fund need not be very complicated. There are many investment vehicles, but some are more appropriate than others. Deciding when I can retire is based on my nest egg and the social aspects of the retired lifestyle.
Furthermore, you can and should work with a financial advisor to ensure your retirement accounts achieve long-term growth.
A retirement advisor can help ensure the growth of your investment. They can also help with other vital financial services, like building an estate plan for you and your family. They can also help you identify specific stock market solutions or mutual funds that will allow you to grow your income.
It is also worth keeping in mind that you may work for a business that provides a company match on a retirement investment, like a 401k. Indeed, this is a common benefit of working in the private sector. Not taking advantage of a company match means you are ignoring free money and losing the chance to gain interest in your retirement account during economic growth. Do not make this mistake!
Remember, the primary goal of such planning is to ensure that you do not outlive your income and build a budget that allows your money to last. It requires expert knowledge and services, and a financial advisor can be beneficial here.
Create a Budget
One of the most important things you can do is build a budget that allows you to track income and where you spend money. Tracking this information will enable you to create a balanced budget that ensures you are not spending too much.
It will also allow you to identify all income and expense sources accurately. From there, you can target spending categories specific to your financial situation.
Remember, a budget process can help on both sides of the coin. On the one hand, they can help you figure out if you need more money to live the life you want. It can help you figure out what ways you can use to generate passive income.
For example, let’s say you wanted to increase your current income. Building multiple income streams can help improve your current income, but it isn’t easy to know if this is necessary without a more in-depth examination of your budget. Knowing how much extra income you need to generate can only happen if you create a budget that lays out exactly how much money you have coming in.
Second, a budget can help you identify other expenses and find where you spend money. By tracking how much money you spend, you can avoid overspending and ensure that you are using low or no-interest spending solutions, like debit cards.
Most companies drain our money by asking us to sign up for subscription services. We often pay for several subscription services and don’t even use them. Trim is an excellent service that looks at all your current subscriptions and saves money by eliminating unnecessary money leeches. Also, instead of paying full price, sign up and see if Trim can do the work negotiating your cable, phone, and internet bills lower.
You can also make sure you are concentrating your spending on essential expenses, building an emergency fund, and saving for retirement. It can ensure you don’t run a budget deficit and can pay your monthly bills.
Personal Capital is also a free software I use to monitor my financial health. Unlike other budgeting apps, Personal Capital doesn’t need you to do the tedious task of setting up a budget. After you link all your accounts together, it looks at your current spending and creates a budget for your lifestyle. You can then modify it as needed. Personal Capital also has features to analyze your retirement accounts, eliminate fees, and track your liquid net worth and cash flow. You can read my Personal Capital Review and how I use the various components to set up your free account.
Monitor Government Policy
Like it or not, elected officials in government – and their policies – can majorly impact your financial future. As such, being fiscally responsible often means watching the broader political and economic environment to ensure that you protect your financial interests.
What does this mean? You don’t have to be a financial expert, and you don’t have to watch CNBC extensively. But some things are worth watching. This includes:
Make sure you understand how government spending and the national debt can impact items like monetary policies. Investing during a recession can seem scary and make you wonder, “should I sell my stocks now.”
Analyze how the federal government’s fiscal policy can impact your bottom line. Rising interest rates can impact fixed-income investments such as long-duration bonds. Bond funds do not do well in a rising rate environment, but I Bonds offers rates matching inflation with some premium for the lack of liquidity.
When your local, state, or federal government decisions can impact the amount of money, you ultimately pay. For example, the H.R.5376 – Inflation Reduction Act of 2022 provides electric vehicles and solar panels incentives. Instead of figuring out how to save money on gas, you can plan for your next car.
Section 13301 of the Inflation Reduction Act has energy-efficient home improvement credits based on annual limits of $1,200. Factor those when deciding whether it is a good time to buy a house and break a project up over multiple years.
Watching government policy and understanding how it impacts your fiscal responsibility can be challenging. This is why it is often worth working with a trained financial professional who gets paid to keep an eye on the news, then reacts accordingly.
Becoming a Fiscally Responsible Person
In these uncertain times, it is more important than ever to be fiscally responsible if you want to save money and grow your wealth,
As you can tell, defining fiscally responsible can be challenging. There’s no magic pathway to becoming fiscally responsible. Instead, it involves a series of steps that are all oriented around the same basic idea:
- Limiting consumer debt
- Preparing for a financial emergency
- Looking forward to the future
- Seeking financial guidance from experts
While the pathway towards fiscal responsibility can be long and arduous, the journey is unquestionably worth it.
Fiscally responsible people have extra money to invest in priorities and experiences, limit bad debt, and can enjoy their life.
Plan ahead, you will reap the rewards, and your future self will thank you. Ultimately, it is through fiscal responsibility that you can plan for your future.
John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
Here are his recommended tools
M1 Finance: John compared M1 Finance against Vanguard, Schwab, Fidelity, Wealthfront and Betterment to find the perfect investment platform. He uses it due to zero fees, very low minimums, automated investment with automatic rebalancing. The pre-built asset allocations and fractional shares helps one get started right away.
Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
Credit Karma partners with Equifax and TransUnion and offers free credit reports and free credit scores updated weekly. It also provides alerts when it detects unusual activity on your credit files. Monitoring your credit report for errors can save you thousands.
Fundrise: One of the top real estate crowdfunding platforms for non-accredited investors. Sign up for free and look at passive real estate investment opportunities with low minimum (only $10).
DiversyFund: is an excellent choice for non-accredited real estate investors with low minimum (only $500) offering automatically reinvested dividends.
Streitwise is available for accredited and non-accredited investors. They have one of the lowest fees and high “skin in the game,” with over $5M of capital invested by founders in the deals. It is also open to foreign/non-USA investor. Minimum investment is $5,000.
PeerStreet has a low $1,000 minimum, which allows for better diversification for real estate accredited investors. You can define the criteria based on rate, LTV, duration, etc., and use their automated investing feature to place you into investments that match your criteria. Or manually select the investments.