How to tell if you're financially responsible

Are you financially responsible? Find out here – and see how our budget hints and saving tips, can help set you up for life.

Do you have a budget?

Being financially responsible means living within your means. It really is that simple – and a budget is the crucial first step.

Keeping track of your income and expenses may help you spend less than you earn. You can also factor in saving, or paying off any existing debt.

Sticking to a realistic budget will also bring you peace of mind. You’ll be able to pay your bills, and any money left after all the essentials are taken care of, can be yours to spend, guilt free.

Do you save regularly?

Saving is the way to get the things you want in life, from a holiday or a home, to a comfortable retirement. It also provides a fund to cover emergencies, so a hefty repair bill or unexpected medical costs won’t force you into debt.

US Senator Elizabeth Warren endorsed the popular saving habit of putting aside at least 20% of your income every month, as part of the ‘50/20/30 budget rule’. Essentially, the rule suggests you divide your post-tax income into needs, wants and savings. If that’s not possible right now, you can start slowly. Even $10 a week will give you more than $500 after a year, not counting any interest that amount might earn.

Seeing your savings grow is a good feeling. It might even inspire you to save more by earning extra money or cutting back on your spending. And, every time your financial situation improves, you can increase the percentage of income you’re saving.

Are you in control of your credit card?

A credit card may be an alternative to cash. It enables you to snap up bargains and in an emergency, may be a lifesaver. There are some cards where you can even earn reward points every time you use your credit card.

Financial responsibility means using your credit card for convenience, not necessarily for impulse shopping or making ends meet. If a genuine emergency leaves you with a balance you can’t clear in one hit, it’s important to consider curbing other spending until you’ve paid it off.

Does your budget separate needs from wants?

You need new shoes but you want an expensive pair. Should you stick to the cheaper ones? The answer – “Not necessarily” – might surprise you.

When you’re drawing up your budget, needs come first – the things that enable you to live and work. Then come savings. Once those are covered… the rest can be yours to spend as you like.

So, if you decide to go without other luxuries such as eating out or trips to the cinema until you have enough money for the shoes, go ahead and enjoy them.

Do you know your credit score?

Your credit score is the number used by financial institutions when they’re deciding whether they’re going to give you a loan and, if so, how much they’re prepared to lend.

Depending on the agency providing the report, your score will be somewhere between zero and 1,000 or 1,200. This number can change from month to month depending on your financial activity and whether you pay your bills on time.

You can get your score free from several online providers including Equifax Australia, Credit Savvy and Credit Simple.