Are you Leaving Your Budget to the Luck of the Irish?
You’ve probably heard the phrase “Luck of the Irish” and wondered what does this phrase mean? Are the Irish people super lucky? According to Edward T. O’Donnell, an Associate Professor of History at Holy Cross College and author of ‘1001 Things Everyone Should Know About Irish American History,’ the term is not Irish in origin. “During the gold and silver rush years in the second half of the 19th century, a number of famous and successful miners were of Irish and Irish American heritage. Over time this association of the Irish with mining fortunes led to the expression ‘luck of the Irish.’
What does being lucky and budgeting have in common? Well, according to a recent Gallup poll, only one in three Americans prepare a detailed household budget each month that tracks their income and expenses – a large majority do not. Talk about leaving your finances up to luck. I hope this is not a risk you are willing to take. Today I want to share with you some budgeting mistakes that people have made in hope to prevent you from doing the same.
Guessing How Much You Spend Each Month.
Before you begin creating a budget, you need to know where your money goes and the true cost of your monthly living expenses. Making a best guess doesn’t work because you’re likely spending more than you think each month.
Here’s an idea, at the beginning of a new month, begin tracking every cent you spend by placing the receipt in an envelope, a box, a folder, or write it down on a notepad. The key is to keep receipts for every purchase you make. If you go to a vending machine write it down on a post-it note and put it with the receipts. Do this for one to two month’s then at the end of the month put the receipts into categories and add them up. Be sure to review your bank statement and credit card statement as well in order to account for all of your expenses. By doing this simple process you will be able to take the guessing out and come up with a realistic budget.
Forgetting to Save for a Rainy Day
A budget isn’t only a wonderful tool for managing your bills; it’s also a great resource for helping you find ways to make minor cuts in expenses so you can save more money. As you begin your budget try this crazy idea: Pay YOURSELF First “PYF”, before you pay any bills allocate money in your budget for PYF, which would be a separate savings or money market account that is set aside for a rainy day. What’s a rainy day? An expense you don’t see coming, your safety net, only to be tapped when an emergency occurs. Money magazine states that 78% of us will have a major negative financial event in any given 10 year period.
Put away a set amount (even if it’s a small amount) every month so you can start building your rainy day fund. The key is not to touch it unless it’s an emergency. How will you know? According to Dave Ramsey, financial guru, if you can answer yes to the following three questions, it’s likely to be an emergency.
- Is it Unexpected?
- Is it Necessary?
- Is it Urgent?
Spreading Yourself Too Thin
Whether it’s paying off debt, building your rainy day fund, saving for vacation, getting that down payment on your dream home, or putting money away for your child’s college, it only makes sense to include these in the budget. However, your cash only goes so far and then you’re broke. Where’s the luck in that? If you’re trying to save for multiple goals simultaneously, or if the goals are looking unrealistic and putting a strain on your budget, it’s time to determine your top priority.
Try listing your goals from short- to medium- to long-term. Short-term is anything you can achieve in one year or less. Medium-term would be more than a year but less than five years. Long-term is anything that takes more than five years to accomplish. After doing this “what’s the one thing” most important to you right now? How long will it take you to achieve this goal? How much can you allocate in your budget to achieving this one thing? Once you have achieved that move to the next thing on your list of financial priorities. Your budget will thank you for it and you will be able to talk about how you didn’t leave your finances up to the luck of the Irish.