Does ‘Spending Pennies to Make Dollars’ Really Make Sense?

You come home from work. There’s a big pile of laundry that needs to be sorted and washed. You also need to make dinner. You have dreams of using evenings to start building a business, but with tasks like this (and many other things) interfering with that plan constantly, it’s very hard to get a business rolling.

What do you do?

Well, you could just leave the laundry and eat the absolute simplest meal you can possibly prepare, then get cracking on your business plan. Eventually, though, you will be facing Mount Laundry and it will become a crisis.

Another option is to prepare a well-rounded and inexpensive meal, but that’ll take a while, and then do the laundry, but then you’re left with little time for doing things that will earn more money.

The third option, of course, is to outsource those simple tasks. Hire a laundry service. Order food to be delivered. That way, you’re not spending your time on those tasks and can devote your time to getting that small business running.

Many entrepreneurs, both successful and otherwise, follow that last strategy. Their philosophy is simple: They believe that they’re spending pennies to make dollars. In other words, they believe that the money that they pay for services like laundry or food delivery or other things that save them time in their personal lives allow them more time for entrepreneurship activities, from which they can earn far more money than they would save by doing those personal activities themselves.

As someone who went through a period in life where I was building a successful small business (The Simple Dollar) at the same time that I was trying to maintain a career while also married with a newborn at home, I can really understand that temptation. If you truly believe that you’ve got a great entrepreneurial idea and that it will earn you a ton of money if you’re able to launch it, the cost of laundry service or food service or some other time saver will indeed seem like a great investment.

But is it a good investment?

The Small Business Administration estimates that two-thirds of small businesses utterly fail within two years. Many more only become marginally profitable. For each small business success story that you hear, there are several that outright failed and a few that are modest successes.

That’s not to say that entrepreneurship is a mistake; it isn’t. For hardworking focused individuals, it can be an incredibly powerful way to earn money. It can turn an idea that you cultivate in your spare time into something utterly life-changing.

But it’s risky. Most of the time, you’ll fail at it.

The real question isn’t whether it makes sense to turn pennies into dollars, but when is the right time to turn pennies into dollars. Here are my thoughts on the issue.

Have your personal finances in order before you start “spending pennies to make dollars.” If you do not have your finances in order, you should be focused on taking immediate action to cut down your debts and install some good personal spending practices. That needs to take priority over any sort of entrepreneurial activity.

It’s simple: if you don’t have pennies to spare, you shouldn’t be spending pennies, even if you believe that those pennies will make dollars. Put yourself in a position to have pennies to spare by relying on frugality and more straightforward employment methods and use your excess money to cut down your debts.

This doesn’t mean that you shouldn’t bother with entrepreneurship if you’re in a financially difficult situation. It just means that you shouldn’t invest money in the idea. Instead, proceed slowly. Use the time to think through your entrepreneurial ideas.

Which brings me to my second point…

Have a plan. If you want to launch a small business, write a business plan. The Small Business Administration has some wonderful tools to help you through the process of writing a plan for your business idea.

The process of writing a business plan is invaluable. Although I started The Simple Dollar on a whim (mostly as an outlet to journal and evaluate my own financial success), I soon wrote a business plan for the site, evaluating various risks and costs and thinking about how I could market the site to attract new readers. Without that plan, the site would have floundered in anonymity and likely have been forgotten many years ago.

The same thing is true if you’re trying to launch a strong career. Often, the early stages of a career require tons of time, tons of learning, tons of work, and tons of networking. Write a plan for that, too. How will you build connections to people in your field? What education and skills and resume lines do you need to advance to the next rung on your career ladder? How will you get them? How can you build a name for yourself in your field? Think about those questions. Come up with answers for those questions.

Never, ever throw yourself mindlessly into work without a plan. If you’re starting a side gig without a plan, it will almost always fail. If you’re dreaming of great career success but don’t have a plan for how to achieve it, it will almost always fail.

If you’re not setting yourself up for success from the get-go with a smart plan in place, spending pennies to make dollars is the equivalent of throwing money down the drain.

Don’t put all of your eggs in one basket. If there’s one truism in your professional life, your personal life, every aspect of your life, it’s this: You’re going to fall down again and again, and the only way you’re ever going to succeed is by picking yourself up, brushing yourself off, figuring out how you stumbled, and then moving forward again in a way that avoids that mistake. I failed at more than a dozen side gigs and microbusinesses before The Simple Dollar took off – no joke.

Here’s the thing: you need to be in a life situation where if you fall down, it is possible for you to stand back up again. If you’re putting yourself in a situation where failure means complete financial disaster with no direct route to continued income, you’re making a giant mistake.

It has nothing to do with “walking the edge” in order to “push yourself to greater success.” That’s a myth. The truth is that many entrepreneurial ventures succeed and fail based on things outside of your control. Many career advancements succeed and fail based on things outside of your control. You can have the perfect plan, but sometimes perfect just isn’t good enough.

If you put all of your eggs in one basket, even if you execute perfectly, sometimes you’ll drop that basket and find yourself with nothing. Never, ever put yourself in that situation.

Instead, make sure that you have other secure sources of income before you start diving into entrepreneurship. Have a steady job in place or a skill set that allows you to easily find employment if things don’t work out.

Multitask unimportant things. One strategy that I was forced to employ during the early days of The Simple Dollar when I was balancing a full-time job, a marriage, an infant at home, and launching the site was multitasking unimportant tasks. Things that did not require my full focus became opportunities for multitasking, even if it looked crazy.

Take my example above, where a person is facing entrepreneurial needs, a big pile of laundry, and dinner that needs to be made. Prepare something quick for supper, sort laundry while it’s going, and use a voice recording app on your phone to brainstorm while doing it. I did this very thing many evenings (using a whiteboard instead of a voice recorder) back in those days.

Rather than trying to balance exercise, child care, and a need to get groceries sequentially, I’d strap a large bag on my back and walk with the stroller to the grocery store 3/4 of a mile away, load up on groceries, and walk back home at a very brisk pace with the weight on my back and the stroller to push in front of me. I’d get home panting and wheezing from the exercise, have the grocery shopping done, and I’d have taken our baby outside for some fresh air… and he was usually napping when we got back home. Heck, I’d even brainstorm during this activity by having a little pocket notebook on the stroller to jot down brief notes.

(If you haven’t figured it out, one of the best secrets of entrepreneurship is to brainstorm and think through your plans whenever you have mental downtime.)

By layering together tasks like this, you get far more value out of your time and you’re freeing up a lot of time to use in other ways, like entrepreneurship. Look for ways to layer three or four low-focus tasks together into one continuous activity and you’ll find yourself with extra free time without having to pay for it.

Here’s the moral of the story: Spending pennies to make dollars addresses a real problem with an overly simplistic solution. Rather than creating value, you’re mostly just swapping one resource for another unless you do it in a smarter fashion. Don’t toss aside smart personal finance management in an effort to earn more money, because you’ll often find that you’re not improving your financial state at all.

Good luck!

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Trent Hamm
Trent Hamm
Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

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