Over the past two decades, the companies I have run have helped tens of thousands of entrepreneurs pay off their credit cards, pay down their student loans and in total have saved them millions of dollars empowering them to have the financial freedom to create amazing business.
I’ve also learned valuable lessons by counseling hard-working people who make more with that they have got. The most valuable lesson of all: Always squeeze the last drop out of a dollar – no matter how many you have.
That seems so basic, but I’ve noticed many of my fellow entrepreneurs lose their way as they climb the ladder of success. Let me explain…
1. Frugality is a state of mind.
When I launched my first business, it was just me. My budget was so tight that my office was a former janitor’s closet. I haggled over the price of a used file cabinet. I had enough money to spend more, but I didn’t need to. I wanted to focus on my new business cash flow, not impress people.
Now that I run businesses with hundreds of employees, I still keep that mindset. I make sure my employees have comfortable office furnishings, but it’s not luxurious. If something can be fixed instead of thrown out, we do so — even if the cost of repair isn’t a marked savings over the price of new.
Why? Because I want everyone I work with to consider the value of the dollars that aren’t their own — because that’s the only way to pass along savings to the clients. Why should employees save money for the company if it doesn’t appear the company is saving money itself?
2. Frugality is the antidote to hypocrisy.
Of course, my employees would resent me if I sat them in comfortable but old desks while I lounged in a palatial office. I do have a corner office — overlooking an alleyway on one side and a roof of another building on the other.
My office is set up for my comfort and the comfort of those I meet with. I don’t care about impressing visitors with my surroundings. If I wanted to impress them with my success, I will impress them with the organization’s results.
With “wage gaps” and “class warfare” the hot terms in the media today, I make no apology for making money. However, showing off your wealth at work doesn’t make you a better person, and it certainly doesn’t make for better employees.
I have a nice house and a nice car, and I make sure my family has nice things. At work, however, I work. I want my employees to do the same. My day starts at 5 AM and I am normally the last person to leave the building in the evening.
3. Frugality keeps you sharp.
No one wants to overpay for anything. I’ve noticed, though, that as entrepreneurs succeed beyond their initial expectations, they tend to slide on getting the most value for their purchases.
“What’s the harm in blowing some cash every so often?” they tell me. “Sometimes, you gotta live a little.”
The problem is, overspending is like under-exercising. If you don’t flex your muscles, they atrophy. Once a business owner gets slack about getting the most bang for the buck, it seldom gets better later. My friend Stacy Johnson founded a personal finance website called Money Talks News, and while he’s been successful enough to live on a Florida waterway with a boat parked out back, he’s never bought a new car in his life.
Why? Johnson explains it like this: “I don’t just consider the cost. I consider the opportunity cost which is the amount of money that could have been made by putting those payments somewhere else. Then I think about ways to make more on my savings and spend less on life’s major expenses, like cars.”
No matter how successful you become, there’s always an opportunity cost for your decisions.
4. You never know when your success will become struggle.
Another friend, Steve Rhode, is best known today as the Get Out of Debt Guy, who helps individuals with their personal debt problems. In a past life, Rhode owned a real estate company that soared high and then crash-landed.
“Many people forget there were little recessions before the big one,” Rhode said. “In 1990, the bottom fell out of the real estate market, and I went bankrupt. No one plans for that. No one says, ‘Hey, I might go flat broke, so I’ll prepare for it.’ So I didn’t.”
Rhode isn’t prepared to go bust again. The odds of that happening are lower, however, because he’s smart with every dollar. It’s also easier to rebound when you have good spending habits.
5. Frugality without extremes.
Those “extreme couponing” reality shows that were the rage a few years ago equated living frugally with spending a lot of time to avoid spending a lot of money. I believe I spend less time saving money than most people do spending it. Because I’ve valued every dollar since I launched my first business, I don’t really think about it. It’s second nature.
Another misconception: Being frugal means never spending big. I’ve purchased multi-million-dollar buildings, however, I negotiated hard and I walked away from deals that were more emotional than financial.
Bottom line: if you’re just starting out as an entrepreneur, don’t discard your thrifty ways as you become successful.