If you came upon an windfall of $5,000 or $10,000 through a tax return, bonus from your day job, or another unexpected place, what would you do with the money? Would you use it for your personal or business dreams?
One of the hardest decisions soon-to-be and current entrepreneurs have to make is prioritize the “extra cash” they have on hand.
- Since you employ yourself, do you give yourself a raise?
- Do hire some part-time help or a consultant to do work you can’t do?
- You’ve been eyeing new equipment, so do you drop a few thousand on that?
- Do you save it for retirement, a house, or another future big expense?
Dropping Thousands of Dollars on Your Dream
This is the exact question that my wife and I had to answer.
Since we moved to San Diego she has been focusing 100% of her effort on growing her wedding & portrait photography business in Southern California. There were the initial start-up costs of getting the proper business licenses and sample products for our customers to see, but how much do you invest past the initial “$100 Startup” phase?
The more skilled of a photographer you are, the better your work is. But another key component is the better your photography gear, the better your images. At the same time we still have her student loans to pay off and have plans to own a home, travel to Italy, and have children in the next decade as well.
What Do You Think?
I’d love to hear in the comments below when you think the best time to invest in your business is.
Should you use your personal savings or gains from other parts of your life to invest in yourself or should you only use money earned through your entrepreneurial endeavors?
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What We Decided
As for what my wife and I decided to do, we agreed to invest in more gear for her business (specifically a professional camera body and two lenses) instead of paying off student loan debt, saving for a house, or putting more into retirement. There really wasn’t a “clear right answer” and we deliberated about it for a long time, but that is what we decided to do. 
What do you do with a windfall? Do you invest it in your business or use it for personal goals?
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{ 25 comments… read them below or add one }
What a great question. I think it’s almost more of a question of confidence and personality. Do you have the confidence in your business and yourself to invest this money to build, or do you play it safe and pay off debt. Are you a risk taker or a conservative?
I am a (calculated) risk taker and I carry a lot of confidence (not cockiness). For me, it is a no-brainer. Invest now and work my tail off, this investment will pay for itself and then more in the future.
I like to take this approach most of the time too Shawn. It can be easy to start to assume that all purchases have a potential ROI which can lead to overspending in a business though.
I like to use a 30 day rule and talk big purchases over with the wife.
A 30 day rule is a great baseline to use. Thanks!
That’s a tough question to answer, for sure! It definitely depends on the person, the type of business they’re building and their current financial situation.
Sometimes it makes financial sense to put off saving money in order to invest in a business that’s going to make you money. You just have to do your homework and assess your commitment to the business. Is there really room for the business to grow and thrive right now? Are you committed to the work that will take? If yes, then by all means invest it and reap the rewards. If the answer is no, maybe invest a little in your business and put the rest elsewhere.
Great point Trish. The commitment to the business is an important piece to consider.
If there isn’t a direct potential return in revenue because you aren’t putting in the effort than your “business” is just an excuse to spend more money on things you don’t need.
I tend to agree with your choice. The important thing is taking some time to think & discuss. As long as you feel there is real value to your bottomline or just to your time/skill/etc. It’s almost always worth it to invest in yourself first.
Exactly Karen. Focusing on the bottom-line helps to make the decision a little easier.
Any extra income I make through freelancing is divided into groups. A big portion of it we would save to pay for school (maybe 50%), another portion would go back into the business (about 20%), another portion might be extra spending money so we could buy new clothes or go out to eat (another 20%), and the last portion (always 10%) would go to charity, because that’s really important to us. This method might not work for every person or situation, but it keeps your bases covered and it’s easy to change the percentages based on what you currently need to pay off, save up for, or invest in.
I really like this philosophy Christina. The most important part of making this happen is making it as automated as possible too. Make all the transfers as quickly as possible so you don’t start to find other uses for the money.
I think it’s smart to invest in yourself and your business/passion … as long as you’re committed to it and are willing to put in the effort to make it pay off.
You and your wife sound like you’re planners, and you think things through really well. And i think you’ll find the investment is absolutely worth it.
There are a lot of people that will throw money at anything that they think will help motivate them, but don’t realize how much work you actually have to put into building a business. It doesn’t matter how much money you’ll throw at a problem if you’re not willing to back it up with work.
Thank you for the great question!!
Right on Sunny. If this was just a hobby or a short-term interest we wouldn’t make such a sizable investment. Since this is going to be her full-time pursuit for the foreseeable future though we think it will pay off.
There are two significant considerations, one which has been mentioned above. The one mentioned is the importance of investing in your business under the mantra of “you’ve gotta spend money to make money”. But the second, is more emotional — investing just enough to make you uncomfortable. If you dedicate financial resources to a project or business just ‘slightly’ beyond your means, it will help make you more dedicated and will make you sweat just a little bit more. Depending on your risk-tolerance and financial situation, I find that this psychological game with yourself is a great motivator.
I like the idea of investments making you “sweat just a little bit more”. I agree that it can be a great motivator for action and wanting to earn enough to cover the expenses of the investment.
I think you definitely need to invest in your business, especially if you believe your success depends on it. I like the idea of the $100 Startup, but more so in the sense that it’s possible to start a business with $100 and not that it’s always the best plan. Investing money is essential in some businesses, and it seems like photography may be one of them.
Agreed. There are some you could found on the cheap (perhaps blogging, freelance writing, etc.), but others require substantial investments.
Great question.
I think this greatly depends upon your confidence in your business and the potential returns. First and foremost, some type of 6+ month financial reserves would be ideal before investing in anything.
I’ve done both before, investing in myself/business when I had nothing saved, seeing the business building as a way out. It didn’t work as expected, but now I have substantial savings and can be smarter with how I invest in business.
It could be said your home buying and vacation time is just as important, so you don’t fall into the delayed gratification cycle forever either!
Completely agree Jeff. The safety net of savings can be the difference between sticking with self-employment and going back to a traditional job.
If my husband and I were on your shoes, we would do almost exactly the same! The difference will be probably on what camera body and lenses to buy. My husband is very passionate about photography and having a secondary camera is one of his dreams so he can finally be confident in covering events. The last time we talked, he’s eying for a wide angle lens which is best for weddings(I’m not sure if this is true, this is simply an information passed unto me from my husband).
I hope we’ll have a great windfall coming very soon.
Best regards,
Belinda
That’s ironic Belinda.
Gear is an important part of a photographer feeling comfortable enough to have the right “tools for the job”.
Personally I hate debt with a passion. I think it is incredibly restraining and really serves no positive benefit in the long run. I only use cash, so if I came across a large amount of money and had debt I would put it all towards the debt.
But I do not have any debt and I am getting a large tax return this year. So what am I going to do with the money? I am going to critically look at my business and decide what is the most beneficial thing I can do right now to help it grown. Then I will go ahead and probably put $500 towards that. The remaining cash will be put into an emergency fund and invested. I don’t like to put all my eggs in one basket for anything… Well, unless we are talking about kiling debt. Then I would throw it all in there.
I don’t hate debt like I used to when I had a car and student loan, but now that I’ve paid those off I see that using money in other ways is important as well.
I think you hit on a good point though Izzy. It is important to differentiate between different places your money can go and not to put all your eggs in one basket.
I’m willing and wanting to spend $10,000, but I can’t find the right programmer to spend it on who has the time!
Things are nuts here in SF!
Perhaps you can look abroad?
The question here, I think that derives in a more complex set of considerations.
- How much money I need to improve my business. I believe it’s not just about “if I spend more money, it will be better”. Spend money on the critical steps and according to your possibilities and your plan.
- The rest, definitely to pay debts. I belong to the group that think there’s no point on spending money on leisure if I have debts. If I have debts, to me it means that the money that I have is not really mine. The first thing would be paying my debts asap. If spending money on my business helps me to earn more money in the long run and pay off debt faster, then let’s do it.
And yeah, I have a huge debt to pay… I try to see it as a challenge, but to be honest, it sucks.
I like this mindset Luis. Only make investments if they have the compound effect of paying off your debt faster (including what you’d pay into the interest).