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October 2014 Newsletter: Spending More; Needs Versus Wants; and, Pitfalls for Small Businesses
October 29, 2014
Hello to all my frugal friends:

I'm going to add a little something to this month's newsletter. You may recall that last month I was interviewed by a blog focused on passive income. I had hoped to get my subscribers free access to the hour-long interview, but that just wasn't in the cards. So, I decided to discuss a topic that wasn't addressed by the interview that aired; when to spend more money instead of trying to save it.

Consistent with previous newsletters, I'm also offering two articles that you won't find on the site. The first is a personal finance piece about focusing on needs versus wants, and the second speaks to pitfalls for small business owners to avoid (a continuation of the series about being better prepared from an economic and financial perspective).

I'm writing this as my fishing vacation wraps up here in northeast Texas. It's been a lengthy vacation, and both me and my buddy Humper are looking forward to getting back to Wyoming where the wind blows, the coyotes howl, and plenty of work around the homestead awaits.

So, let's get to it.

When to Spend More Money - Two Examples

As a frugal individual, it can sometimes be difficult to stay focused on value instead of pinching pennies and building up the savings in the piggy bank. If we take the long view, it's easier to see value and make better decisions...that sometimes lead us to spend more than we might normally.

Saving Pennies Can Hurt You

My first example comes from the 1970s and it centers around a young man who bought a small station wagon from a private party and ended up having to do quite a bit of engine work on it because the previous owner had opted to burn a grade of fuel not intended for use in the vehicle, simply because it cost a penny or two less per gallon.

I'm sure saving 50 cents to a dollar each time he filled the tank must have made the previous owner feel like he was saving money, but the costly engine repair far outweighed any saving that man might have realized over the life of the vehicle. And, an engine failure on the road is both inconvenient as well as costly.

The better alternative to saving money would have been to find a way to drive less often. That's one sure way to save money on fuel...use less of it. In the absence of saving money on fuel, the previous owner could have adopted a mindset of "investment" in the operating condition of his vehicle...take good care of it, and it'll take good care of you.

Walk a Mile in My Shoes

My second example is one that I discussed during the recorded interview with the passive income blog owner, but it never aired in the published interview. The question she posed to me was to give an example of where I might see it appropriate to spend more money. The answer came to me quite easily, as I see spending money on good footwear as money well spent.

I have a pair of boots that I've worn for work around the house for a little more than 10 years. The boots were some of the most expensive I've ever owned. The cost about $100. That seemed like a lot of money at the time, but those boots have been some of the most comfortable footwear I've ever owned. Besides, they've served me well and protected my feet for many years and many miles. I'm really going to miss them as they're starting to fall apart now and need to be replaced.

I could have spent half or less on a different pair of boots, but they probably wouldn't have lasted nearly as long and probably wouldn't have been nearly as comfortable. I don't necessarily believe "you get what you pay for" but in this case I think it's the truth.

Was spending more money worthwhile? I think so. After 10 years of good service, my comfortable boots cost me about three cents a day to own. In my book, that's really very little money for such good service and such great comfort.

Value Versus Cost

The key to recognizing when to spend more is to stay focused on value. Value can be seen a "worth" and it's defined in many ways including money, time, convenience, health, quality of life, prestige, etc. If we stay focused on value, we'll generally be spending our money well, irrespective of the cost of the item, commodity or service.

Part of how we measure value is how well something meets our needs. When something meets our needs, it's difficult to place a value on it. Think of water when you're thirsty or health when you're sick. It's difficult to place a value on such items because they're essential for a good and long and healthy life. If something merely meets our desires, then it pleases us and we tend to place value in it, but we should always place much higher value in what meets our needs.

And, that's basically the message of the article below.

Staying Out of Debt – Ignore Your Wants and Respond to Your Needs

by Clair A. Schwan

One of the biggest hoaxes we play on ourselves is seeing something we want and dressing it up as a need. If you asked people who are in debt to identify the single largest cause of their indebtedness, you’ll probably learn that most people have spent excessive amounts of money on discretionary purchases instead of their needs.

Getting what we desire is powerful, and we all want to feel powerful. The trick is not to be fooled by our desires, and instead enjoy the power that being financially responsible can provide to you.

If we were to make a list of common discretionary spending, it would be a simple matter. Let’s give it a try.

  • new car and multiple cars
  • recreational vehicles
  • vacations
  • bigger house
  • meals out
  • entertainment
  • extensive wardrobe
  • big boy toys
  • gadgets

This list probably contains many of the most obvious and largest of discretionary expenses, but there are others that are less conspicuous. They’re less conspicuous because they tend to pile up on us without presenting themselves right in our face. Here are some examples.

  • unlimited cell phone plans
  • cable and pay-per-view TV
  • failure to conserve energy
  • addictions
  • unnecessary trips in a vehicle

What you’ll notice about this list, is it contains smaller expenses that are recurring. It’s not the cost of each item that hurts you financially, it’s the idea that they don’t go away – they keep coming back to haunt you, repeatedly. It’s that repeatedly that starts to add up to big bucks.

Living Within Our Means

If you’re going to stay out of debt, you have to live within your means, and the two best ways of doing it are to eliminate the large discretionary purchases and carefully restrict the recurring discretionary purchases. The key is to identify a want versus a need.

To sort out between the two, perhaps a definition would be helpful. Here are a couple of suggestions:

Need – something essential for basic security, safety, health, income, comfort and well-being, often having a true sense of urgency. In other words, if you don’t have it, you’re putting yourself at risk in the near term.

Want – nonessential items, services and activities that are appealing, yet don’t serve an immediate need for one’s well-being. In other words, if you go without it, you’ll be just fine, now and in the foreseeable future.

Here are some examples that I’m familiar with:

  • Larry wants a new car; but what he really needs is just a little maintenance and a new set of tires on the one he has.
  • Jim wants unlimited cell phone service so he can talk, text, play games and keep himself entertained; but what he really needs is a basic plan that meets his needs for essential communication.
  • Julie wants a new refrigerator; but what she really needs is a service call to replace a failed timer, sensor or control board on the one she has.
  • Clark wants a nice long vacation in some far away place; but what he really needs is to realize that his business travels could be used as if they were mini-vacations.
  • Kim wants to go out for dinner several times a week; but what she really needs is to prepare meals at home.
  • Lance wants a big flat screen TV; but what he really needs is to limit his consumption of television and be happy with the 20 inch traditional TV he has.

Understanding Your Limitations

Clint Eastwood played Inspector Callahan in the Dirty Harry movie series, and he was fond of saying, “A man’s got to know his limitations.” The same thing applies when we’re considering what we want and what we need. It’s okay to spend money on wants, but we must understand our limitations. It’s when we go bananas that we fall into the trap of debt. There’s no problem with buying things we like and want. The problem comes when we disguise them with a sense of urgency and call them needs. When we find ourselves saying, “Wow, that’s cool,” we’re probably looking at something that qualifies as a discretionary purchase.

Be Tough or be Tethered

My philosophy is to live well within my means. It doesn’t make any sense to me to expend all of my income and live with my nose just above the financial waters. I like some breathing room. It gives me peace of mind. You never know when the waters are going to get rough for a while. That requires being tough. My former track coach called that mental toughness. You’re not going to hurt yourself or go to your grave feeling deprived because you didn’t get to eat out often enough. Hang tough, be tough, and you’ll reap the rewards of being financially responsible.

The alternative is to be tethered to the mortgage company, the credit card company, the oil company that issued you a credit card, or perhaps the finance company where you make your car payments. Being tethered is no fun. What’s much more enjoyable is financial freedom. I chuckle at the bumper sticker I see when in traffic every now and then, it says, “I owe, I owe, so off to work I go.” Now, there’s a person who understands that they’re tethered. I have never put a bumper sticker on my car, but if I did, it might say, “Financial freedom is self-imposed, so is financial slavery.”


Our lives are largely about choices, and like it or not, we are our own life manager. Sometimes we make good choices and sometimes we make bad choices. At other times, we allow others to choose for us, and sometimes we refuse to make a choice at all. But, when it comes to spending money, don’t fool yourself, it’s all about choices that you make. No matter who “twists your arm” or cajoles you into it, you are the one who makes the spending decisions when it comes to your money. The key to making wise choices is to understand the difference between want and need, and make a wise choice based on your understanding of what you would like your financial condition to be. Choose wisely in favor of need instead of desire, for your choices will have long and far-reaching consequences. If you don’t believe me, just ask anyone who is deep in debt.

Economic and Financial Preparedness – Start Your Own Enterprise With Limited Investment: Pitfalls to Avoid

by Clair A. Schwan

As we press on with economic and financial preparedness, let’s wrap up the discussion on starting your own enterprise. Recall that my recommendation is a service company because they usually require very limited investment. We’ve presented a range of service businesses that you might consider. We’ve also spoke to the issue of keys to success in your own small business.

Now, I’d like to address some of the landmines that possibly lay out before you as a neophyte entrepreneur. Please don’t read these and be discouraged. That’s not my intention at all, as I believe that starting your own service enterprise could be the best thing you’ll ever do in terms of enhancing your ability to earn income.

Also, you’ll note a little grumbling in my voice of experience when it comes to a couple of the suggestions. Don’t let that put you off either. It’s better that I grumble about my experiences than to have you slog through the same mire and wish that someone (like me) had advised you of the potential for trouble before you started. Take my grumbling as a kind of emphasis with respect to how seriously you might need to take my recommendations.

But first, let’s revisit the original suggestion from the article that introduced possibilities for creating wealth. That will help keep us centered, and perhaps offer some reasonable explanation as to why I offer some of my recommendations with a bit of an attitude.

Start your own enterprise – perhaps the best alternative for better control of your destiny and much higher levels of income. Many can do this right now based on what they already have on-hand and their current base of knowledge and experience.

So, clearly our focus is to take control of our future and make more money, all with minimal investment. Now, let’s take a look at what we need to be aware of when starting our own service enterprise.

Common Pitfalls to Avoid

You can get yourself well on your way to economic and financial preparedness by being an entrepreneur who starts a service-related business. To help you on your way, let me offer this list of 14 pitfalls to avoid...oh, look at that, almost an unlucky number! Before engaging in any of the following activities, please think it over very carefully so you move ahead with you eyes wide open.

  • Getting a business loan – this should be something that only the experienced entrepreneur thinks about doing, someone who can work up a good business plan that proves the loan is necessary and there’s an excellent chance it will be repaid. Think about a business loan when (and if) it comes time to expand your established enterprise. And, keep in mind that you might do well to keep your business small. Expanding might simply expand your headaches instead of your profits.

  • Hiring employees – when talking about employees, I wear garlic and a crucifix around my neck and approach cautiously with a wooden stake in one hand and a heavy mallet in the other. Employees are generally a pain in the ass. You’re much better off having associates (fellow contractors) who can be hired and fired with ease.
  • Having a partner, silent or otherwise – there is little difference between having a partner and being married, it’s just as complicated. Stay single until you know you’ve found the right individual(s) and then only do it for good cause. If you need help, it’s best to use a trusted associate, another contractor, or hire an employee. Remember, you’re in business on your own because you want to call the shots and run the show. You don’t need unnecessary interference in day-to-day management of your operation.

  • Making investments in the business before they’re necessary – this is a little like buying a bunch of building materials because you think you’ll be starting a building project one day. Spend your money when you know it’s necessary, otherwise you might be shooting yourself in the financial foot.

  • Travel out of your local area – here’s another expense that you’ll want to avoid unless your business demands that you travel to distant places. A one-week trip with plane fare, parking, hotel, meals and car rental can be a couple thousand dollars, so don’t spend money on travel unless you’re expecting good return on investment.

  • Lack of a written contract – nothing is real unless it’s in writing. A contract doesn’t have to be fancy or filled with legalese, but for anything you’re serious about, it’s a useful document so that all parties have the same a clear and unambiguous form.

  • Establishing an office separate from your home – this is an unnecessary expense for most service enterprises that operate as a onezee. The only exception would be when a local ordinance prohibits you from engaging in your business and having an office in your home.

  • Setting your pricing too low – count on the quality of your work and your responsiveness to customer needs to win you work (contracts) and repeat work. Bid reasonable and competitive, but you typically don’t want to win on price. It’s easy to lose when getting into a bidding war with competitors, because anyone can lower the price. Be known for exceptional quality at a reasonable cost, because not everyone can up the ante with respect to the quality of their work.

  • Chasing wild geese – you might be inclined to bid on every opportunity that comes along, but it’s best to bid on jobs you’d really like to have and jobs you have a good chance of winning...think 85% probability.

  • Focusing too much on the work in hand – it’s a delicate balance between working the jobs you have and winning new work, but generally speaking, you have to put more priority on winning work so you keep the pipeline full. Doing good work will beget more work, but you can easily run yourself out of billable work by focusing too much on the work at hand and not enough on developing more business.

  • Aiming too low in terms of financial objectives – it’s a bit like the old joke that provides a list of various classes you can take at the community college, and one of them is, “How to Make $100 in Real Estate.” Aim higher, within reason, as anyone can hit an easy target. Periodically translate the hours worked and income received into an average hourly rate. That ought to clue you in as to whether you’re aiming high enough.

  • Handling inventory and producing products – services are usually cheap and easy, when you get into products or inventory, then it’s easy to literally have too much on (and in) your hands.
  • Failing to register as a Limited Liability Corporation (LLC) – my business is run as a sole proprietorship, but if you expect there is a possibility of being sued, an LLC might be a better idea. LLCs (supposedly) limit your personal liability to that which you’ve invested in the business.

  • Ignoring business licensing and tax laws – getting sideways with government is a bad idea. Knowing local ordinances and other applicable laws about business and tax matters is essential. You don’t necessarily need an attorney, but you should have someone to advise you on tax matters (and at least prepare your first return), and you should be good at doing research regarding business requirements in your area before you establish your enterprise.

It seems that it’s always the things you don’t know that come up and bite you in the ass. When someone is trying to sell you something, it’s in their best interest to leave out potential problems and drawbacks. However, if you know about them upfront, you’ll probably make much better decisions. When it comes to being a player in the economy and a higher income earner, you’ll do best if you know most of the important things from the very start...that includes pitfalls to avoid as a business owner and manager.

As an employee, you can always find another job, there are millions of them out there, but as a business owner, you can’t always just start up another business. It might be that you just have enough time, energy and money to start only one enterprise. In any case, you’ll want to get it right the first time, and that means you need to know what pitfalls to avoid. After all, your economic and financial preparedness hinges on making good decisions in this area of opportunity.

Next Up

Let’s talk next about starting your own enterprise where there is more of an investment to be made, nothing enormous or risky, but more than what one might need when creating a simple service business. These higher investment enterprises can be equally lucrative if you go about planning and operating them with care.

Next Month

In next month's newsletter I'll provide an article about how to weather economic least one man's approach to it. I'll also provide another article in the economic and financial preparedness series. This time I'll be talking about making a modest investment to create your own enterprise.
Thanks for being here with me at Frugal Living Freedom. I hope you enjoyed the articles. It's my hope that you can put them to good use.

All the best to you and yours,


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