Poor money management is a major cause of business failure. And that’s no surprise: we aren’t born knowing how to manage money. Growing up, many of us were never taught how to handle it, especially women and people of colour, who’ve been historically pushed out to the edge of business conversation. Too often, with money management, we’re left to figure it out along the way, through trial and error.
Those same mindset issues and bad habits that wreak havoc in our personal finances can plague our businesses as well if we’re not careful.
Shiny Object Syndrome
Some things are just hard to resist. Especially when our friends and colleagues are all jumping onboard. New tools, training, group coaching programmes and even business models can all have a strong magnetic pull. It we aren’t careful, these shiny objects can quickly distract us from our true goals.
The symptoms and outcomes are clear: buyer’s regret, forming unhealthy patterns where we purchase the same item or package over and over again.
Once you identify yourself catching ‘shiny object syndrome’ frequently, try these techniques to overcome it:
- Make a hard and fast rule for yourself to build a time delay into every purchase decision you make. Say, thinking time of 72 hours. If you see an exciting offer, even if it looks fabulous for your business (and especially if it’s time sensitive, since those offers are more likely to be sketchy or unhelpful) decide that you’re not allowed to commit for 72 hours. This is particularly useful because after a few hours of thinking about an exciting purchase, in most cases, the emotional thrill wears off, leaving you with a more objective view about the value of whatever it is you’re obsessing over.
- Add a second trustworthy opinion to each spending call. Find someone else who is naturally skeptical or thrifty (who is your favourite tight-arse!?), to cast their eyes on each exciting offer or deal. If you can out-argue their skepticism, perhaps this purchase is worthwhile.
- For ‘too good to refuse’ offers, make a plan to achieve a positive ROI before you purchase. If you cannot find a realistic way to make the purchase pay for itself, you don’t buy it.
- Create a master folder or document for exciting new business ideas and directions. Each time you have one of those ideas, add it to a ‘someday’ list. Jot down the idea and a basic outline, then get back to the more immediate tasks at hand. Now that great idea won’t be lost, but it also won’t join the ranks of half-finished business plans that litter the internet. There is an emotional ‘completion’ that takes place, once you sketch out an idea. You’re shared it (even if only with your future self!) and that takes the energy away from the urge to share it.
Falling in love with ‘Sunk Costs Fallacies’
How many of us have said to ourselves, ‘I’m not using this subscription but I can’t give it up’ then just keep on paying?
We can find excuses so easily. ‘Well, I still pay launch price but now it’s much more expensive!’
And there it is: we’ve fallen in love with the fallacy of ‘sunk costs’.
This common mistake is famous among economists, and we all fall victim to it from time to time. Simply put: a ‘sunk costs fallacy’ is how we justify to ourselves continuing to invest more money or time in something, without seeing results, because we’ve already spent so much. This is what encourages us to repair the car one more time (after all, I just put new tires on it), or eat a meal we don’t enjoy (simply because I paid for it) and, yes, continue to pay for subscriptions, tools and resources we’re not using.
Here is a great, simple exercise, to overcome this tendency:
- Set aside an hour. List out and examine your current recurring business expenses.
- What are you paying for, month after month, that you’re not using?
- Now, what value to they bring you? If that value is less than the subscription, then what are the reasons you tell yourself, in order to continue paying?
- Now make an action point for each and every expense, so that either it is put to work for you, or you’ve cancelled it.
It may have seemed as if this article would only be about over-spending. But spoiler alert: spending too little can be just as bad for our business.
When we’re constantly on the lookout for free and low-cost tools, or working long days because we feel strongly that we can’t afford to outsource, in the long-run we’re not doing our businesses any favours. Of course, it looks and feels like we’ve bootstrapped and worked super-hard to build something from nothing. But what we’re really doing is digging ourselves into a rut that will be nearly impossible to climb out of, later on.
Not only that, but we often reinforce an unhealthy ‘scarcity mindset’ that will continue to plague us for years, if we let it.
Especially if we’ve managed to tackle the aspects of our business outlined in the first two ‘money mistakes’ above, perhaps its time to think beyond pinching the pennies and learn how to spend our money strategically.
Here are some useful pointers.
- Buy what you need, when you need it.
- Invest in top-quality products and programmes, rather than settling for the low-ticket, half-baked plans.
- Just like high quality clothes, cars and furniture; high quality services and software will last longer and work better. And unlike a car (good or bad), robust, high quality business tools and subscriptions will end up paying for themselves.