How to be Financially Responsible

When something like COVID-19 or the 2008 financial crisis strikes, most people are caught by surprise. That can be okay if you’ve been financially responsible, or a catastrophe if you haven’t. Here are some tips to be more financially responsible so you are prepared when the next crisis comes.

Introduction to Financial Responsibility:

If there is one thing that recent times have taught us, it’s the importance of planning and maintaining a conservative financial position. In short, you must spend less than you make (income-expenses>0). The recent pandemic, which resulted in a loss of earnings for almost everyone, calls us to be more financially responsible, to plan for the unexpected, and to be careful not to become over-extended with debt or other obligations that are beyond our financial means.

The importance of personal finance planning has never been as important as it is today. Those who are able to maintain, or even thrive through economic downturns do realize the importance of being financially responsible, yet a lot of us still find it difficult to apply this in our daily habits. Here’s what you can do.

We’ve prepared a checklist for you to follow that is going to act as an aid to assist you in being more financially responsible. 

1. Plan your Income – Establish a Diversified Income Stream

Gone are the days where a typical 9-5 job used to be sufficient and reliable. Today, for most people to make ends meet, you need to make sure your income is stable, and often coming from multiple sources. Whether thats driving for Uber or Lyft on the weekends, or selling your art on Etsy, more than one stream of income can be incredibly helpful.

It is not advisable to solely rely on one job with no backup plan if that job lays you off. There are numerous platforms where you can learn a skill, and earn an extra income. Establishing a secondary income stream is extremely helpful in furthering the goal of financial independence. Diversity in income allows you to establish financial security beyond what most people have. For example, if your day job starts to get intolerable, or you get laid off, you can have a secondary income stream that you can start spending more time on while you look for another job. Or, turn your secondary income stream into your primary as many people do each year. 

With a diversified income stream, your day job doesn’t own you. You get to make your own financial decisions independent of what your day job might like. Doesn’t that sound nice?

It’s also a good idea to establish career goals, and always be looking for the next right move. You can’t rely on employers to keep you around forever, so make sure that you have been talking to people in your industry and that you have relationships with people that you can call and inquire about jobs. Without career goals, it’s easy to get stuck in a job that’s “good enough” but ultimately isn’t your passion. By always reaching for something better, you’ll set yourself up for finding your passion, and pursuing it. 

​2. Plan your Expenses – Create a Budget

Manage your expenses. Don’t let your expenses manage you. 

As cliche as that might sound, it is both advisable and necessary to plan your expenses. Some expenses are clearly unavoidable (housing, cell phone, groceries), but you can avoid expenses that you think are not absolutely essential (dining out, new cars, new clothes, expensive alcohol). You can track this by closely monitoring your expenses, and then reviewing where you’re spending money to figure out if it’s absolutely a necessary expense. For example, you might think buying bottled water on your way to work every day at $1 is insignificant. However, multiply that by 365. This shows that you are spending around $365 every year on water that you can get for free by bringing your own bottle! Figure out what these unnecessary expenses are, and then cut them out. 

Even more insidious can be the expense of credit card debt. Credit card debt compounds, meaning you can end up paying interest on your interest. That’s extremely dangerous and you should always try to pay your credit cards off at the end of every month.

There are great tools out there for expense planning and budgeting. Give it a quick google and you’ll be impressed.

The chart below is. a good starting place for thinking about how much of your income to budget for each spending category:

​3. The Golden Rule of Personal Finance – 40/20/20

This famous rule states that out of all the income you earn, around 40% should be utilized for day to day expenses (or utilities). On the other hand, 20% of those expenses should be consumed for leisure of recreation. The remaining 20% expenses should be directed towards saving or investments. This golden rule, if put to use properly, can do wonders.

​It is necessary to draw portions of your income, so that you know how much to spend, on which particular aspect of your life. It is essential for you to set aside your saving and investments first, so that you have something for a rainy day. Most Americans don’t have $400 saved for an emergency. That means that they will rely on credit cards for emergency expenses, which is an extremely dangerous tactic. Credit card debt can quickly spiral out of control and leave you facing enormous interest payments.

Being financially responsible is no longer something you SHOULD be. In fact, it has now become a basic survival instinct to make sure that you don’t find yourself broke in unprecedented situations. Effective budgeting and planning goes a long way. If you are able to make this a daily practice, you will see the results for yourself. Just bear in mind, being financially responsible is not really a destination. It is a journey. It requires consistent and persistent efforts from you. And it is not an insurmountable feat. 

4. Use Debt Wisely

Debt is a reality of modern life – and it comes in many forms. In order to be financially responsible, you must learn to understand debt and use it wisely. Interest rates vary widely, from under 3% for some mortgages, to over 19% for some credit cards. The differences in how these tools are, and should be used is massive. Never go into credit card debt, and if you are, make sure you’re working to get out.

Car loans should be approached cautiously, and a good used car is almost always the best financial decision. Make sure to establish emergency savings so you can still pay on debt if you lose your job, and so you aren’t going into debt for basic emergency expenses. 


Being financially responsible isn’t challenging – and it can in fact be very easy. If you get a solid understanding of your personal finances, and then operate a conservative budget, and don’t succumb to spontaneous spending, you’ll be just fine.

​Take these tips seriously – they’re the foundation you need to have a great financial life.

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