What is the definition of being "financially responsible"?

In the “Why is financial conservatism sometimes called ‘hating poor people’” thread, there’s a statement made that may explain some major philosophical disconnects, and struck me as a rich field for debate:

So I ask: what is your definition of being “financially responsible” on an individual level? What do you need to do, think about, and prepare for?

I think it starts with choosing a career.

In Pippin, the title character sings about how he disdains the idea of ordinary tasks, ordinary jobs – when you’re extraordinary, like he is, he musically explains, you have to do extraordinary things.

I mention this because I’ve talked to more than a few wanna-be actors, musicians, and philosophy majors who seem to think that as long as you’re happy, the amount of money you make is meaningless.

Ah, what a beautiful world we’d live in if that were true. In fact, I think a responsible adult has to balance job satisfaction against money. There are undoubtedly reading-comprehensive challenged individuals who will make hash of this claim. But read it again: I’m not saying that compensation is the sole factor in choosing a career. I’m saying weight should be given to it, strong weight. It’s not determinative.

Then I think people should live within their means. I don’t know too many people that do that. I grew up poor. When I started making money, I continued to live a very simple life. I let money accumulate against a future storm. I think someone ought to be able to live a year at their present expenditure rate even if they lost their job tomorrow. If you say that’s an impossible goal, I’m going to say that it’s a fair bet you’re not living within your means. I was the last of my neighbors to get cable. Right now, I drive a 1996 car. Why? Because it gets me where I want to go and doesn’t have bad repair costs. I bought it new in 1996, for cash, and I’ll drive it until its repair costs are excessive. Then I’ll buy another car.

If you’re paying interest on a car loan, you’re probably living above your means. If you rely on credit for ANY purchase other than a house, you’re probably living above your means.

All my neighbors have late-model cars. I have the oldest car on the block.

But I guarantee you, if some financial disaster happened to one of them, they’d whine about how unlucky they were. They’d never think, “Gee, maybe I shouldn’t have a new car every three or four years.”

I have a section of my basement stocked with food, potable water, basic medical supplies, weather gear, emergency money. If a blizzard stranded us at home for a month, we could survive.

There are a host of specifics that make up reasonable financial prep. But I firmly believe the vast majority of people want to live a much higher lifestyle than prudence would dictate. And if you told them this, they’d hotly deny it.

What Bricker said, plus carry good insurance, diversify your investments, and never get complacent in your job.

Bricker nailed it in one. Live below your means, have a minumum of one year’s liquidity, buy a new car with cash, heck buy almost everything with cash except your house. Buy a house you can afford and have at least 1 year’s payments in reserve.

I don’t think it’s possible to be financially secure without at least 50 million in various worldwide assets. Even that is susceptible to meteor crash or accidental nuclear war or something.

To me, to be financially responsible means to be taking an appropriate level of risk with ones assets, including expected future income in that. Unfortunately that means certain careers are inherently irresponsible, including almost all genuinely entrepreneurial ones.

However, we can change that by engineering a social safety net (even with something as simple as limited liability and bankruptcy laws) so as to make some of those careers suddenly responsible. This probably upsets Mr. Rover inordinately.

Apart from that, don’t buy limit down pork bellies and you should be fine.

Someone - I thought it was Dr. Johnson but I can’t find the quote - said that the man who makes a penny more than he spends is a happy man, and one who spends a penny more than he makes is a miserable man. Fiscal responsibility is not making money per se, but making more than you spend and saving. An actor who does this is far happier than a commodity trader making five times as much - with ulcers and stress.

The rest of the advice I agree with and live by - though I have earthquake, not snow supplies here.

And I just paid cash for my new car, and it felt very good. But before we get all snooty, we should remember that not everyone can make decent amounts of money doing things that they love. People can be both financially responsible and in hardship, especially due to health crises.

Buying everything in cash is not the right thing to do if you have a credit card with no fee, which pays a rebate in cash, and which you never, ever carry a balance on. Why should I pay cash and lose money?

Not blasting you, Bricker, just curious - did you grow up in public housing on government assistance? Or out in the country with no electricity and running water? Or just no spare money? I’m interested to know how poor “poor” is? I think it might make an interesting thread to see how you’ve hauled yourself up by your own bootstraps.

It sounds like your past may have greatly influenced your present. You’re obviously a very bright individual, and I’d say from your other comments that you tend to be overly cautious, not that there is anything wrong with that. Where did you learn how to generate wealth and to be financially austere? My experience is that most people who come from very poor backgrounds don’t have a clue how to dig out from that. They have very bad role models, some see making it to next week or next month or next year as success, and don’t really tend to think about or plan for the future. This is true even with a lot of people who are middle class, and even some people that have managed to accumulate apparent wealth, only to make very ignorant investing mistakes and lose it all.

If everyone lived similar to you, though, I think our economy might be beyond stagnant. No finance companies, a trickle of new car sales, etc. Especially given where we are now as a society. I do agree that most people tend to live beyond their means, some vastly so, some just by a bit.

Also, in your world, only the wealthy could afford to become poets, playwrights, musicians and actors. To some extent this was true in the past, so I suppose it could work again in the future.

let’s not be literal. Credit cards as a cash management tool are fine, even short term cash flow tools, etc. Pretty dumb for financing a colledge education, that kitchen remodl and the dream european vacation.

yes, it’s MUCH easier to be fiscally prudent making 6 figures.

I think people who grew up poor or have faced extended desperate econommic circumstances are a lot more careful to have a reserve. I wouldn’t willingly return to those days and having $100k in the bank gives me a certain amount of peace.

Shibboleth - the US and global economy would adjust perfectly fine to a lower conssumption level.

Funny thing about philosophical disconnects. My personal financial philosophy is pretty similar to Bricker’s. We’ve got about 2 years income saved up at the moment, never borrowed for anything except a house, hate being in debt even for that.

But as far as political philosophy goes, this really leads me to quite the opposite end of the spectrum. I know it’s possible to live a comfortable prosperous life voluntarily choosing to spend a lot less than my peers, and I have very little patience for people on 6 figures wringing their hands about the horrors of high taxation and how terrible it is to have “their” money (which they wouldn’t be in a position to earn at all if it weren’t for the whole structure of society around them) being used to support their society. I also know that life is random, and shit happens, and getting the money to deal with some things is simply impossible for a lot of individuals to do by themselves. Getting cancer, for instance. Or providing good care for a severely handicapped child.

I’m all for strong social programs. UHC rocks. The State school system likewise. I don’t think that’s at all incompatible with believing in personal financial responsibility.

I think that it would eventually adjust but that the transition would be particularly rocky. Anyway, it’s not the most realistic scenario, people already have a lot of bad habits that won’t easily go away.

I think it looks different at different ages. For one thing, for women, especially, there is the whole biological clock thing going: you are already supposed to wait until you have a college degree and an established career before you start a family. If you add “wait until you have no debt and a year’s regular expenses in cash and have made inroads into a 15 year mortgage”, I don’t think many women could start a family before 35 unless they married very well–I mean, we are talking about a standard in which only people of significant income early in life can have children responsibly.

There are other reasons, as well, that financial responsibility is age-sensitive. For example, if a 25 year old with no dependents were to live off their savings for a year and flirt with real poverty in order to try to start their own business, it would be very different than if a 55 year old single parent with 3 kids in high school did the same thing: the 25 year old can afford to go out on a limb because even if it breaks, they’re young enough to handle the fall without harming others. For the 55 year old, a financial wipe-out carries much heavier consequences and should be more carefully avoided.

But there are philosophy majors &etc who make a lot of money, study and/or do art, travel and all that. Why not be happy and have money?

It really is that beautiful of a world! Ask these guys:

Overall I agree with you, Bricker. Live within one’s means, plan, save, keep your car. Yes, yes. (yes!)

Just want to point out it is reading comprehension. I agree that grown adults should recognize that people get paid cash money to do things they otherwise wouldn’t. For instance if they were millionaires. But (work != party) !=* (a person isn’t happy). That’s all :slight_smile:

  • I mean doesn’t necessarily equal

Looking just at investment, the most basic aspect of financial responsibility is not putting all of one’s eggs in one basket. That is what I was getting at with the quote in the OP.

IMO, it is pretty much impossible to be totally financially responsible unless you have truly reliable disability insurance and health insurance. A major disability or illness can wipe away decades of hard work and savings. However, I don’t know how feasible it is to find a program that you can rely on when you actually need it.

Another aspect is learning how to buy/do things cheaply. Knowing how to get what you want/need while spending as little as possible is just as important as earning more than you need.

So that is my view:

Find ways to get the best deals possible on everything
Save more than you earn
Have good back up plans in case of an emergency or major setback

Sure. I said “wanna be” actors, though, in the sense of:

Any tips on how to accomplish that legally? :slight_smile: (I assume you meant “spend less than you earn” or “save more than you spend,” or something.)

Of course. Net payments within a 30-dayish grace period counts as “paying cash” for the purposes of this discussion.

I find this attitude bizarre. Some people have an almost religious aversion to taking out a loan to buy a car (and if they are Dave Ramsey follows, you can drop the “almost”). They love to proclaim “I pay cash for cars.” Well, good for them. They also pay cah for car repairs and maintenance, both of which are typically more expensive in a car that one can pay cash for.

I prefer to think of “owning a car” as an operating expense as opposed to thinking about the cost to acquire any particular car as a capital expenditure. So, I’m willing to pay some amount per month to own a car of a certain level. If I decide to up the level then I’ll pay more. If I were to pay for it in cash, then I would just be pushing all those monthly payments to the first month. If I bought a really old used car, then more of that amount would go to repairs than would go to the cost of the car.

So, anyway, bottom line is, I have an amount I’m willing to pay each month for “owning a car,” just like there’s an amount I’m willing to pay each month for “eating lunch” and “having cable.” The particulars of how that amount is spent are not that important to me. And I think the religious devotion to not having a car loan is ridiculous.

I don’t think I want to go into huge amounts of specific detail. No public housing, but we were almost certainly eligible for government assistance. My father was dead set against such things, and we did not avail ourselves of it.

I don’t know. My dad obviously had a great deal of influence on my views about the value of self-sufficiency. What I “learned” boiled down to: don’t spend what you have today, because you never know if you’ll be able to get more tomorrow. That doesn’t seem like such a complicated rule, frankly.

Maybe so. But what of it? Similarly, if everyone lived a carefree, profligate lifestyle, the world would be constaly on the brink of ruin. I prefer to live as I live, and I don’t agree that those that live more loosely deserve to have their mistakes covered by society (i.e., MY) tax dollars.

Yeah. Indeed, only the wealthy could afford to be public defenders, a career I enjoyed but couldn’t afford to keep doing. That’s life.