If You Want to Earn Money from a Business, Start With Your Own Pocket!

 

Motto:

If you imagine that you can afford to lose a little money, then you will come to lose a lot.”

Chinese Proverb

Today I invite you to read this article on principles of economic thinking in financial education – a crucial aspect for entrepreneurs and freelancers. An essential thing everyone has to become aware of regarding their financial education is that, as long as you work for money when you spend it, you also indirectly devote the time you spend to earn it.

According to the information in this 2015 article [1], 1817 Ron / month was the average net salary in Romania, which usually corresponds to 176 working hours per month (22 working days * 8 hours/day), i.e., 10.32 Ron / hour. Therefore, when an average Romanian employee pays 11 Ron for something, it means (s)he worked for that something for more than an hour of his/her life.

Let’s give a trivial example. A cinema ticket in Bucharest ranges in 2015 from 10-14 Ron (at Muzeul Taranului Roman, Elvira Popescu, and Plaza Romania cinemas) to 33-48 Ron (IMAX, 4DX). Let’s say you are going to a 2D digital film at Plaza Romania on a discount day. You pay 14 Ron. Let’s say the trip there and back home or where you have your business takes about an hour and a half. The film takes two hours. You spent three and a half hours on this operation, plus over an hour – the time you worked to earn this money. If I consider 8 hours of sleep, you have spent more than a quarter of a day’s work on an operation that would bring you satisfaction. Mind the fact that I gave a reasonable example, in which I assumed that you don’t buy any popcorn, soda, or at least mineral water; I didn’t consider how much you spend on transportation (a subway trip and/or other means of transportation or more if you go by car). However, let’s say you go to a movie that takes 2 and a half hours with a friend that you are buying the ticket for (you are celebrating something), and you also buy some popcorn that costs 10 Ron. Let’s also say that you didn’t have time to go on the discount day, so you go on a regular-price day, i.e., 22 Ron. 22 + 22 + 10 = 54 Ron. The account for this outing amounts to 9 hours and 25 minutes of your life (1h30 transportation + 2h30 movie + 5h15 the time you worked for the money), so more than half a day. By the way, I made this calculation in 2013 for the first time using valid prices, and the result was only 8h30.

I gave this trivial and detailed example of real purchasing power so that we would understand the importance and value of time and how most of us are selling our time.

Real, genuine discussion at a faculty seminar. A teacher asks a student:

Do you smoke?”

Yes”

How much do you spend on a pack of cigarettes?”

About 10, Ron”

How much do you work for that pack of cigarettes, on average?”

About an hour and a half”

What kind of work do you do?”

I spread flyers”

Good. Look, I’ll give you 10, Ron (he takes the money out of his wallet and puts it on his desk). Come stand in front of the class for an hour and a half. You have to stand straight and not say a word. You will just look at your colleagues and smile while I teach my lesson”

But, Professor, I can’t; I’m ashamed…”

So you don’t agree?”

No”

And still, you do it every day…”

(keep reading ↓)

Copyright (C) Irina Chirita, 2015
Copyright (C) Irina Chirita, 2015

Saving is not exactly the strong point of Romanians (or many other people, for that matter). Out of the 15-16% who save, only 9 %, on average, manage to save directly out of their income, according to a study quoted in this 2012 article [2]. On the other hand, saving nowadays is much more effective than 30 years ago and still much more effective than 10 years ago, according to a study quoted in this 2015 article [3]. Saving can also be achieved through another method other than taking money out of your wallet and putting it aside, i.e., by reducing your spending. In this article, I will give you some examples of how this can be done in several ways, and I will explain this to you both in terms of my interests and experience and those that you might have.

Everyone knows that when you share your living space with your flatmates, some common spaces and expenses need to be shared with everyone – it’s cheaper this way. However, I’m not going to go into details about this in particular, but about how small details that add up daily can make a big difference in the long run.

1. For example, when you live with another person and have a refrigerator at your disposal, it is pretty clear that what is not yours in the fridge belongs to your flatmate. However, when we talk about three people, it is no longer so clear what belongs to who, and things can get mixed up – you need to split the refrigerator into shelves. And suddenly, all the food you can keep in the fridge must be limited to one shelf – especially when you don’t have a high-performance fridge but an old or second-hand one. This implies, on the one hand, more time spent going shopping more often. On the other hand, it increases the value of your purchases. After all, you can’t afford to buy a larger amount at a discount price because you have no place to store it. At the same time, the amount of pre-cooked foods you prefer to eat increases, so in time it also affects your health. A better solution is to buy a larger refrigerator with lower consumption, which is an investment worth making rather than wasting monthly money. So, if you make time, you can cook and keep the food in the refrigerator, which reduces the costs per meal you have at home. Avoid eating out, and if you must do it, find some canteens or cheap places to eat to repletion.

2. To move around the city, as you know, the most economical and efficient means is the bicycle, which in some major cities in Romania is even advisable and practicable for about 10 months out of 12. Besides, even if you don’t choose to use the bicycle, using public transportation and opting for a pass that would cover all your transportation needs must be combined with the ability to select alternative routes – to know when it makes sense to take a bus trip depending on the day and time frame.

3. To prevent health problems, you can make regular preventive checkups so that you won’t have to unexpectedly solve a health problem that has become urgent. In addition, healthy eating is inexpensive if you know where to look for fresh food and if you buy certain food supplements from health stores and pharmacies based on a plan recommended by your family doctor or nutritionist.

4. During wintertime, if you have a choice, you can control when the radiators are on and off. However, it’s a good idea not to overuse them if it’s not the case.

5. Sell the old objects you no longer use on specific websites. A few small incomes from things you no longer need can add to your savings account.

6. Choose clothing and footwear from bazaars, flea markets, wholesalers, and second-hand shops rather than malls, luxury stores, or hypermarkets. You will most likely find things of the same quality and at prices 3-4 times lower.

7. If you want to go out for a movie or a concert, find out when and how you can get discounts – on which day, at what times, which place. These facilities are most likely available and await you to discover them.

8. Avoid buying bottled water. Instead, make herbal teas – they are healthier and cheaper. Put water in the sun for 48 hours in glass bottles to clean some tap impurities, and buy a water filter.

9. As for those products you know you don’t buy monthly (for example, cleaning or stationery products), follow the offers you find in good time, so that you would buy a larger quantity – or maybe a specific product which is located under a generic name, not a famous brand, but which is still doing its job. Also, a quarterly visit to wholesalers, markets, or even hypermarkets can save you considerable money.

10. Deposit the money you put aside into a savings account that you should not spend from. This is tricky, but with all the other efforts described here, it can make your life wonderfully simple.

Why is it important to start with these expenses? Because financial education begins from the little things: from buying your daily bread 0.20 Ron cheaper, paying 10 Ron less on a night out, saving 50 Ron with your monthly food supply at the hypermarket, and making certain free steps that exempt you from unnecessary expenses and make your life easier in terms of tasks and health.

Now it’s much easier to save. You must only want to apply discipline, monitoring, and self-control that you would then expand to the other areas of your life. If you are careful with your bread change, you will also pay attention to employee bonuses in your future business.

Usually, “unpredicted” expenses are not so difficult to predict if you consider a one-year expectation horizon: something will get broken in your house, someone will get sick (even a tiny cold), someone will get married, the weather may ruin your vacation plans, etc. For all of these, it’s good to plan ahead and allocate a certain amount of money and a specific time frame because, most likely, they will happen. But, if you are not responsible for your own money, how can you be in charge of the cash flows of a business?

Marcus Victor Grant

Text Copyright © Marcus Victor Grant 2013-present. Translation by Cristiana Brezeanu of the article “Daca vrei sa castigi bani dintr-o afacere, incepe cu buzunarul tau!“, that was initially published in Romanian on November 30th, 2015 on Economia Online. Copyright © Marcus Victor Grant, all rights reserved.

Photo copyright © Irina Chiriță, 2015-present.

The materials published on this blog are covered and subject to this disclaimer.

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