Tuesday, October 12, 2010

Are You Financially Responsible?

Cover of "The Richest Man in Babylon"Cover of The Richest Man in Babylon
  
Financial responsible simply means to live within your means. That means you spend less than you make. 
 
Credit Cards and Debt 
 
Being able to make you credit card payment is not what I'm talking about. If you have a credit card payment and aren't able to pay it of it shows you spend more than you earn. Paying off your credit card balance on your account every month means you are financially responsible. 
Credit cards should be used as a convenience and for an emergency, not to make ends meet. 
 
The same goes for recurring payments that have interest. Paying interest means your paying extra for your purchase, is that being responsible? But with big ticket items like homes and vehicles it's impossible to avoid paying interest. In those situations try to minimize the purchase price. 
 
It's very doable to avoid credit card debt but those big ticket items like your home or car are a fact of life and are tougher to get under control. So the only way to make them manageable is to not to buy a luxury car but get the minimal needed to get the job done, even getting a used car. With the house, you don't need a mansion, get the house that will suit your needs. The problem with these purchases is we don't see the difference between necessities and luxuries. When we purchase a home we probably qualify for a mortgage much higher than we need. Irresponsibility is the taking the largest mortgage we qualify for, not thinking if we can afford it over the long run. It's the difference between wants and needs. Th rule of thumb is your mortgage payment should not be more than 25 to 30 percent of your monthly income. If this is not the case it's better to rent till your able to afford it. 
 
Are you paying your self first? 
In the book "The Richest Man In Babylon" one of the main lessons are you must pay yourself first. Every week take 10% and put it into savings. This money is for your future when you retire. To not have savings and a plan for your later years is irresponsible. Make sure you invest it in something that allows your money to grow and work for you. 
 
Emergency Fund 
This item is separate from your 10% weekly savings. It's money set aside for the rainy days that are sure to come. This fund allows you to stay out of debt when trouble comes. It's your insurance policy against going back into debt when there's a problem. We must be prepared for the unexpected. This is being financially responsible. 
 
Don't Try to keep up with the Jones's. 
Your job is to take care of your family. Keep your eye on the needs of your family, present and future. Their wasteful habits shouldn't throw you off track. Don't let them set the bar for your standard of living. 
 
Budgeting 
What? Don't tell me you don't have a budget? A budget is one of the core pillars of financial responsibility you should know where your money is going. Being organized with your money allows you to save more, plan better and be more content in your life. 
 
The bottom line to all this financial responsibility is spending less than you make. It's not about being a miser with yourself and family. It's about being prepared for today's and future purchases. It doesn't mean doing without lifes pleasures, it's about purchasing them the right way. Do you want to go thru your life with the peace and satisfaction that comes with financial responsibility or the anxiety and fear of seeing a mailbox full of credit card bills and debt collection letters. Make the choice today to do it the right way and enjoy the piece of mind that comes with it. 


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5 comments:

  1. Absolutely, I agree. Paying yourself first is important in practice and in mindset. Think of your needs, and your future needs - then think of wants.

    I totally agree with not worrying about keeping up with the Jonses. They may have a better house, nicer cars, and take better vacations - but they're paying a price for it! They may even be spending their retirement away.

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  2. Keeping up with the Joneses is a behavior that hard to over come. Its one not addressed in many check lists like mine. It deserves a post all to its self.

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  3. About once every five years it's fun to be irresponsible for a weekend. :-)

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  4. I believe that the same things and advises can be said about taking out a payday loan. This is all very good but the whole point is about budgeting, I believe, and also trying to make sure you have something saved for the days when emergency hits. Or, at least, it is necessary to choose the lender carefully.

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  5. Budgeting your income and saving a good chunk of it for a rainy day keeps you out of debt.

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