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The Difference Between Cheap And Smart

How you spend your money is one of the most important aspects of running a business. You can have money coming in, but unless you allocate it wisely you won’t get the return you are looking for. Everybody wants to save money whenever possible but there are times when saving isn’t always the most sensible move. If you are too cheap and only look at the short term return eventually you will pay more in the long run. Being frugal is knowing how to stretch your dollar, being cheap is not spending money on areas deep down you know you should. Being cheap isn’t really saving money at all and will cause many more problems down the road. Here are a few ways you can make smart financial decisions in your business without being cheap.

• Don’t be afraid to save. One of the biggest adjustments new investors face is in how they generate income. There are plenty of investors who have made the leap from the corporate world where paychecks are distributed every week or two. As an investor you may only close a handful of rehabs a year that generate as much, or more income. What you do with these funds are essential to running a healthy business. There is a natural impulse to spend your profits like you just won the lottery. The reality is that it is ok to save some of this money for a rainy day. Dumping money in a low yield savings account isn’t that exciting but is a necessary evil. You never know where the business will take you and without savings you can turn small problems into big ones. As much as you may want to spend, spend, spend after a closing the frugal investor knows better.

• Spend on quality. There is a difference between a bargain and a sale. Everybody loves to feel they have gotten a good deal on any type of purchase. In many cases perception is greater than reality. A cheap person only looks at the price when spending money. They want the lowest price and nothing else matters to them. What generally happens under that scenario is that they may be able to get a discount today, but they end up paying for it down the road. This is especially important if you are trying to grow your business. Most marketing campaigns have hidden costs that add up over time. In an effort to curb your spending you look to cut corners that are essential for success. In the big picture spending extra money to have a quality postcard or letter for a direct mail campaign is worth whatever the cost is. Without the seemingly minor items your phone will not ring, and you will be left to wonder where you went wrong. If you are going to pay for marketing or business growth you better know where to spend on quality and where you can trim the fat.

• Understand value of time. There is a very fine line between valuing time and valuing money. In business, and in life, time is your most important commodity. Everyone has the same 24 hours in a day and what we do with it is what matters. There will be plenty of instances in your business where you can physically handle a task but by doing so you put something else on the back burner. These tasks can often yield a greater return, but many have trouble seeing the big picture. If you own rental properties you can probably cut the grass and shovel the snow, but at what expense? The same is the case with stuffing envelopes, inputting data and many other mundane business tasks. Finding someone to handle these often costs less than $100. The frugal investor knows what weeks they have an extra hour or so to do them and which they need to pay for help. Paying for help to free up time should never be looked at as a waste of money. Just because you can do something doesn’t always mean that you should.

• Always consider long term value. There are plenty of areas in real estate you can put a Band-Aid on something and give yourself a short-term fix. If the dishwasher stops working you can get it repaired instead of getting it replaced. If you are working on a rehab you can look for cost efficient solutions instead of spending a little more on quality. You can work with a lawyer or accountant offering discounted fees rather than a profession who really knows what they are doing. All these scenarios can save you money in the short term but will create bigger headaches in the future. What happens by being cheap is that you almost always end up paying more down the road. An old dishwasher may cost hundreds trying to keep on its last leg whereas you could have just spent a little more and got a new one. Using a cheaper attorney may save a few hundred dollars but could cost thousands if they fail to catch something on the contract.

There is nothing wrong with breaking down an expense from every angle and trying to get the best deal. However, you need to know when you are getting a deal and when you need to pay for quality.

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