Do You Really Have to Spend Money to Make Money?

Tue, Jul 1, 2014

Financial Advice

One of the oldest sayings in the world of business and money-making is that “you have to spend money to make money.” It’s a saying that is usually repeated to people who are hesitant to invest money in anything that isn’t a savings account or who are skeptical about the cost of supplies needed to start up a new business or money-making adventure.

The simple truth is that, these days, you don’t always need to spend money to make money. You can simply fire up the computer you already have, do a few online gigs and viola! You’ve made a few bucks. Yay! But, while the gig economy is great for earning a few extra bucks here and there, if you ever want to earn more than just a few dollars at a time, you are going to have to do some spending.

Before you panic or get discouraged, consider this: the gig economy is a great way to build up a small reserve of capital to help you seed the business you want to start.

What matters isn’t that you really do have to spend money to make money. What matters is that you figure out the best way to spend that money so that you don’t lose your shirt trying to earn a living.

For example, when IBM was starting out, it could have dumped all of its money into manufacturing and trying to create components that were better than those already available. Instead, the powers that be at IBM decided to spend their money on buying computer components that were already being produced. They simply looked for the very best components on the market and then put those together into the computer that we all now take for granted. (Source: Forbes, “’You Have To Spend Money To Make Money,’ And Other Lies People Tell Entrepreneurs.”)

This same strategy has been used outside of the tech industry. According to the company’s Wikipedia page, Matomy Media was founded with the help of a few smart acquisitions made over the course of the company’s lifetime. They bought an alternative payments company, a couple of media and marketing companies and even a mobile ad network. These acquisitions have helped turn Matomy into a marketing giant.

Even sports franchises are spending money to increase their profits. The Yankees’ George Steinbrenner was never shy about being ready to pay a ton of money to hire the right people and sign the right players. It looked reckless when he first started working with the franchise, but…well, really, the Yankees’ success speaks for itself, doesn’t it? (Source: Lesson #1: “You Have to Spend Money to Make Money,” EvanCarmichael.com)

There is no such thing as starting a business with exactly no money. What matters isn’t that you have to spend money to make money. What matters is that you spend your money wisely. So how do you do that?

1. What do you need or want to do?

Figure out what you want to accomplish. Do you just want to make an extra couple hundred bucks to pay your cable and phone bills or are you trying to start a side business? Figuring out where you need to go is the first step. No matter what anybody tells you, nobody fell into a lucrative business by accident.

2. Create a plan to achieve that goal.

Write down all of the steps that you need to take to get from where you are now to where you want to be. This doesn’t have to be super formal just yet. A rough list on a sheet of paper or in a Google Doc is good for now.

PRO TIP: Start with your end goal and work backwards to where you are now. Or, put another way: start with your biggest goal and break that down into smaller goals until you get to actionable steps that you can take today.

3. Evaluate what you need to do now

This is where you start getting into the numbers. What steps do you need to take right now to start achieving that ultimate financial goal? Do you need to buy supplies to take those steps or can you use what you have on hand right now? To keep your expenses as low as possible for as long as possible, only buy what you absolutely have to.

For example, if you want to be a magazine writer, you don’t need to go out and buy a brand new laptop. You can use the computer you’re already using to read this article to look for gigs, start a blog, write articles, etc.  You can even use sites like WordPress and tools like Google Docs to save on hosting and program costs.

By buying only what you have to while you’re working toward your goal, you’ll reduce the amount you have to spend overall achieve your goals. Remember, though, the key is to be smart. Don’t buy things because they’re cool. Spend money because you have no other choice.

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