By Clair Schwan

Continuing with this four part series for frugal entrepreneurs, we’ve already looked at some startup considerations for those who might desire to create their own consulting company. We’ve also examined the issue of expenses. Let’s now look at the general “hassle factor” of starting your own business in the world of consulting. More often than not, this area serves as a ready-made source of excuses for those who are looking for justifications for not starting an enterprise of their own.

The List of Problems

It amazes me each time I hear that someone doesn’t want to start their own enterprise because they don’t want the hassle associated with getting themselves incorporated, processing time cards, and taking out taxes each paycheck. Many also don’t like handling invoices, dealing with insurance issues, negotiating contracts, and wrestling with local officials about business licenses and other incidentals associated with starting an enterprise. To some, it’s all very mysterious and daunting. Well, it’s not.

If you peek behind the curtain, you won’t see the Wizard manipulating levers, pushing buttons or adjusting dials. What you will see is a bunch of clerks pushing papers. I can do that. Can’t you?

Easy Solutions

Let’s look at each of the “problems” on the list and examine them in more detail. They’re really not problems but excuses, so let’s expose them as such and be done with it.

You don’t need to be a corporation, you can just be a sole proprietorship. Being incorporated doesn’t protect you from anything. If you’re going to be sued, a one-zee will be sued as a corporation and an individual. The only thing that protects executives of large corporations is a team of lawyers and gobs of money.

Time keeping isn’t so tough. Your time card can be a notepad, a calendar or an organization tool.

Dealing with taxes is simply a guesstimate on your earnings, doing a little math problem, and writing a check four times a year. Around tax time, it’s just another schedule added to your personal return (if you stick with a sole proprietorship.)

Invoices aren’t a hassle either. They’re a pleasure. When you send them out, you know that money will be sent back in return. And, what comes your way will never be diminished by bloated and self-centered corporate overhead. Ahhhhhhh, it’s so very satisfying, indeed!

Insurance is simple, just like getting car insurance. There are lots of agents out there who will get you liability insurance, health insurance or whatever other kind of insurance you need. That’s their job, so put them to work for you. But you like the idea that an employer sets up and pays for your health insurance. You think it’s high value. Well, it’s not. You can pay for a much better program of insurance by simply dedicating one of your workdays each month to pay for the premium. That’s it. So, you were going to stick around as an employee of another, with a crummy health insurance plan, and collect a meager wage just because it’s too much hassle to find an insurance provider on your own? Not me.

When it comes to contracts, they aren’t that difficult to read and understand. You don’t need an attorney. There isn’t any big negotiations that are required. Even if you take exception to some of the terms, many companies will work with small service providers to modify the terms simply because the service provider’s role is smaller and therefore the potential risk to them is much less. In any event, it’s usually one set of contract negotiations per customer, not per job, so once you have something hammered out, it’s easy to modify each year or apply to follow-on work that you’re awarded.

Most cities don’t have anything to say about this type of enterprise operated out of the home, so don’t get upset about that either. No customers will ever come to visit your office, you’re not going to hang out a sign that reads, “Larry’s Biotech Consulting Service” or something similar, and there probably isn’t any ordinance against making a living from the comfort of your home anyway.

My time as a one-zee started back in early 1999, and I’m certain that very few where I live know that I’m in business for myself. And, I intend to keep it that way. I operate as a sole proprietor and deliberately fly under government radar. I don’t even look like I’m in business – my Friday casual attire is a robe and slippers, and my company mascot sleeps under my desk.

The Bottom Line

Let’s get to the bottom line on this idea of how challenging it is to start an enterprise like a consulting business. It’s only you. Just you, and no one else. How much hassle could that be?

No matter how large an effort you see this to be, you don’t have to eat the elephant in a single bite. You have plenty of time to investigate and plan and get your mind around the whole concept of being on your own. If you’re currently working “off campus,” then you’re a big step ahead of the game – you’re already used to working on your own, and you can get the ball rolling during regular business hours, not having to be concerned about someone overhearing about your plans to break from the rock group, create your own record label, and start making your first in a series of solo albums.

Recognize that much of what you see as fearful is really only a bunch of uncertainties and excuses looking back at you in the mirror. Sort out fact from fiction. Do your own research. Shine up your crystal ball and make a good plan. Chances are you’ll be successful and experience few hassles in your startup operation if you keep it simple and cost-effective. That’s how the frugal among us like it.

Coming Up

Okay, the next article in the series talks about the fun part – making gobs of money. We’ll look at making money, but we’re also going to temper this with the reality that money from your own business isn’t like getting a paycheck each week or two. There are many variables that we need to keep in mind, so income can be tricky, but when you get it right, it can be highly rewarding.

Clair Schwan hosts Frugal Living Freedom where he encourages others to use their hard-earned money wisely and strive to be more self-reliant in their lives. It’s one of his online projects that comprises his ongoing consulting business. He doesn’t fly around the world any more, he simply pilots a small desktop computer in his robe and slippers.

Related Posts:

Micro Frugality VS. Macro Frugality
How Frugality Becomes Counterproductive
7 Ways to Improve the Success of Your New Business
A Successful Online Business Requires Realistic Expectations
Frugal Entrepreneurs – Start a Consulting Company
Frugal Entrepreneurs – Expenses Associated with Consulting

By Clair Schwan

Continuing with this four part series, we’ve already looked at some startup considerations for the frugal-minded who desire to create their own consulting business. Let’s now look at what might be the most intimidating part of the equation – expenses. The frugal among us are good stewards of money, so we need to understand how best to minimize expenses that will erode our revenue, and as a result, minimize the profit we see from our enterprise.

Direct and Indirect Expenses

Let’s assume you’re no longer tethered to the corporate mothership nor chained to your desk inside that little cubicle. We’re off and running. You know it’s going to be scary because it’s expensive to run your own company. After all, it takes a huge corporate financial commitment to finance the business you just left, doesn’t it? No. It doesn’t. In many respects, you were financing the corporation all along. Huh? Let me explain.

In much of the corporate world, you pay for your own travel expenses until your expense report is prepared, submitted, reviewed, approved, and then finally paid. In essence, you’re giving a loan to your company for the direct expenses associated with project work and overhead travel. The only thing that the company “floats” in terms of expenses is the cost of labor. In your new business, that would be you, and your time costs you nothing – it’s not an expense, it’s an investment.

Besides, most of your travel and living expenses, and many other expenses for a particular project will be what are known as direct expenses. In other words, they are part of the cost of a project and therefore should be chargeable to the customer. When you bid a job, these direct expenses should be itemized or estimated in your bid so the customer isn’t surprised when they show up on the invoice.

Other indirect expenses like computers, printers, personal electronic devices and office resources are relatively cheap, and many have a long life span ahead of them, so costs are reasonable and not recurring. For recurring costs such as Internet and phone, you can get bundled residential service and that isn’t going to cost you anything more than it did when you didn’t have your own office in the house. Speaking of your own office, is it necessary to have one outside the home? I don’t think so. There are many a major corporation that was started up in someone’s garage or spare bedroom. You can do the same.

Labor is a Big Expense

Like most operations, labor will be your single largest cost component for any job. The only time labor is a concern is when you have a large project where you’re hiring help, and they’ll want to be paid. Try floating three helpers at $100 dollars per hour for a couple of months until your customer pays you. You’d be foolish to do so. You’d also be well advised not to consider a loan to help float that expense either. It’s just too much on your back to carry. Your interest should be in meeting your own payroll, not the payroll of others.

To eliminate this expense and financial risk, you simply team with other small business resources that are in the same boat as you are. They’ll understand about the difficulty in meeting a payroll. And, they’ll be much more likely to accept some of the pain and risk for an opportunity to be part of your project. Just propose an agreement that has them getting paid immediately after you get paid. In that way, shortly after the customer check arrives and is deposited, you can write a check to your helpers.

Defray Costs

Another helpful approach is to defray costs where you can do so legitimately. For example, if you’re traveling across the country to do a job, stop off to do some business development work at the same time. At least a portion of your travel will be a direct cost, so you’re defraying the cost of your overhead activities simply by combining trips.

For example, it’s an $800 plane ticket to fly to your customer location, but only $1,000 to make a stop on the way out or the way back. So, instead of paying perhaps $600 for a round trip dedicated to business development, you can get the same thing accomplished for only another $200 in plane fare. The customer gets charged $800 of the $1,000 ticket because that’s the portion associated with doing the project work. The rest gets charged to overhead as an indirect cost of doing business.

As part of your business planning, you need to make a good assessment of the cost of doing business. That includes travel, equipment, supplies and living expenses. If you stay a one-zee, your overhead costs can be very small, and most of the travel and living expenses can be paid for by your clients as direct expenses associated with doing their work.

Coming Up

In the next edition of this series, let’s examine some of the apparent problems, stumbling blocks and show-stoppers when it comes to getting yourself freed from the mothership of corporate employment. Many of these take the form of excuses. I’ll show you that many of the worries associated with running your own enterprise are overblown and a waste of your time and energy.

Clair Schwan hosts Self-Reliance Works where he and his team of writers support a self-directed and self-managed lifestyle, much like the kind that an entrepreneur would embrace.

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How Frugality Becomes Counterproductive
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Frugal Entrepreneurs – Start a Consulting Company

By Clair Schwan

As a follow-on to Kevin’s recent articles about how frugality comes into play as an entrepreneur, I’m offering a four-part series to suggest that the business of consulting is a good one to consider. Perhaps this line of work has a limited application for the general population, but it’s a legitimate career path if you’re in any field that one might consider to be “professional” in nature.

Being frugal means being a good steward of resources, particularly financial resources, but it also means that me make certain we’re getting good return on our investment of time and effort. The bottom line is we’re not wasteful. Although consulting can have its expenses, especially in the area of travel, it can be a business with low startup costs, low risk, and little wasted investment, something the frugal among us can appreciate.

In this first part of the series, let’s look at startup investment, and then I’ll use future articles to address expenses, potential problems, and what we might expect in terms of income.

Startup Investment

If you’re like most consultants and other professionals, you’ve spent years with one or more firms learning the ropes, acquiring technical skills, and polishing your ability to sell work, win jobs, and package your work products in a meaningful and attractive manner. You’re not necessarily smooth or slick, but you’re very good at what you do. That’s why you’re thinking of striking out on your own. You’re tired of making money for others; it’s time to build wealth for yourself instead of company management.

Before leaving the “mothership,” to get the best return on investment of your time and effort, you’ll need to busy yourself establishing good relationships with your customers and associates. You’ll want to get “tuned up” with respect to a broader range of technologies and methods, so you won’t be a one trick pony. You’ll also need to become familiar with other consultants in the industry, as they might become your associates. Most importantly, you’ll need to challenge yourself to get immersed in the business and project management aspects of the work so you’re not just a soldier, but a top notch field commander as well.

You’ll also need to have your ear to the ground so you can start to cultivate a number of clients who have needs for services, but are tired of being treated like just another customer standing in line. You’ll also want to strengthen the personal business relationships you have with your customers. If you can’t win work from them, you’ll want to have them as references.

You might even quietly cultivate your first few jobs, or at least the potential for new work, long before you jump ship. One way to do this is to get involved in jobs that are tailored to your unique talents such that no one else can take over the project and be successful. That’s a good way to get your soon-to-be previous employer to contract back to you right away to finish up your work. Voila, ready-made project work so you can hit the ground running.

When to Start

Since you’re going to be a “one-zee” out there, you’ll be fast on your feet, capable of making decisions in minutes, and not beholding to anyone in upper management, unless they’re upper management in your client’s organization. If a good customer or associate is ready to use you regularly, and right now, there’ll be nothing stopping you except your own misgivings about making gobs of money and being your own boss. Gee, that ought to be a tough decision to make!

Another consideration for startup is market timing. If the budget preparation cycle for your customers starts in the fall, you ought to consider a September and October start time as optimal. I used to work for someone who called it the “selling season.”

For many, the key to starting is when they’re ready. It’s good advice. If you’re not ready to put your all into it, you probably need to hold off. Running your own business can be dicey, so you’ll have to be your own best cheerleader when it comes to keeping things moving along, and keeping a positive attitude. It helps to be jazzed; it helps to be sure you’re ready.

Coming Up

Next in the series we’ll take a look at expenses. For the frugal-minded, this may be the greatest concern of all. I hope to show you how the consulting business can be quite a low cost operation, and that’s important because it’s your revenue minus expenses that equates to how much you’ll place in your own pocket.

Clair Schwan hosts Sensible Small Business Ideas where he encourages people to start their own enterprise. He believes that the only business you’ll truly ever be part of is your own.

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How Frugality Becomes Counterproductive
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7 Ways to Improve the Success of Your New Business
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Pursuing Your Passion Isn’t As Risky As It Used to Be

Guest Post by Philip Reed

Whether you’re feeling affected by recent economic troubles, or you’re just looking for a few ways to lessen the pinch on your pocketbook, here are some simple ways how to save money every day.

Transportation

Commuting can be a major expense! Not only do you have to pay for fuel, but there is also additional maintenance and even tolls in some areas. Depending on where you live, parking fees can add up quickly. Just owning a car is a major expense in itself, but a long, daily commute can multiple all of the expenses related to it.

If public transportation is an option, consider whether this would be a productive alternative to getting you where you need to go while trimming a few expenses related to driving an automobile. Still another option is carpooling. In some cites, such as Atlanta, High Occupancy Vehicle (HOV) lanes are dedicated to cars with multiple occupants and usually provide quicker routes that are less taxing on your vehicle.

Gym Memberships

We all have our preferences for how we prefer to stay fit. How often do you use your gym membership? If you don’t go that often, perhaps canceling your membership in favor of a run outdoors or a game of basketball at the park would be more in order for staying healthy.

Just by using a little imagination you can come up with a solid fitness routine for little or no money.

Plan Ahead for Expenses

If you head to the ATM frequently, watch out for withdrawal fees. Find time to go to your own bank to withdraw the cash you’ll need and avoid accumulating these little additional costs throughout the month.

If your own bank charges ATM fees, consider drawing the cash that you need with a personal check. You can take out as much money as you think you’ll need at the beginning of the month or week to avoid making multiple runs for smaller amounts. However you handle it, you can save money just by lowering the number of times you need to run to the ATM.

How many channels do you watch, anyway?

Enjoyable as they might be, you’re only watching one television station at a time. Is your cable bill worth it to you, or do you think you’d be able to do without? Many shows are even available online.

Look for Free or Lower-priced Entertainment

When you know where to look, you’ll likely find ample free entertainment possibilities where you live. Get to know the outdoors. Look for new parks, or find a recreational area you haven’t explored before. Stay in touch with your newspaper (check it online if you don’t want to buy a subscription) and see what free concerts, community theater events, or even high school sporting activities you’d like to enjoy. Hoping for a new book to read or movie to watch? Give your local library a try.

Plan for the Future

As you look to save your pennies now, consider that it will also be to your benefit to have a nest egg built for yourself in the future. Life insurance is a common method people chose to protect themselves and their families when they die. This offers a family a source of income in case of a tragedy, and is especially helpful if there are bills and other debts still to be paid. If you decide this is a smart investment for you, shop around carefully when looking for life insurance quotes.

It’s important to be truthful during this process, particularly when offering relevant health information. Otherwise, the life insurance rates you are quoted over the Internet, or that you receive from an agent in person, will not be accurate.

With a little effort and some time, the cost-cutting measure you use can add up into considerable savings. You will likely be grateful for the time you have spent improving your finances.

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What TV REALLY Costs Us

By Kevin M

Last week in How Frugality Becomes Counter Productive I wrote about how increasing income was more productive than cutting expenses. But the main take away in the post turned out to be what I thought was a minor point—one that I added just before publishing: micro-frugality and macro-frugality.

Now I don’t know if I’m the first one to introduce that concept, but there’s apparently enough interest in the topic to warrant a deeper discussion.

So what are micro- and macro-frugality, and what implications do they have on our finances?

Micro-frugality

Let’s start by recapping the definition given in the original post:

Micro-frugality. This type of frugality is searching two dozen expenses for savings in each in the hope that collectively they’ll reach the level of real money. While that may (or may not) happen, the effort itself is exhausting, and requires constant vigilance. It has us researching, analyzing, discussing and executing cuts in nearly all expenses that make up our financial lives, and the effort can easily rise to the level of a part time job.

Micro-frugality has us cutting the “rest of life” expenses—food, utilities, clothing, entertainment, travel, etc—the very spending habits that we often derive a sense of well being from. None of us need to be total spendthrifts in any of those areas, but micro-frugality has us looking for ways to squeeze out a few extra dollars in virtually everything we do.

It’s a process of looking for the best deals in many, most or all spending categories, and unless you were raised to handle your money in that manner, it can turn into a real job. And it’s not hard to see that this type of frugality has the potential to become a full blown obsession with money.

Many people use micro-frugality as a way of freeing up money to pay for macro-expenses, like a high priced car or an out-sized house. This is often how people end up being “house poor”, living in an expensive home, but never having much money for anything else.

If after putting the micro-frugality ax on every expense in your budget, you still have a house payment that consumes 35% of your monthly after tax income, and a car payment that eats up another 15%–your budget will still be uncomfortably tight. The nickel and dime expenses have been cut to the bone, but the dollar sized expenses continue to drain your budget.

Macro-frugality

Again, we’ll start out with the definition given in the original post:

Macro-frugality. This is cutting the two or three biggest expenses that have the greatest impact on your finances. If your house is costing you $2000 per month between the basic house payment, utilities and upkeep, you replace it with one that you could live in for $1200 a month. A car with a $600 payment is replaced by a used car with no payment.

Macro-frugality takes aim at the biggest expenses. If the big expenses are under control, it’s often easier to manage everything else, often with less sense of sacrifice.

Consider the decision to own a home; most people choose to buy the most expensive one they can afford—and there are implications to doing that. Look at the expenses that tend to move in tandem with the price of a home:

• Real estate taxes

• Home owners insurance

• Utilities

• Maintenance

• Homeowner’s association dues

• The type and cost of furniture you put in it

• The type and cost of the cars you park in the driveway

• And if I may, higher end homes often draw higher cost friends

Buying a home is never just about the cost of buying a home—there’s a whole battery of expenses that are set in motion. And once they are, it’s much harder to rein them in.

The same is true of a car. It’s not just the price of the car and the monthly payment. Insurance and repair costs also rise with more expensive cars. And more often than not, so do gasoline costs since higher end cars are generally less fuel efficient.

Macro expenses tend to affect a large number of micro-expenses—save money on the macros and many of the micros will take care of themselves. For this reason, greater budgetary control can be had by managing the macros more conservatively.

Which frugality type has the greater financial impact?

You might ask “why introduce micro and macro components to frugality—why not just do both?”

While we all need to live within our means, I’m of the opinion that doing both has the effect of putting you on an across the board, permanent financial diet. That might be necessary at certain times in life—unemployment certainly comes to mind—but sustaining it on a long term basis can sap the life out of you. Having control over our money isn’t just about saving and investing it, it’s also about enjoying at least some of it. That’s what makes it an either/or.

As you can easily tell from my analysis of both, my feeling is that macro-frugality is by far the better course. We control a few big expenses so we don’t have to worry so much about everything else. We’re free to concentrate on other issues in life.

A sense of prosperity is often defined by the freedom we have to spend our money as we please. Because it cuts the big expenses, macro-frugality leaves us with more money for everything else. With a lower house payment, no car payment, and no extraneous costs (boats, second homes, etc) we have more money in our budgets and in our pockets. We can choose to save it or spend it, but it’s the freedom of choice that creates the sense of prosperity.

In addition, since macro-frugality cuts down on the biggest expenses, we often have more freedom of action. For example, is it easier to start a business with a big house payment or a small one? Is it easier to make a geographic move with a big car payment or no car payment?

If you hit on a financial crisis in life, cutting the biggest expenses—macro-frugality—will have the most beneficial impact. Many people are losing their homes in the foreclosure crisis precisely because they attempted to preserve the home at the expense of everything else.

What’s your opinion? Frugality sometimes seems like the new cool in finance, but how much of it can we take? And where can we get the biggest benefit—with micro-frugality or with macro-frugality?

If you think that building a side business might help your cash flow, check out my post, The Freelance Blog Writer Side Hustle. Even if you’ve never written professionally in the past, this post will help you get started converting your passions and interests into an income earning business that you can work in from the comfort of your own home.

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Multiple Income Streams to replace One Man-One Job?

By Kevin M

One year ago—just about to the day—I took my first stab at this topic in Why Earning More Money is More Important than Frugality. It was one of the most popular posts I’ve done in the two years that I’ve had this site up and running. It seemed for a while that I’d covered the topic as thoroughly as I could imagine, but the subject has hit the blogosphere with a vengeance in the past couple of weeks stimulating additional thinking.

That doesn’t mean I’ve changed my original thoughts on frugality—quite the opposite. I’m now even more convinced that I was heading in the right direction on the first go round. My comment on Len Penzo’s 100 Words On: Why Frugality Has Its Limits made me realize that the subject is even more important than I imagined and that it’s time to take it on with some fresh ideas.

Frugality in a changing world

I believe we’re in the early days of a massive era of change that will eventually earn itself a chapter or two in the history books. Think Industrial Revolution here—an event so all-encompassing that it will change life as we know it. Space doesn’t permit presenting all of my thoughts here so it’ll be the topic of a future post that I’ll roll out as soon as I get the bugs worked out of my crystal ball.

In the meantime, we can safely say that at the moment we’re living in world of changing circumstances—I’d dare say negative for most, though I think the very long term will hold many positive surprises.

When change comes, and it seems disruptive in nature, we can do one of two things. We can either circle the wagons and work to protect what we have, or we can plunge forward and try to reinvent ourselves to thrive in a very different looking world.

The obsession with frugality strikes me as part and parcel of the circle the wagons strategy. Inside the wagons, we may feel secure and think that we’re in control, but as conditions outside deteriorate they’ll eventually drag us down in spite of our best efforts.

Frugality works best when you have something approximating employment for life, in a job that pays a living wage WITH full benefits AND predictable increases in pay. In that situation, your income is reliable and rises with time. By cutting expenses and saving the difference you save your way to prosperity.

But that’s not the world we live in any more. Jobs and long term employment are no longer certain, benefits are being cut, and raises–if you get them–are puny. Frugality doesn’t work as well in that situation and isn’t a long term solution to that problem.

The ultimate solution is to move beyond the circle, charge forward and work to cut a new path. Frugality doesn’t prepare us for that, at least not the way it’s generally used.

Micro-frugality vs. macro-frugality

So I don’t risk painting with too broad a brush, let me say that I think there are different types of frugality, and I can identify two as general categories.

Micro-frugality. This type of frugality is searching two dozen expenses for savings in each in the hope that collectively they’ll reach the level of real money. While that may (or may not) happen, the effort itself is exhausting, and requires constant vigilance. It has us researching, analyzing, discussing and executing cuts in nearly all expenses that make up our financial lives, and the effort can easily rise to the level of a part time job.

Macro-frugality. This is cutting the two or three biggest expenses that have the greatest impact on your finances. If your house is costing you $2000 per month between the basic house payment, utilities and upkeep, you replace it with one that you could live in for $1200 a month. A car with a $600 payment is replaced by a used car with no payment.

Macro-frugality makes abundant sense, especially if you’re trying to lighten your load to make a career push forward. You cut the structural expenses—which often causes other expenses to drop as well—and let the rest go. It’s better because you make two or three major changes and then move on. Simple, with maximum effectiveness.

Micro-frugality on the other hand, has us buried in small details. While we should be focused on generating fresh income streams, we’re busy plugging small leaks in our budget. What’s the end game to that strategy?

Is frugality motivated by a hatred of work?

That’s a strong statement but before you judge me too harshly for writing it, I came up with it while reading the comments posted on a New York Times article, Forget Frugality: Focus on Earning More.

The article was written by Ramit Sethi at I Will Teach You To Be Rich, an author and personal finance blogger who’s been very outspoken in his criticism of the frugality faith. There were 90-something comments responding to the article, and from the 40 or so that I scanned, the responses were overwhelmingly negative. I’d even go so far as to say that some of them were hateful, as though Ramit struck a deep emotional nerve.

Why the rabid responses? Ramit was suggesting that rather than use their free time to find new ways to save money, that they instead find ways to earn more money. That was the bone of contention—the frugal wanted to save money precisely so they wouldn’t have to work more.

But was Ramit suggesting that they become workaholics? Hardly. He was suggesting that they think long term. What he was pointing out was that the better use of spare time is to use it to earn more money so that credit cards and other loans can be paid off or savings can be accumulated. With less debt and/or more savings, structural improvements in life take place ultimately resulting in less work, more free time and more money. Its old fashioned work-save-invest, but the masses apparently want no part of it—too much work in the short run.

The primary risk of over-emphasizing frugality

Ever wonder why human beings are creatures of habit? It’s because life is easier that way. We don’t want to have to stop and think about everything we do, to hatch new ideas for the things we do every day, especially those that are mostly about survival. Going into automatic pilot is what we might think of as “brain save mode”, and there’s a good reason for that.

Each of us has only so much creative capacity, and so much time. True, some people are more creative than others, but all of us have the ability. The difference is primarily that some people make better use of their creative skills than others. The same is true of time. Each of us have only 24 hours a day, and much of that is consumed by work and sleep, leaving precious little time for much else.

That begs an obvious question: what are we spending our creative energy and time on?

Are we going to spend it analyzing four cell phone plans to see which is the cheapest? Running from store to store to see who has the best price on laundry detergent? Investing 100 hours of our time on research and efforts to weather proof the home so we can save $25 a month on energy bills?

All of these can seem like noble pursuits, but making a deep dive into details can also be a form of creative avoidance–that’s majoring on the minors, and it’s guaranteed to keep us right where we are.

That’s the risk that frugality brings—that the lions share of our creative energy and time will be dedicated to what amounts to an effort to keep what we have. In a period of changing circumstances and declining economic fortunes, will that be enough? Will it move us successfully into the future? I have serious doubts.

Yes, income generation IS more important

Frugality has its place—certainly macro-frugality does—but what I’m challenging is the notion of frugality as some sort of overriding financial guiding principal. That’s a role it can never fill. If your income shrinks down to zero, you won’t be able to cut enough expenses to survive.

Only by increasing income and generating new sources can we move forward, but it may be even more important than that. Why?

1. Jobs and careers are disappearing fast, and many of us need to completely retool in order to be economically relevant

2. Employers are no longer providing the type of training that will lead us to relevant new careers (they too are circling the wagons and have largely abandoned forward strategies like training in favor of cost cutting and survival)

3. Entrepreneurial skills are becoming critical as the choice for the unemployed is increasingly between self-employment and no employment

4. Developing multiple income streams may be the single best survival strategy in a world where fulltime, fully benefited, living wage jobs are becoming increasingly rare

5. University educations are not only prohibitively expensive, but the coursework is increasingly out of step with the most recent developments in the economy and job markets

6. Developing new businesses and income streams will take time, so the time to get started is now

Income earning ability is our single greatest financial asset. Our overriding financial principle then needs to be that we’ll always have an income—preferably a generous one. Making that happen is now completely up to us, and where we spend our creative energy and time will determine how well we do on that front more than anything else.

If you’re looking for a way to spend more time earning income to help your cash flow, check out my post, The Freelance Blog Writer Side Hustle. Even if you’ve never written professionally in the past, this post will help you get started converting your passions and interests into an income earning business that you can work in from the comfort of your own home.

Your thoughts?
 

Related Posts:

How Are You faring in the “Jobless Recovery”?

Buying vs Renting a Home – Its Not All About Money

Buy a Business OR Build One From the Ground Up?

All Jobs are Temporary! (And What You Can Do About It)

A Successful Online Business Requires Realistic Expectations

Multiple Income Streams to replace One Man-One Job?

By Kevin M

If you get a repair estimate of $1000 on your car, do you sense desperation, turn the car over to the mechanic and tell him to do what needs to be done? If you do you could be making a mistake that will cost you hundreds of dollars.

Most of us, I think, are a bit intimidated by car malfunctions, especially major ones. We don’t know a whole lot about cars—especially what makes them tick on the inside—and that makes us vulnerable not only to high charges, but even to repairs that are completely unnecessary.

For those of us who aren’t car experts, the solution may be to play one mechanic shop off against another.

Use several different shops—your own “panel” of car repair experts—and you increase the potential for savings.

We might like the idea of having a single shop to bring the car to when ever there’s a problem, but most repair shops these days are national chains run by business managers who know more about sales than they do about car repairs.

Why shopping between repair shops works

If you were facing major surgery, wouldn’t you get a second opinion to be sure you aren’t doing something unnecessary? Why wouldn’t you do the same for a major repair on your car?

If it sounds like it might be a hassle, consider what you get for your effort:

• You can select the repair shop with the lowest price an any job at any time
• You gain knowledge from talking to different mechanics about your car’s problem—you’ll learn and sound more intelligent, gaining the respect of the mechanics and the bargaining power that goes with it
• After a few repairs, you can find that one shop is consistently more reasonable than the others
• If the shops realize that they’re competing with one another, they may give you better pricing

The Car Computer Crap-out Caper

I’ve recently had a successful experience consulting with multiple shops. The onboard computer in my car had a “minor issue”—it stopped recognizing the code in my keys and wouldn’t allow the car to start. Initial action: get the keys reprogrammed.

Cheap and effective—but only for 30 days! The computer was “de-programming” the keys! In every other respect, it was functioning properly, but you can’t drive a car if the keys won’t start it, so I had a “complication”. The whole computer needed to be replaced.

$1200. That’s what the dealer wanted for a new computer. Due to the complexity of reprogramming the new computer for the car, my backyard mechanic wouldn’t tackle it, and neither would local repair shops. It looked like the dealer had me.

Yes, it looked that way, but I had my panel of experts! I called around to different shops, and dug to find out what I could. One morning, while having the oil changed at the quick oil change shop I go to, I asked the staff there if they could replace the computer (I didn’t think so, but I was there so I thought I’d ask).

They didn’t, but they knew a tire dealer who did!

I called the tire dealer and asked for the car computer expert I’d heard about and got him on the first try. Sure enough, he could handle the job and for a lot less than the $1200 the dealer shop wanted. The tire shop didn’t actually replace the computer, but they had an out of state facility that could reprogram the existing computer, rather than replacing it. (I had asked the dealer about this very thing, and they said it couldn’t be done.)

$765 was what I paid. That’s a savings of $435—just for asking a question! But the important thing was that I had multiple shops that I dealt with where I could ask the questions.

Building your own panel of car repair experts

You can build your own panel of car repair experts by enlisting one or more of the following:

Learn basic car repairs. If you have the time and motivation, take a course on car tune ups so you can handle routine maintenance yourself. Not only will this save you money, but it will also give you a greater understanding of cars and help you to navigate the car mechanics jungle to get the best repair deals.

Backyard mechanic. If, like me, you’re not a car repair type do some asking around and see if you can find someone who does car repairs on the side. They can do routine work like brakes, mufflers, belts and hoses and the like. And since they don’t have expensive shops to pay for, they’re a lot cheaper. You may even be able to work out a barter arrangement if you have a service to provide.

A reliable oil change shop. If you can’t find a reliable backyard mechanic, or if the backyard mechanic is slow to respond (which is a typical issue), an oil change shop can provide much the same function. Oil change shops do more than just oil these days. They’re reasonably priced, offer quick service, and as you see from my computer situation, they can be a good starting point to get information on where to go for the best deals.

Multiple full service repair shops. We need full service shops for the heavier jobs. But work with two or three, rather than relying on just one. If you have more than one shop to work with, not only can you shop them for the best repair prices, but you can use them to get a second opinion on a major repair bill. It may turn out that the repair recommended by one shop is totally unnecessary. Not only will that save you an entire repair bill, but it may expose a shop that’s less than honest.

Dealer repair shops. Sometimes there’s no way around going back to the dealer for a certain repair. But dealer repair shops are at the very top of my “use only when there’s no other option” list. If you have to go to a dealer and pay the highest price for a repair, make sure you’ve tried five or six other options before you go that route. The more you can avoid the dealer shop, the more money you’ll save.

Car repairs are a major expense, and we need to find ways to save money on them. There’s no need to go to a dealer shop and pay $100 for an oil change that you can have done at an oil change shop for $30. There’s no reason to pay a full service repair shop $300 for a brake job that a backyard mechanic can do for $150. But the only way you can avoid paying the higher prices is to have your own panel of car repair experts to shop between.

Related Posts:

Save Money on Car Repairs with Car-Part.com

Save Money on Car Repairs by Thinking Outside-the-Box

How to Sell Your Car Yourself

Know the Value of the Car You’re Buying – and the One You’re Selling

Why Fuel Economy Still Matters

OR…Is Saving Money Bad for the Economy?

By Kevin M

I came across this article a few weeks ago, Industrial output falls as consumers cut back spending, and have been trying to decide what it is about it that I find so disturbing. I’m not targeting it as some sort of special case; in fact it’s one of hundreds of articles I’ve read saying pretty much the same thing. News program talking heads trumpet it all the time. Loosely, what’s good for your bank account is bad for the country.

Do we actually believe that line of thinking, or do we just politely tolerate it? Surely we have to know better!

Now, I try not to do macro economics on this site, but it seems to me that this idea that the citizenry saving money is bad for the economy is some sort of article of faith that no one questions, at least in higher circles. And I don’t buy any of it!

From where I sit, it seems that the absence of savings is at the heart of our economic troubles. When a person has no savings, he lives paycheck-to-paycheck and is forced to borrow or turn to the government when he needs money in excess of his regular cash flow. In most households, this will happen most of the time—life’s just that way I suppose. But that conundrum is what gets the debt treadmill going, and once you’re on it, default is just a matter of time.

Multiply that by millions of households and you get…about where we are right now.

When were savings banished from “The American Way”?

I get what economists, politicians and business leaders say about the connection between spending and economic growth, but that mantra has been emphasized too many times in too many places and without serious reservation. The public has bought into it, and why not? After all, consumption feels good–and savings? Well…that’s kind of boring. It doesn’t fit with the media messages we’re getting, and besides, the experts and leaders say it’s bad for the economy. It’s our patriotic duty to spend!

If you’re addicted to spending, but you don’t have sufficient income to support your consumption, what do you do? You borrow.

I’ve even heard borrowing as a twisted version of “The American Way”. Some take comfort in reciting it just before signing on to a new loan or taking yet another swipe of a well worn credit card..I’ll just borrow to pay for it; after all, it’s “The American Way”. Really? Maybe that’s our credit version of “everybody’s doing it”.

By all accounts, borrowing IS a major part of life in America. We even have laws guaranteeing everyone equal access to credit. By contrast, no similar laws exist guaranteeing us equal access to healthcare (I’m sure you’ve heard of pre-existing conditions!). What does that say about our priorities?

Despite the fact that millions have grown up in a world that only knows easy credit as a means of consumption, it wasn’t always true. Not even for most of our history.

There was a time when you only bought with “cash on the barrell”; or put another way, if you had to borrow to buy, you couldn’t afford it. Then there was “a penny saved is a penny earned”—early patriot Ben Franklin, I believe—but it sounds so quaint now, doesn’t it? And not so long ago when I was a kid, you’d almost rather fall on your sword than file for bankruptcy or enter foreclosure. When did all of that go away? Are we better off that it did?

How is a bigger bank account a bad thing?

Here’s where I have an issue with the experts: while it may be true that millions of people suddenly saving money will slow the economy, I think it’s just the kind of remedy needed to give us long term prosperity. Economists talk about credit as the magic bullet that juices the economy; you never hear them talking about savings rates. Perhaps they think they’re irrelevant.

For an individual, a fat bank balance is the very definition of prosperity. Rampant consumption is it’s hollowed-out, idiot cousin—a mere facsimile of the real thing. While too much money going into savings may be bad for the economy in the short run, it’s virtually the best thing any of us can do for ourselves and for the long term health of the economy.

Borrowing can juice the economy short term, but once people reach the limits of their ability to pay their debts, a crash follows—sound familiar? If the economy were filled with people living within their paychecks, stashing some for the future, and buying only gradually—but continuously—we’d have steady growth without all the painful recessions we’ve been having.

Slow, steady, predictable growth may not provide the buzz many have been getting from the short term credit induced bubble-booms, but they would allow us to make long term plans, and that can only help us, the economy and the country.

It was the kind of household budgeting that was going on back in the “good old days” of the 1950s and 1960s. Is it merely a coincidence that the US savings rate has been collapsing in the early 2000s, just before the start of the financial meltdown? I doubt it.

On an individual level, having a large bank balance gives us options; we can…

• save up for major purchases, rather than borrowing
• use it as insulation from a job loss or some other crisis
• use to pay off debt (side benefit: being debt-free gives us more control over our paychecks, allowing us to save even more)
• choose to invest some of it, earning still more money
• use it to start a business (or to keep us going while we build up a cash flow)
• just sit on it and feel better about life.

If you have no savings, you may be doing your patriotic duty by helping the economy with borrow and spend, but you can’t do any of these!

With a cash cushion to back you up, life becomes more predictable. You aren’t being batttered by every missed paycheck or every unexpected expense that rears it’s ugly head. You can make long-term plans, long-term investments and build long-term prosperity for yourself, your family, your community and the country.

Is there anything unpatriotic about that?

Related Posts:

Start and Grow Your Nest Egg Even if Your Broke
Envision a Future Without Debt
Savings as a Survival Strategy
Build Savings or Payoff Debt – Which Comes First?
Ten Financial Mistake You Can’t Afford to Make

By Paul Williams

Budget. It’s a four-letter word to many people. We hate the
restriction, the deprivation, and tracking all the little details.
But personal finance experts continue to tell us we need a budget.
Don’t get me wrong. Budgets are very useful tools. I think everyone
should try to use one (or something like it) if they really want to
have control over their finances. But I wonder if we don’t go about
it the wrong way when we try to implement budgets.

For someone who’s never had a budget, the whole process can seem
daunting and mysterious. What’s the right way to budget? Why should
I even do it? How do I track all my expenses? While budgets are
quite simple (a list of income and expenses with goals), there are a
number of questions that can come up for the uninitiated. They find
some answers from people who seem confident and knowledgeable and away
they go. They make up their first budget and set high goals. Maybe
it looks like this:

That’s not a bad start. It’s probably missing some categories, but
they covered the major areas. The problem is this person’s been used
to spending $200 a month eating out, goes to a couple movies every
month with their friends, and buys every new Apple gadget the comes
out. Their actual spending is nowhere near their “ideal” budget, but
they don’t think about that.

They try to stick to this new budget, but amazingly they fail. After
going two weeks without a movie or eating out, they cave in and
splurge. They can’t resist the new iPad and buy it even though they
didn’t budget for it. Then they wonder why they didn’t save anything
at the end of the month.

A Better Way?

I think the problem with shooting for your “ideal” budget all at once
is that it requires major changes immediately. It feels like
deprivation. It feels painful. And we don’t like pain. So we give
up on the budget, declare it doesn’t work, and go back to our old
ways.

But maybe there’s a better way. What if we didn’t try to fix our
spending in one fell swoop? What if we simply focused on one or two
areas at a time – making small, incremental improvements every month?
It might take longer, but your chances of successfully reaching your
goal are likely increased. Here’s what this process might look like.

First, track your spending. Without knowing where your money is
going, how will you know where you need to focus? I suggest using
something like Mint or Quicken for this. It takes a little bit of
time to set up, but it can be fairly automatic after that. Do this
for a month and you’ll see where most of your money is going. (It
won’t capture everything because some expenses are irregular or
semi-annual.)

Next, take a look at your spending. Pick one or two areas you’d like
to cut back on. (Or choose to focus on increasing your income.) Set
a reasonable goal for yourself. If you’ve been spending $200 a month
eating out, it’ll be hard to drop down to $50 a month right away.
Instead, start smaller and grow from there. Maybe a goal of $150 or
$175 would be better. Give the money you’ll save a job (like
increasing your savings or paying off debt). Spend the next month
focused on your efforts in these one or two areas. Keep tracking your
spending.

Rinse, lather, repeat. As you continue going through this process,
you’ll make small changes that are noticeable but not drastic. It
might take a year or two to get where you really want to be, but
that’s better than setting ridiculous goals and giving up right away.

This Won’t Work for Everyone

This method probably isn’t ideal for someone who needs to make a big
change fast. If you’re drowning in debt or having a major spending
problem, you’ll have to make a few drastic choices right away. But
once you’re in a sustainable mode, you can start using this strategy.

And I’m not going to pretend this is something new. I’m sure someone
else has suggested it before. I just think it could be a better
alternative for those who have struggled with budgeting in the past.
What do you think? Is this a reasonable process for achieving a goal?
All it really amounts to is breaking a big goal down into bite-size
pieces. Share your thoughts and tips in the comments, and let’s see
if we can improve this idea.

This guest post was written by Paul Williams, a Christian
financial planner in Pennsylvania. Paul regularly writes about personal
finance from a Christian perspective on his website,
Provident Planning.

Have you ever tried building a budget a few expenses at a time? Do you
think going “cold turkey” on spending would be a better way to develop a budget?
Do you have any other ideas on how to implement a budget for someone who’s
never had one?

Newsflash: You can’t get out of debt until you stop being broke!

By Kevin M

Some argue that if you’re in debt the priority needs to be to payoff your debts before attempting to build a savings account. Many call for the establishment of a small emergency fund—typically $1000—to handle contingencies, and then to pour all extra funds into the pay down and eventual payoff of debt. Only when your debts are paid will you have the cash flow to truly build substantial savings.

While there is some merit to that advice, I believe it fails to address the basic reason a person might get into debt in the first place: a lack of savings, forcing the use of credit as a savings substitute.

Until that cycle is broken, it’s doubtful you’ll ever payoff your debts or accumulate substantial savings. Life has a way of throwing contingency after contingency at us and unless we’re fully prepared to deal with that reality, getting out of debt is little more than a fantasy.

The vicious cycle of debt

I think most people underestimate the deep power debt holds over the debtor, and we often assume it’s simply a matter of a) stop borrowing, and b) payoff your debts. If only it really were that easy!

If you’re experiencing credit problems, either in the form of increasing debt levels or more frequent delinquencies, you’re probably also aware of one or more of the following:

• You probably don’t—and maybe never did—have any substantial savings
• Your credit lines function as your savings account
• Your debt levels have risen steadily over the years, despite the fact that your income has also risen
• You’ve generally been overly optimistic in your thinking, tending to assume higher income and lower expenses than has usually been the case
• The parade of “unexpected expenses” seems to be intensifying
• You may have developed a syndrome I refer to as “debtors optimism”—much like a gambler, the debtor assumes luck will be his savior
• You’re making the minimum monthly payment on your credit cards, promising yourself you’ll get more aggressive with payments later when…

Now a fat savings account won’t make all of these issues magically disappear, but it is a fact that a cash rich position does tend to make the ride in life a good bit easier, and this is at least in part because of the discipline having savings imposes on us. Just learning to live beneath our means—what ever those means may be—can be life transforming.

Make savings the priority

Why is it in your best interest to establish your savings before tacking your debts?

1. No one can be effective in carrying out any plan while being broke
2. While we’re trying to focus on paying off debt, bills are still rolling in, each one having the potential to force us to abandon the payoff effort in favor of putting out the immediate fire
3. Savings give you room to breath! Unless you have margin to fall back on when unexpected bills come in, you’ll panic. Panic is fear, and fear is in no way solid ground from which to conquer your debt problem or even to live life
4. Accumulating savings requires living beneath our means, banking windfalls and developing additional income sources—all of which will help in the later effort to pay off debt
5. In order to save, we must develop a more a realistic assessment of our finances; debtors optimism (or any form of optimism) won’t get the job done

Three to six months of living expenses in the bank should be the goal. I’m sorry, but the $1000 emergency fund won’t cut it—that’s little more than a nasty car repair bill today, and how unusual is that? One “emergency” and you’re back to being broke.

Once you have three to six months put away it’ll be time to tackle the debts. But even once you do, you should continue to increase your savings if only at a slower pace. After all, the same contingencies that put you in debt in the first place also have the potential to drain your savings.

Maybe it’ll take longer to pay off your debts this way, but if you have a cash balance to fall back on in emergencies you’ll have the time you need. In fact, one thing you may want to consider is a divide-and-conquer strategy in which you ignore your debts beyond making minimum payments in favor of maximizing savings.

Once you have the minimum put away (three to six months living expenses) continue saving until you have enough excess to pay off one of your loans entirely. You can continue this strategy of picking off one loan at time until all are paid—and throughout the process you’ll never have been broke!

If you agree that savings is the place to start before paying off your debts, please read Start and Grow Your Nest Egg Even If You’re Broke for some ideas on how to get started. Once you have a few months worth of living expenses stashed safely in a savings account you’ll begin to feel better about your whole financial situation, because it will be better!

Which way do you think is the better way to get control of your finances, build your savings first then attack your debt, or go right for paying off the debt and build savings later?