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Wednesday, March 16, 2011

Leprechauns give us a personal finance lesson!

Personal Finance Lessons From Leprechauns

Leprechauns are those small mystical creatures always stylishly attired in green garb and thinking of ways to hide their pot of gold. Or that is the impression I have gotten from Hollywood interpretations and my limited understanding of Irish lore. Apparently, leprechauns can also teach us a lot about personal finance and saving money.

Based on one popularly-quoted leprechaun resource compiled by Colin Chapman, here are some examples of admirable personal finance qualities emulated by leprechauns, as well as examples of what NOT to do.
1.    “[Leprechauns] are incredible skinflints, hoarding material goods and wealth with a fanatical passion, loathe to spend a single penny or cent even when their lives depend on it.”
Lesson: This might be the art of saving (to the extreme). While saving money is good, there are certain things that shouldn’t be skimped on, such as maintaining your health.
Say our leprechaun friend gets bitten by a poisonous snake in the middle of the woods. Sure, he may be lumped with a couple hundred dollars for that 911 emergency response, but it’s better than falling over dead because he refuses to call the doctor. That’s what we call perspective. It may not be fun, but some expenses are part of life and that’s why setting aside an emergency fund is a must. To save smartly, review your health plan regularly and contribute to a flexible spending account to get the biggest bang for your buck.
2.    “[Leprechauns] strongly favour garments of green, but their clothing is never extravagant. Extravagant clothing costs too much.”
Lesson: The road to wealth is lined with self-control towards material goods.
Feel free to fill your wardrobe with items that you cherish and enjoy, but not at the expense of things that you cannot afford. Extravagance not only costs you money today, it might also damage your tomorrow if you pay for such extravagance (a vacation you can’t afford, a house outside of your price range, etc.) on credit or by taking out unsustainable debt. Having a tough time keeping away from the Coach shop? One tip is to avoid the malls, or put away your credit card and only use cash.
3.    “Painfully proud of their skill at cobbling, all Leprechauns possess the best footwear they can make, usually of supple black leather with a polished silver buckle.”
Lesson: If you are particularly gifted as a certain task, why not do-it-yourself and show it off?
A whiz in the kitchen can bake her own wedding cake, a computer savvy person can build a desktop to customization, and a fashionista can take out a tub of dye and give her faded black clothes a renewed lease on life. Lesson #2: buy high-quality and classic shoes that can withstand the test of time (and what can be more classic than black leather shoes with a silver embellishment?). Cheaply-made shoes offer little support and often need to be replaced after just a few wears. I’m partial to this lesson because I used to buy shoes that looked cute but that offered no support for my feet, and fell apart after just a few months. Finally, I realized (to the relief of my aching soles), that it’s better to buy quality. It’s even better to buy quality on sale!
4.    “Generally wealthy (although you wouldn’t know it to look at one), the myth of a Leprechaun’s pot of gold isn’t that far-fetched.”
Lesson: Diversify.
While gold has a place in a well-diversified portfolio, holding 100% of your wealth in gold isn’t quite wise. It would be better for leprechauns to diversify into stocks, bonds, and other commodities, and to construct a portfolio that matches their risk tolerance and goals.
5.    “Some traditional Leprechauns run small cobbling shops, often dingy affairs that attract surprisingly wealthy clientele due to their excellent craftsmanship.”
Lesson: Great quality of work will attract great clients.
Make time to continually invest in your skills. And if you can combine your skills with a career you are interested in, it will be that much easier to devote more time to it and reach professional success.  One way to add to your earnings is to develop a side business or do some freelance consulting. These side projects can round out your professional portfolio, widen your network, and lead to more opportunities down the road. Spending for your personal development, whether that means taking a class or practicing your special craftsmanship (be it designing jewelry or cobbling shoes) is usually a worthwhile investment in your future.  With some hard work – and maybe some Irish luck – you might leverage that into even more earnings or a new career.