The Principles of Personal Financial Responsibility

Take these steps toward financial responsibility

Worried woman holding a baby looking at her finances online.

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Want to improve your finances, but not sure where to start? It begins with mastering some basic skills. Get to know the central tenets of financial responsibility, from budgeting and paying yourself first to mastering the art of the credit card.

Learn How To Budget

The first step toward financial responsibility is budgeting properly. Yes, budgets can be boring. But they are also the cornerstone of financial responsibility, no matter your salary or financial situation. Budgets are a way to tell your money where to go, such as paying bills, chipping away at debt or contributing to retirement, rather than spending freely, then wondering where all your money went at the end of the month.

It can be difficult to create and stick to a budget, but you have options. There are many different kinds of budgets, from the cash-only budget to the envelope system. Do your research and find the one that works the best for you.

Financially Responsible Credit Card Use

When used properly, credit cards can be a valuable financial tool. They can help you build credit or help repair a poor credit score. This is especially important if you are gearing up for a big purchase, such as buying a car or your first home.

But to do this, you have to use credit cards correctly. For example, say you have a recurring bill set up to be paid via your credit card each month. Set aside that money in a separate checking or savings account, then have it automatically routed to your credit card bill each month. That way, even though you’ll be accruing a balance each month, you’ll also be paying it off in full every billing cycle.

And remember, don’t use your credit cards for any unexpected spends, or anything that you simply can’t afford that month.

Pay Yourself First

This can seem like an impossible piece of advice, especially if you are living on a strict budget, but it’s vastly important. Putting it simply, paying yourself first means that every single month–or paycheck–set aside money to save. Do this before paying any bills or before any discretionary spends.

You can tuck these funds away in your nest egg, your rainy-day fund, or your retirement account. You can also pay yourself first to cover larger spending, like paying for home repairs or sending your child to summer camp. Allocating these funds to a larger goal the moment they hit your account will prevent you from spending that money unnecessarily or on things you don’t need.

Personal Responsibility Means Investing Wisely

Whether it’s amassing a small stock portfolio, owning your own home, or religiously contributing to your retirement fund, learning how to invest properly is a keystone of financial health–and future wealth.

If you want to build a stock portfolio, consider hiring a financial advisor. These professionals can help you determine your risk tolerance, how much to contribute each month to your goal, and which investment vehicles are best for you, from mutual funds to bonds and stocks.

Another wise investment can be owning your own home. A couple of factors have to be considered before taking an investment of this size on: how long you plan to stay in your home if it’s located in an area that will appreciate in value, and if you are allocating less than 30 percent of your take-home pay to your mortgage payments.

Lastly, we all know that saving for retirement is important. But did you know it’s one of the keys to being financially responsible? Think of it this way: When you make saving for retirement a priority—whether it’s via a 401(k), a 403(b), a traditional IRA, a Roth IRA, or another savings vehicle—you are prioritizing your financial future, and are making sure that you will be able to financially support yourself as you get older.

Live Within Your Means

It’s easy to compare yourself to your neighbors or friends when they flaunt that shiny new car, new custom-built home, or even a new handbag or fancy piece of sports equipment. And while it may seem like the Joneses have everything you want and are financially successful, keep in mind that you never know anyone else’s true financial situation. They could be funding their lifestyle with credit cards, amassing debt simply to have nice things.

Don’t let that be you. Live within your means. This means not spending money you don’t have; not putting things on credit cards to deal with later; and sticking to a budget that allocates money to your regular expenses, rent or mortgage payment, transportation costs, and the like, before you splurge on something you can’t really afford or don’t really need.