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Self-Employment and Being Frugal– Is There a Connection?

In previous posts I’ve suggested that frugality can be counter productive if it keeps you hyper-focused on saving money at the expense of increasing your income. There is a very definite “siege mentality” that is inherent in frugality, and if taken too far it can lead to a process in which you’re constantly working to lower your cost of living but never moving forward in any real way.

Today I’d like to look at the flip side of this thinking. In this post I’d like to examine an area where properly channeled frugality can create business opportunities.

Last week I had lunch with my friend Jay and we got to talking about the possibility of a connection between self-employment and being frugal. Jay himself was the inspiration for the question—and for this post. In addition to having a very successful business, one he quite literally built from the ground up, Jay has never held a job. His entire career has been a process of moving from one entrepreneurial venture to another and sometimes juggling two or more at the same time. Oh, and yes, Jay is also very frugal. I don’t mean cheapskate frugal, but more along the line that frugality is a part of who he is.

Have you ever known anyone like this? I’ve known several. Make that many! That’s what leads me to believe that there might be a connection between self-employment and frugality. I’m not sure whether frugality sets the stage for self-employment, or if being self-employed makes one frugal out of necessity. But I’m willing to guess that there are certain characteristics of the frugal that make it easier for them to be self-employed.

What are those characteristics?

An inclination to find the best deals

What ever it is that a frugal person needs he’ll almost always pay less for it than others will. In that process he develops a sense to be able to almost sniff out the best deals on nearly every product or service he buys. A truly frugal person almost never buys “off the shelf”. He hones something of a horse trader’s instinct that he’s able to summon anytime he’s about to buy something. Think of it as buying wholesale, a skill that any self-employed person needs to develop.

”By Low, Sell High”

The inclination to find the best deals is rooted in a deep sense of value. The frugal person knows that what it is he buys is purchased at a lower cost than what most others are willing to pay. This sets the stage to sell what he buys for a profit. The primary “secret” of having a successful business is the ability to buy on the cheap and sell what you buy at a higher price. It’s easy to see how this would help in running a business.

Getting the most out of scarce resources

The frugal not only know how to buy for less, but they also have an uncanny ability to use what they have to the fullest. That may involve using a product past the point where most others would discard it, the willingness to fix or otherwise enhance it to get more life out of it or, failing all else, to find cheaper alternatives.

This is exactly what you’re doing when you’re self-employed. There are business plans, but as anyone who’s ever run a business knows, improvising quickly becomes the order of the day. Since income is never unlimited, the ability to make do with less becomes the critical “other half” of business success.

Managing cash flow

Since a frugal minded person is always aware of expenses and the need to control them, his ability to successfully manage cash flow tends to be better than that of the average person. We can see how this is a benefit in managing personal finances, but it works just as well in running a business budget. By keeping expenses low, and buying only what’s absolutely necessary, the frugal person also maximizes net income.

Staying out of debt

Frugal people are keenly aware that debt and the interest it carries raise the cost of everything it’s used to buy. For this reason, the frugal avoid debt and that works very well if you run a small business. Debt can be the mortal enemy of a business entity, reducing options and cash flow during downturns. By staying out of debt, a business is in a better position to weather economic troubles. The frugal tend to be naturally better at making this happen.

Investment and business asset growth

One of the hallmarks of the frugal is a healthy savings account balance—a natural result of buying on the cheap, keeping expenses low and staying out of debt. This is also a benefit to a business owner since it keeps cash available for future investment. This can be either investment in personal financial assets or investment in the business itself.

Where ever it’s done, when a business owner is able to invest without borrowing he improves the likelihood of both the survival and increased prosperity of his business.

Getting back to the question in the title: Self-Employment and Being Frugal – Is there a Connection? In my opinion, most definitely.

What do you think? Is there a connection between the two? Does frugality benefit a business owner? Can you think of ways it might work against being self-employed?

( Photo from Flickr by _tar0_ )


4 Responses to Self-Employment and Being Frugal– Is There a Connection?

  1. Clair Schwan says:

    Kevin, most certainly there is a connection between frugal and entrepreneurship simply because frugal is a type of wise resource management, and wise management of resources is part of what will lead to success in an enterprise. When I started my own enterprise, circumstances required that instead of being a principal of a firm with another, we both started up separately and then worked together as a team in the marketplace. That worked out great for me because I never had to be concerned with how resources were managed by my “partner” because we weren’t legally attached to one another, and we managed our investments and expenses separately. I enjoyed managing my resources in a conservative manner, and that eliminated one potential source of dispute between the two of us.

    I keyed into your comment about a “siege mentality.” It’s absolutely true that on the penny pinching side of frugality, there are those who would be too cautious in making investments to make the business succeed. It’s the old saying, “Enough resources to almost succeed is still failure.” Such a penny pincher would focus on minimal spending, which in many cases equates to inadequate investment. The key to success is to see the value in the investment.

    As an example, a sale might be closed over the phone, or it might require a visit to the customer location. If it’s a long shot with limited revenue potential, a plane flight is just a waste of money, but if it’s really an opportunity to close a sale that would result in significant and lasting revenue, then it’s a good investment for growth of the business. To be successful, an entrepreneur needs to know value, not just cost.

    The wheels in my head are turning. Perhaps you might be interested in a guest post about what might be a good approach to low risk and high return on investment in the area of self-employment. I’m ready when you are.

    Clair

  2. Kevin M says:

    Hi Clair–There does seem to be a fine line between the productive and the debilitating sides of frugality. The productive use of frugality minimizes expenses and maximizes resources–which is highly conducive to starting and running a business–the debilitating side is just cheap and is handcuffed by a phobia about spending money period. Good spending or bad spending don’t enter into the question, it’s always all about keeping the dollars close at hand.

    It also seems to go with the territory that people in the second group are highly risk adverse; that almost precludes self-employment because of the risks it carries. Better to go with a “steady paycheck”–if such a thing even exists anymore. It’s a perpetual defensive strategy where the goal is always lowering living expenses without any real foward direction–which explains the seige analogy.

    It may come down to a question: is frugality an enabling strategy that helps move you to where you want to be, or is it an end in itself that functions more as a coping device that keeps you locked where you’re at? The difference can determine whether frugality is an asset or a libablity.

    I’d love for you to do another post, but I’ll contact you by email. Thanks for stopping by Clair!

  3. Clair Schwan says:

    The idea of frugality is certainly a factor that influences our actions, but I think for most people it comes down to either having a natural sense of self-direction or not, and then the “push” and “pull” factors come into play to set off that natural sense of direction to move them in another direction. That’s where frugality helps shape their success, whether it’s in self-employment or simply another job.

  4. Kevin M says:

    Yeah, we’re talking about frugality as it relates to self-employment, but it can be an advantage if you have a job as well. If you can use frugality to advance you’re career–such as keeping expenses low enough that you can “travel light”–you can be free to accept more satisfying jobs at less pay, accept jobs that offer a better lifestyle or even retire early. That’s another example of where frugality can be a tool.

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