Money is a wonderful tool; it allows us to do something called specialization. Instead of having to do everything ourselves such as growing food; making shelter; choosing medicine etc. we can be paid for providing society with a concentrated set of skills and use the money earned to buy/outsource the production of the other goods and services we need. This economics 101 principle implies that greater specialization will result in greater value creation and financial reward; which results in more goods and services for everyone and higher living standards. In other words, outsourcing allows us to spend more time and effort doing what we are good at (specialize); as well as providing us with better goods and services.
However, economics 101 fails to take into consideration the following:
- Not all valuable tasks are financially rewarding, for example looking after children is an incredibly valuable but often an unpaid activity
- Often you can get more enjoyment (utility) from an activity if you do it yourself as opposed to paying a professional to facilitate it for you e.g., cooking a meal with friends/family can be more enjoyable than going to a restaurant
- People may want to put their time an energy towards doing things that are not the most financially rewarding for them e.g., hobbies
This means that at times, economics 101 conflicts with the idea of FIRE, because if you outsource everything you will essentially need to work 100% of your waking hours to pay for all of the items that you’ve outsourced. For most people, it’s unlikely that they will be able to earn enough to build a portfolio that can cover the costs generated by outsourcing all activities. Essentially, balance is required, the way I like to look at it as follows:
We need to outsource enough activities such that we can focus on building an acceptable cash flow surplus while still facilitating an abundant life.
So, what sort of things do we need to consider when choosing what to outsource and what to do in house (let’s call this insource)?
Key considerations
Legal obligations
First of all, if the law calls for an activity to be performed by a licensed tradesperson/professional and you don’t have the license then then you must pay someone to do it.
The value of your time
I’ve written about valuing purchases using time before before in this post. In summary, if you want to pay someone $50 to mow your lawn and your post tax hourly rate is $25 then you need to sacrifice two hours of work to pay for the service. If you can pay a someone at a cheaper rate to perform a task then it makes economic sense to do so.
Something I should add is when calculating the value of your time you need to include the time taken for you to perform all auxiliary work tasks. For example, if I work 45 hours a week, but only get paid for 40 🙁 ; earn $1,000 after tax per week; spend 90 mins commuting each day; and spend 1 hour on the weekend ironing shirts; and 1 hour catching up on emails, then my hourly rate is 1,000/54.5 = $18.35 per hour, not $1,000/40 = $25 per hour.
What will you do with the time you’ve gained?
Often, outsourcing an activity will result in a product of higher quality produced in less time. This will increase the availability of your precious free time; however, if you choose to waste that time you are not following the principle of specialization. Personally, I believe that time gained by outsourcing activities is best spent working towards achieving goals such as improving performance at work; doing health and fitness activities; or saving money by insourcing other tasks.
Do you really need a professional?
Marketing has been successful at programming us to buy things as soon as any need arises. If you’re able to do something yourself to an acceptable level of quality then it’s likely you don’t need a professional do to it. Having said that, it’s important to recognize the limits of your skill set, certain items like financial planning and personal training often seem like they can be done without assistance but many people lack the self-discipline to tackle these long-term goals without professional help.
Insourcing has multiple benefits
For me, doing things like gardening gives me numerous benefits including; exercise; fresh air; and learning about the hobby. Also, in my opinion, best way to develop practical strength is to do practical things – no amount of bosu ball squats can produce the same level of practical strength as carrying bags fertliser on an uneven ground or clearing tree branches. All of these benefits would be lost if I simply outsourced the service.
Initial costs of insourcing
Insourcing activities may come with significant initial costs such as purchasing equipment. In the case of gardening, the cost is buying things like lawn mowers and line trimmers. In such cases how frequently you do something needs to be taken into consideration. Things have high setup costs that are only done occasionally should generally be outsourced.
Do you actually have time?
Most of us lead busy lives, where most our time is spent working. So, there may not be enough hours in the day to complete everything we need to do without outsourcing certain items. Having said that, I also believe many people overestimate how busy they actually are because they fail to use their downtime effectively. One study found that the average Australian spends 5.5 hours per day on their phones (Dixon 2021) – I would assume that most of this activity does not contribute anything meaningful towards our lives.
Concluding thoughts
Reducing expenses is often the quickest way to get to FIRE faster; and insourcing activities can contribute to significant savings. However, to make any FIRE journey more sustainable it’s important to draw from the economic principle of specialization to allow us to earn income at higher rates. In this manner, outsourcing the right activities is similar to investing – the key is that you need to ensure that the time gained from outsourcing is used in a way that moves you closer to financial freedom.
At the FFE house, mostly insource the following activities and adopt the following mindset
- Cooking most meals at home and packing lunch – the product that we produce is healthier, portioned correctly and cheaper than restaurant meals
- Do our own gardening – gives numerous health benefits such as exercise; learning and practical strength
- Clean our own house – excellent warm up for gym work out
- Wash my own car – I’m pretty OCD with this; on an hourly rate basis it’s much cheaper to do it myself and I think I do a better job
- Exercise related activities – see my post on home gym happiness
- Financial planning – I’m a weirdo that gets enjoyment out of doing this activity
On the other hand, we tend to outsource the following activities:
- Holiday planning – small group tours run by companies like Intrepid and G Adventures have given us access to experiences and a local perspective that we would never have been able to get doing it on our own
- Income protection insurance through an advisor – the terms and conditions can be quite tricky so this saves a lot of time
- Getting a home loan through a mortgage broker – this really helped out with setting up a debt recycling structure
Engineer your freedom
References
Dixon, G, 2021, Aussies spend almost 17 years in a lifetime staring at their phones, reviews.org, available from: <https://www.reviews.org/au/mobile/aussie-screentime-in-a-lifetime/>