One thing that consistently amazes me is the sheer number of inventive ways frugal bloggers reduce their expenditures. From making your own laundry detergent to sneaking candy into a movie theater, there are many options for those who want to make every dollar stretch farther.
What I haven’t seen, though, is a detailed breakdown of whether some of these activities are worth it for those of us who are not on a salary.
The Entrepreneur vs. the Salaried Worker
When you have a salaried job (assuming you are not running a side business), every hour that you do not work at your job is valued at $0. Therefore, practically anything you do to save money will be an effective use of your time — assuming it does not cost you more in resources (e.g. driving 10 miles to another grocery store to save less than a dollar.)
When you start a business, however, that equation changes considerably. Now, every hour you work may bring you more income, so frugality matters less. The question is: how much less does it matter?
Personal Frugality vs. Business Frugality
I break down frugality into two key components: personal frugality and business frugality. To be expertly frugal in your business, there’s really only one skill you need: negotiation. By becoming an expert negotiator, you will save more money in an hour than you can save in a year doing menial tasks.
Personal frugality is more hairy. There are two scales I use to determine the worthiness of a personal frugality project:
- What is this project’s hourly rate?
- How much do I enjoy this project?
Keep in mind that you must calculate your baseline hourly rate as an entrepreneur before the hourly rate scale works.
Which Personal Frugality Tasks Pass The Test?
Let’s use one of the two examples above. Putting a bottle of water into my purse and taking it into a movie costs me about 1 minute in time and saves me $4.00. Its hourly rate, then, is $240.00. I’ve set my baseline hourly rate at $50, so it passes my frugality test.
Washing my own car (an example I tried after reading about it on frugality blogs) costs me 30 minutes of time and saves me about $10. I am also not as effective as the high-pressure wash. Its hourly rate is $18 (optimistically, since I will need to wash my car more often this way since a hose does not get off all the grime.) It does not pass my frugality test.
What about enjoyment? Sometimes, the enjoyment of a project is worth more than its cost. J.D. over at Get Rich Slowly, for instance, recently planted a garden. He is meticulously tracking how much money and time he has spent on it.
Due to his excellent tracking, you can quickly see that the garden is a loss for him. He has spent 39 hours and $318.43 on supplies, and only harvested $174.51 of produce. However, it’s also clear that he and his wife greatly enjoy tending the garden.
There’s nothing wrong with these sorts of activities. However, be careful of labeling them “frugal”. They are simply hobbies — not unlike any other recreational activity. In this case, the true frugal choice would be going to a local farmer’s market and buying the food.
Where Should You Draw The Line?
Once you have set your baseline hourly rate, consider outsourcing both personal and business tasks that you do not enjoy that fall below that rate. This is where many business owners — including me, for many years — fall short. Even after hiring an office manager at Simpli, I still did not have anyone to help me out with the tasks I hated doing at home. I would come home after a long day to a dirty house, filled with dishes and laundry, and I would feel even more exhausted.
Your business will grow faster, and you will be much less susceptible to burnout, if you use frugality sensibly: cut down on material expenses. With the money you save, hire someone to do the tasks you don’t enjoy doing. Then, invest your new free time into growing your business.
Having hired an assistant who helps me 8 hours a week with anything from my personal laundry/dishes to email to letters to forms, and having understood how much time this frees up in my life… I would “trade down” my living situation in every way to keep having an assistant. I would trade in my beloved LIL ZOOM. I would move to a tiny apartment. I would move to a cheaper part of the country.
Why? Because I value my time, and my sanity, more than any material object.
I want to hear from you! How has frugality helped or hurt your business? How do you balance your time vs. your money? Please leave a comment below.
Bookmark in Del.icio.us
Technorati
Digg This!
Review on StumbleUpon
August 6th, 2008 at 8:50 am
Can you tell me who did your layout? I’ve been looking for one kind of like yours. Thank you.
August 6th, 2008 at 9:48 am
The gardening example is excellent, and it applies to everything from doing laundry to dishes to washing the car.
The biggest fallacy I see in most “outsource your life” recommendations is the assumption that outsourcing activities such as chores will free up time for productive use.
In my case, it will not.
Here is how it works for me at the moment:
I have a pretty set number of billable hours; 120 hours per month of creative, billable activity is all I have in me. Doing more one week results in doing less the next. Wish it weren’t so.
Outsourcing more chores won’t get me any more billable hours. It just gets me more opportunity to spend money recreationally… which is something I adamantly do not want to start doing until the economy completely melts down. At which point I will be solvent with very low expenses. Then it’s play time.
Just to be clear: I have several businesses I am working on at the moment. One of them now has revenue, and we are plowing all that revenue back into outsourcing everything we can afford.
This series of posts is really, really good. There is a gold mine of material in how to transition to outsourcing, which has not been mined at all in my opinion.
August 6th, 2008 at 5:10 pm
Erica, there are some great ideas in this post. The first step in any frugality is to rid yourself, or your business, of any debt. And if you have debt, it\’s time to calculate what outsourcing is really costing you — in interest, etc.
It may be a moot point to many, but we all know that most existing debt is very draining on resources.
Like you mention, getting rid of material items is the quickest way to rid yourself of debt so you can get to the point of outsourcing the tedious chores we call life.
August 7th, 2008 at 6:57 am
Erica,
I truly admire how you introduce us to the perspective of valuing our time. I think that valuing ourselves and our efforts is key to growing our wealth… and you get me, and i presume other readers, to imagine how we are really investing our energies.
I disagree with you on something…
Your hourly rate should be far higher than $50. However, that being said, don’t you pay yourself for the time you are carrying the bottle of water? Isn’t their mileage to consider? I don’t know. I do know that paying $5.50 for Coca Cola water irks me and regardless of the price, I may enjoy bucking the system or I may simply want a good bottle of water.
Your writing is engaging me from the inside out. You are a rockstar of pen and dollars, a true Bad Ass!
I’ve never been a fan of extreme frugality, and yet, I can find myself spending 3 hours making travel arrangements sometimes because I want a better deal.
Sometimes it is worth it, sometimes not.
What concerns me about your blog post is when you write… “Having hired an assistant who helps me 8 hours a week with anything from my personal laundry/dishes to email…”
So, I’ll never know if your notes to me are really from you, or your assistant. Hmmm. Darn. And, I thought we had a connection. What’s your assistant’s name so I know how to address my replies.
And, I love your strategy. One of the most taxing thing for me is family holidays. I’m figuring I hire my personal assistant to go to holiday events for me, bond with my family and I pay him weekly calls with my mom.
My question for you is…
Does my family need to think he is me, or is it enough that they know I paid for him?
Curious minds want to know!
Ben
August 7th, 2008 at 11:05 am
Another good post, Erica. By bringing in an assistant last year, it not only helped me be more effective, I learned something about my business I really had no clue about.
I work with my partner who does corporate branding and print design and wanted to have another income stream, so I started a service where I am a remote personal assistant. I project manage all of these tasks, and actually now have clients who’s properties I manage in other parts of the country and it is our major source of income. By not having to follow around the person or be at their home when they are or when they specify, I was able to serve more clients, and build a team of others that help me. It never occured to me to have someone help us out with personal tasks.
I always thought my service was organization, until I realized that my petsitter was billing me and my clients and not showing up. Someone I’d worked with for years and who had references going way back. How I caught her is a story unto itself, but that’s when I realized a HUGE part of the service I provide is trust, and that I cannot delegate tasks where trust is the only commodity. I can see and check up on whether a person is cleaning something right or putting in a hot tub or doing laundry. I can’t see if or how someone is caring for an animal. Their intelligence and resourcefulness mean nothing and can actually be distractions from what they are doing or not doing. My clients saw me through that only because they trusted me, not because of my fabulous “product.”
I really had to rethink how or even if I would “rethink” my business, and though I have found people with the competence to get projects done, I haven’t found many with the trust factor. I’d rather serve my clients well than make more money.
August 9th, 2008 at 8:15 am
What a great post. You addressed these issues so succinctly! In my last post on FrugalMomLA which I titled \”Irreconcilable Differences\”, I talked about how \”schizophrenic\” I felt by being so frugal in my personal life yet needing to spend money in my business life (my husband and I own an IT computer repair/networking business). By \”needing to spend money\”, I mean spending money on things like marketing, advertising, improving workspace to help with employee morale, etc. Some would argue that those things aren\’t necessary to run a business, though. In any event, I agree with your premise that we always have to evaluate what our time is worth and it\’s different as an entrepreneur than as a salaried employee.
August 10th, 2008 at 1:32 am
Iâ??ve already answered this question in one of my posts. I believe extreme frugality is not a long-term solution. Investing the time in personal finance and economic knowledge and know-how pays much higher dividends in my opinion.
August 10th, 2008 at 9:02 am
Erica,
What a great site. I love the way you break down your info especially the comparison of personal frugality verses business frugality. This is sure to help many. Great stuff!
Rena Williams
August 11th, 2008 at 1:09 pm
Hi all! Some great comments!
@Rick – Are you referring to my blog layout? I designed it. Check the “credits” link at the bottom of each page.
@Dave – Good point! I will be addressing that point in an upcoming post.
@1ideaperday – Personal debt, I agree with, but sometimes having some business debt can be healthy. It allows you to grow your business more quickly. The key is to look at why you have debt. Is it because you needed to finance some purchases to help your business grow, or is it because your business isn’t able to make ends meet? Dealing with business debt could be a whole blog post in and of itself.
@Ben: A lot of people have said that. I expect I’ll raise it as soon as my new business starts making some decent money.
Also, regarding my assistant — one thing I will never do is have my assistant email someone as me. She has her own email address.
@Enzo: “I’d rather serve my clients well than make more money.” Hopefully this is not an either/or proposition!
@frugalmomla: “Some would argue that those things aren’t necessary to run a business, though.” Don’t listen to those people. They aren’t the ones running successful businesses (where successful is also defined as having happy employees!)
@thepersonalfinancier: By all means, feel free to post a link!
@renawilliams – Thank you!
Thank you all for taking the time to comment!
-Erica
August 11th, 2008 at 1:33 pm
Hi Erica,
I\’ve really been enjoying your posts about how we can use our time more productively. I like your idea about hiring an assistant. It makes honest to goodness sense. However, I am still trying to get my mind around the idea. Somehow I don\’t \”FEEL\” like we should spend money on an assistant for thing I can/should be able to get done.
I help my husband with his business and am building one of my own. Having an assistant to do all of the tasks I don\’t like to do would seriously free up a lot more productive time for me, but would also keep me sane.
It is just astounding how our preconceived notions get in the way of good business sense!
Trixie
August 13th, 2008 at 10:02 pm
We did a garden this year and while it probably hasn’t been a money saver THIS year because of some fixed assets type of items we had to buy, it should be profitable next year! I would venture that we are going to break even on it this year. We have enjoyed it and it is nice knowing WHERE the food we are eating is coming from!
I do try to factor in the value of my time into most other things.
August 14th, 2008 at 9:17 am
You’re dead on the money finding a good balance is important and being overly frugal can cost you more than its worth. I’ve seen some entrepreneurs do some crazy things to save a bit of money when they should have been out trying to get more business.
August 14th, 2008 at 12:10 pm
I’m a first time visitor. Great post! You bring up a valid point. I’ll be sure to subscribe to your RSS.
Thanks!
-HIB
August 14th, 2008 at 3:06 pm
My personal frugality pays off for me. I just used my little $15 CVS cashback coupon to get office food for the week and I’m always combining whatever coupons I can to get gifts for others at 30%-50% off. I only go to the movies for free – I either pay with a relative’s casino points (I’m in Vegas) or go with a friend who works at a theater. And we always bring our own food (for what you’d otherwise be paying, it doesn’t even taste that great!). Work is a different story: expenses get reimbursed and, even if they don’t, I’ll recruit volunteer interns or pay younger relatives like $15 bucks to learn something new and get it done for me.
August 15th, 2008 at 8:32 am
Great intro to the topic of valuing one’s time. Time is the substance of life, and the only true measure of wealth.
This is why I’ve always differentiated between “frugal” and “cheap”. Frugal people are looking for an excellent overall value, while cheap people just want to pay the lowest price. Dr. Thomas Stanley’s Book, “The Millionaire Next Door” misled millions into believing the wealthy got that way by being “cheap”. Cheap is how some millionaires got that way, but a million ain’t wealthy. His lesser-known book, “The Millionaire Mind” reveals that deca-millionaires and above are value-oriented, and are explicitly NOT “first-cost-sensitive”.
It’s always made more sense to me to focus my time and energy on generating more money. Whether on salary or now in my own business- the best bet is always going for the raise. If you’re gardening and making soap for anything but the pure enjoyment of the process- you’re stepping over dollars to pick up dimes. You can only save money one time. Increased earning can continue and can multiply for life.
August 15th, 2008 at 2:30 pm
Thoughtful post, and there certainly are a lot of “frugal living” kinds of blogs and articles out there right now. It’s understandable, but I’m always surprised more people don’t think the opposite way. Instead of saying, “how can I reduce my spending?” say, “how can I create more streams of income so I don’t *have* to reduce my spending?”
People get so fixed on the idea that what they make from their day job is all they have and all they ever will have.
Dream big, read for inspiration, and be creative. You’ll be surprised how many ways you can think of to bring more money into your life.
August 18th, 2008 at 12:05 pm
@Trixie: Yep, it’s quite a stumbling block for many people (particularly women) to hire an assistant. I’m still not sure why this is. Perhaps some childhood belief? Whatever it is, there are many preconceived notions that get in the way of building a business. This is just one of them.
@Briana: Perfectly reasonable.
@HIB: Welcome, and thank you for subscribing!
@Paul: Completely agreed. Great comment!
@Lindsay: I think for a lot of people it may be easier to save money than to make money. People have a misconception that running a business entails 80-hour weeks for years on end while making little to no money. The concept of “lifestyle businesses” (I am a huge fan of this concept) is starting to change that, but it will take a while for this to percolate down. Frugality will definitely be a huge trend for the next few years, though, as people downshift their spending.
-Erica
September 17th, 2008 at 3:35 pm
I think “enjoyment” is a huge factor. I figured out as a “lowly” waitress that I preferred to work a few more $20 hours at the restaurant than spending the same amount of time cleaning my house. And, I could find someone to clean my house better and twice as fast as I could for $10 hours.
Less time working. Work time doing something I liked rather than something I didn’t. Net gain in the money in my pocket.
November 13th, 2008 at 10:32 pm
Now that economy is melting down for real, and I do have some free time on my hands, it’s time to get real: my hourly rate is worth exactly what someone is paying for it.
At the moment, that’s $0.
My opportunity costs may be far higher… But in the end, what one’s time is really worth is what puts cash on the barrel head.
So… cash flow is an issue. When cash flow is completely negative, frugality measures need to adjust accordingly.
There is one situation though, which I firmly believe *extreme* frugality is justified, if not fact necessary: reducing debt. Someone with a lot of business acumen and significant positive cash flow can use your guidelines above, as long as they ensure to factor in the cost of carrying the debt load. Most people on salary would do better to just suck it up and pay the debt down.
November 13th, 2008 at 10:38 pm
Lindsay, increasing income depends on market forces out of anyone’s control. Spending is an intensely personal decision and under full control of each person. Reducing spending can be done right now.
Increasing income, for most people on the planet, requires vastly more sacrifice than reducing spending. For example, I graduated high school in the Rust Belt into the worst recession since the Great Depression (1979). Reducing spending was easy. Increasing income required moving to Texas.
I do understand your point. For most readers of erica.biz, it is valid. For the vast majority of people on the earth, not yet so much.