Personal accountability. Personal accountability is the most important trait that will define whether you're successful with your money or not.
Sounds pretty simple, right? In fact, you're probably thinking to yourself right now that you should hit the back button and go read some other article. But the truth is, there is a lot more to personal accountability than meets the eye, and it is the single defining factor that will allow you to achieve personal finance success.
What Is Accountability?
In simple terms, accountability is simply taking responsibility for both your successes and failures. In a more specific sense, it means that you don't simply blame the circumstances, but rather, your actions within the circumstances that you could have controlled. For example, you could simply say that you're in debt because you lost your job or because that's what everyone said you should do. However, that is not being accountable. Rather, a more accountable approach would be - I'm in debt because I didn't change my spending habits once I lost my income.
Do you see the difference? In the first answer, the blame went to the circumstances: losing your job. However, in the more accountable answer, the blame went to the personal choice that was made to not change spending habits. While the circumstances may be more complex than that, going into debt is simple to avoid - don't spend more than you earn. And the second answer is accountable to that.
Being accountable also means not having excuses. There are so many damn excuses for everything that it just makes me sick sometimes. I'm debt because... There is no BECAUSE... Accountable people don't have excuses. They have solutions. Your millionaire neighbor is probably a very accountable person.
How Does Accountability Impact Personal Finance?
So how does personal accountability impact personal finance? Very simply. You CANNOT expect to achieve personal finance success unless you are accountable to yourself and your finances.
This means a variety of things in personal finance:
- Being honest about your spending (i.e. not hiding/justifying spending, not coming up with imaginary money)
- Planning for the unexpected (not just settling for being unprepared for events that you know will happen - like job loss or car breakdowns)
- Accepting responsibility to choices made (spending, debt, lifestyle)
It doesn't matter what the specific situation is, what does matter is how accountable you are to your own choices in the situation. And your choices have a direct impact on your finances.
Buying a new car vs. a used car? That choice will cost you thousands of dollars - is it worth it? What are you sacrificing for that? In 1 year, are you going to say you can't afford something, when in hindsight, if you hadn't bought the car, you'd be fine?
Accountability is the biggest trait that will define your long term financial success.
The Levels Of Personal Accountability
Being 100% accountable, 100% of the time is challenging. We all have weak moments when we MUST buy something, or instead of saving we take a vacation. It happens.
That's why I want to outline these levels of personal accountability as a roadmap to helping you build up this trait - so that you can improve your financial accountability, and in term, improve your personal finance success.
Level 1 - Clear Understanding
To do anything in personal finance, you have to have a clear understanding of your total financial situation. This means knowing what's in every bank account, on every credit card, how much debt you have, and where all your investments are. One you have the balances, you also need to put together a full picture of your spending for 1 year. Then you can break that down monthly.
There are a lot of systems to help with this (my favorite is Personal Capital), but it is essential, and step one on your path to personal accountability. Without full knowledge of what you have, and what you spend, you cannot make sound financial decisions. It's impossible. Everything you do is a guess unless you know.
Related: Budgeting For Your Personality
Level 2 - Clear Planning and Preparation
After you've laid out everything and have accepted your financial situation, you need to have a clear plan for the future. This doesn't have to be incredibly in-depth. It could be as simple as boosting your emergency fund to 6 months of expenses, or paying off your debt. However, the more detailed and step-by-step your plan is, the more accountable (and in turn more successful) it will be.
For example, you could want to boost your emergency fund to 6 months of expenses, or say, $6,000. For your plan, you want to break it down to something more achievable - maybe $500 per month for the next year. Then, you could look at your balances and cash flow from level 1, and see where you could save $500 this month. Maybe not going to Starbucks everyday?
I'm not here to judge your lifestyle choices, but you need to be accountable to your cash flow, balances, and lifestyle choices. The end choice is yours. For example, I'd keep my coffee and sacrifice cable. Everyone is different.
Level 3 - Understanding Consequences
The next level of accountability is clearly understanding the consequences of your financial decisions. On the surface, it's realizing that if you don't save and go into debt, you'll be poor and unhappy. However, accountability requires understanding the consequences at every choice and every level. Just the like example above in Level 2, the choice is how are you going to get your emergency fund. Every action has a consequence, but to be accountable, you need to realize the biggest consequence of all - not having an emergency fund could mean more debt, potential bankruptcy, and then not achieving other future goals like buying a house.
However, consequences can also be positive. Building an emergency fund, for example, means that should you have unexpected car repairs, it doesn't impact you financially at all, and it's just a sucky day. After your car is fixed, life moves on as normal.
Accountable people accept the consequences of their actions, and think about them proactively.
Level 4 - Follow Up and Course Correcting
The next level of personal accountability is follow up and course correcting. You need to put systems into place so that you can follow up on your goals, and course correct your financial plans as needed. Everyone does something frivolous from time to time, so how can you ensure that the one instance doesn't become the norm?
A simple solution is to setup spending alerts with Personal Capital or other free financial money management software. By setting up alerts, you get notified if you spend too much in one category. Then, you can look at your budget and see what may need to be shifted to get back on track.
Unaccountable people simply ignore this and keep on going. Accountable people make decisions based on the consequences, and get back to their plans.
Level 5 - If Success Doesn't Come, Go Back to Level 1
The bottom line is that if you're still not achieving personal finance success at this point, go back to level one and really see if you have a clear understanding of your personal finance situation. Something isn't right. If you've laid it all out there, and then made a plan, and been accountable to yourself and you plan, things should be working out.
Typically, failure is the result of unaccountability - I didn't include that credit card, or I ignored my spending that day. Those are the types of behaviors that lead to failure, and your goal is personal finance success!
What are your thoughts on personal accountability and its impact on financial success?
Editor: Clint Proctor Reviewed by: Chris Muller
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.