Nobody likes to make mistakes. However, the simple reality of life is that at some point, all of us are going to be wrong, do something bad, or somehow screw something up. That’s just life, and it has been since we learned how to walk, write out the alphabet, and do calculus. We are going to make mistakes. The trick is to learn how to fail fast, so that you can get back to doing things right again. Let’s look at a couple examples and see how failing fast will help us earn more money and save more money.
Small Business
Imagine you are thinking about starting a small business. You want to open a dog sitting company. You’re not sure how much to charge, or how to advertise, but that’s pretty normal when you’re embarking upon a new adventure. Instead of dumping all your money into online advertisements or setting a firm price of $75/hour, recognize that you are going to make a lot of mistakes and set yourself up to learn from them. Spread your advertisement dollars around by trying online ads as well as newspapers, flyers, door to door, cold calling, church newsletters, whatever you can think of. The key here is not to simply spread your money around, but to see what actually works. Do you get a lot of sales from going door to door, but none from picking up the phone? Then recognize that you’ve made a mistake (cold calling), chalk it up as a failure (lost money), and move on.
Budgeting
What about learning to fail while using a budget? Let’s say you take some time on a Saturday, sift through your bills, and build a budget for the next couple of months. You want to keep groceries at $300/month, and you want to cut back on entertainment and restaurant bills. Except you hate keeping receipts and refuse to use cash, so you pretty much have no idea how much money you’re spending. At the end of the month, you realize that you actually spent more than $300 just at the restaurant, and your grocery bill is nearly double that! Instead of buckling down and saying, “Well, this month I will just have to have more self control” and keep on trying to work on a failing budget, chalk it up as a loss and move on. Instead of trying to keep your grocery bill at a certain level, just track back over the last few months, see how much you’re already spending on groceries, and just put that number into your budget. Or, set up a secondary account just for groceries and automatically funnel a set amount of money into that fund. That way, when you’re out of money in the account, you’re out of grocery money. No tracking or receipt counting required.
Investing
Maybe a coworker of yours just let you in on a hot stock tip. He says that this particular stock is just about to skyrocket. So you scrounge around, find some money, and purchase a whole bunch of this stock. Except it doesn’t skyrocket. Maybe it slowly starts to lose value, but your tipster keeps telling you that someday it will go up, you just need to be patient. So you sit on it, and you wait, and wait, and wait, and eventually, you realize that your money has been tied up in this stock for about a year and it’s lost about a third of its value. The company is no longer on the edge of a leap forward, but your tipster has a new stock for you. “Sell that other one”, he says, “and put all your money in here. It will skyrocket”. Instead of just keeping on doing something over and over again that isn’t working, that is failing, then just tell yourself that this is a learning experience, and from now on, I will only put my money into safer investments. Or you can just choose to learn that your tipster isn’t much of a tipster, and really, more a gambler.
The sooner you can realize your mistake, and the sooner you can own up to it, the sooner you can move on with a lesson learned. The only way you will learn is through failure, so if you want to learn how to be rich, you’re going to have to fail a lot. Just think of the lost money as investing in education, and remind yourself that the sooner you can learn the lesson, the sooner you can stop paying for your education.
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Alan Schram writes about personal finance and his encounters with it in his everyday life. Alan is recently married and is looking to save money on expenses and reduce his debts.
As an entreprenuer, I’ve started a lot of small businesses and seen my share of failure. The biggest lesson I’ve learned is that you shouldn’t get hung up on any of them. Throw a bunch of ideas against the wall and see what sticks. Take a couple business ideas at once and try them out. When you get customer interest in one of them, push harder on flushing it out and let the other ideas sit on the back-burner.
I’ve heard stats where the average entreprenuer starts 17 businesses before succeeding (crazy huh?).
Alan,
Great post. It is important to always keep track of progress and if you are on pace. My wife and I do this each month to see if we are moving forward and keeps us always busy and productive.
No sense spending time doing anything that will not be a success.
I’ve learned through failure that I shouldn’t do any investing until I actually have some extra money to invest with. I always seem to have to take the money out to pay for something. So I’m just going to stay away for now.
One of my (many) mistakes was staying at a job long past I had stopped developing. When I first started at the job, I worked to automate as many tasks as possible until it came to the point that I had very little left to do. I ending up spending the majority of my free time surfing the internet and being generally unproductive and unsatisfied.
When I finally moved on, my life improved dramatically and I now appreciate the importance of being busy at work. I imagine this ultimately led to my decision to become an independent business professional where, despite the risk and uncertainty, I am enjoying thoroughly…
Number 1 investing mistake: traded options which cost me a large percentage of my invested capital, but fortunately I did this way early in my investing career. The dollar amount lost was not that great and I have stayed away from speculating with options since then. Who knows how much money I would have lost had I not learned my lesson early on: option trading in my personal account is not my thing.
One guiding principle is this quote, “(S)He who attempts something big has to be admired even if (s)he fails.”
I think that failing hard helps you learn a lesson really quick.
With investing (when I first started out) I listened to my BF (why did I do that, why!?) and bought SunCor.. I ended up buying it at its all time peak ($70?) and am paying the price now.
Can you say ouch? =)
I felt like a failure when I first started my blog (maybe 1-2 visits a day), but am happy that there are people commenting on it now and readers. =) Learned that working really hard and not seeing any results doesn’t make your ego feel very good.
I like this post! Although I don’t necessarily agree that we can only learn by failure, but rather I believe that we learn from experience. We do learn quickly from failures, though! I like your suggestion about keeping a separate grocery account so you don’t have to track your receipts. This can be a great way to track any type of spending when you have trouble keeping receipts. For grocery stores, where the majority of purchases are indeed going to be groceries, you could also try tracking these purchases on a credit card statement as it will be easy to identify which purchases were groceries.
Jayn
http://www.jaynsteele.com/
We started a cleaning agnecy one year ago and one of the most important things for success are hard work, discipline and good business plan.