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Unintended consequences of saving money

5/1/2012

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By Michael Kline

A penny saved is a penny earned. A penny saved is really more than a penny earned, since the penny you save is tax-free compared to earning another one.  Sometimes saving money can cost more in the long run.  Never short on clichés, let’s get “penny wise and pound foolish” out of the way too!  The nice thing about clichés is they become clichés because they’re true.  In this case, it would be wise to remember them both together.

One of my favorite lessons is about negotiating better deals.  When I “beat up” a supplier for better pricing, I always try to make sure I get the best price I can get, balanced with the need to still be a good customer to the supplier. Always make sure you offer them a good reason they should give you the deal you want.  If my supplier doesn’t still make decent money every time I call, they can’t afford to give me service or support their product.  In supplier relationships, (or customer relationships if you are the supplier), trust is a huge driving factor in determining costs.  Low-trust drives up costs and slows down the speed of transactions.  High-trust speeds business up and lowers cost. When a supplier makes a billing error in your favor, call them on it and pay them. Catch people doing something right and thank them. Send holiday gifts to your top suppliers, not just your top customers.  I have found these things to drive up trust, and drive down costs. The opposite of these things, drives costs up and speed of transactions down.

When we put off spending money until absolutely necessary, we often spend more in the end.  When we don’t pay for preventative care (think health care, or oil changes, or a roof repair on your house), we not only end up with a more expensive problem, but we get the more expensive problem as an emergency rather than on our own schedule. I’m reminded of the power of living proactively rather than reactively.  I read with great interest the reports about the cost of all-day kindergarten and the money it may save the school system in future years.  If this is true, it seems like a no-brainer.  These are not always easy truths to determine when we look at investments and expenses in our towns, lives and businesses.  If they were easy, everyone would be a wildly successful entrepreneur.

I’m forever hearing about the unexpected emergency that a business owner was not prepared for, such as a 6 year-old computer crashed, or a truck with 300,000 miles, suddenly out of the blue, needs unexpected repairs!  For any reader that may not yet be aware, all equipment has a life expectancy. The first thing you need to budget for when you buy a new computer for instance, is the replacement of that computer – they last 3-5 years. Who am I kidding?! - let’s just budget three years. Your job is to know your equipment, and how long it should last, given your environmental conditions, usage, and scheduled maintenance.

Other than equipment, we waste money on all sorts of expense areas.  Maybe you, like so many others, continue to run ineffective marketing campaigns because you don’t know what else to do.  Keeping the wrong employee for months after you knew it wouldn’t work is a very common and costly mistake.  Not hiring someone when you need them is saving a ton of money every payday, but how much is it costing in lost sales or productivity? The point of hiring people is to produce more. Producing more makes you more money. Not making more money is expensive; ergo not hiring someone when you can use them is expensive. If your business benefits from advertising, then remember that advertising is expensive, but not nearly as expensive as not advertising. This seems like a good place to throw in my reminder that making sales calls is free (or close to it). Joining organizations and getting involved is very inexpensive, and networking is free. Joining the same organizations and not using them is expensive. I suggest you sit down and make a list of things that you would like to accomplish and the related costs. Then work and rework that list of costs to look for ways to save money or to get creative and achieve more with less.  Now go back and ask yourself if there are long-term ramifications that you may not have considered, and then consider them.

Now let’s think about how silly we get over spending and saving money and make sure we’re thinking smart as we go about advancing our businesses, home budgets, and even our town and schools, since it’s town meeting season.

Michael Kline is a local retailer, success coach and trainer. He may be reached through his website, www.klineseminars.com, or e-mail, mike@klineseminars.com.
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