When it Comes to Cash, Be Goldilocks

Guest post by Anthony Green of Take Care of Biz

At the expense of being an absolutist, I’d like to share two truths about cash as it relates to entrepreneurial success:

1. If you have too much cash, you’re going to kill your motivation. There’s nothing worse for staying entrepreneurially motivated than having a big, fat wad of money sitting in your savings account.  Common wisdom tells us that if you want to become an entrepreneur, you should never take on a well-paying job that you enjoy.  You’ll never have the fire under your ass that you need to take on the exhilarating yet brutal, stressful, and never-ending lifestyle of an entrepreneur.

2. If you’re broke, you’re going to make terrible decisions. A lot of people aware of truth #1 think that the inverse of the rule must also be the truth – that having too little cash will motivate you.  That’s true.  Very true.  But the problem has nothing to do with motivation – it has to do with the quality of the decisions you make and actions you take while you’re motivated.  The myth of the “hungry entrepreneur” needs some refinement.

While I’ve only been in the business game for a relatively short time, I’ve been on both sides of the fence on numerous occasions, and I was shocked to see how quickly these truths became apparent in my everyday behavior.

When one of my companies was doing well, and there was a big cash payout, I’d become a totally lazy bum.  It’s easy to say that this won’t happen – that you’ll have that feverish, teeth-grinding intensity regardless of how bad you need the money.  Some people do.  The problem is that you probably don’t.  When you don’t need to work, and you have other options aside from work that you enjoy more, it’s pretty easy to avoid work entirely.

I’ve also had times when my rent and credit card due dates took up 80% of my thought process.  Since I’ve never made a salary before, I had no safety net – if I didn’t make money somehow, I was totally and completely screwed.  There were times when I had to get $1,300 into my bank account in 2 days, no matter what, or I’d be completely insolvent.  Pretty tough to do when you’re a 22-year-old guy with no guaranteed access to funds.  But while I worked my ass off during these periods, I made some unspeakably terrible decisions – decisions I still shake my head at on a daily basis.  Key lesson?  Desperation and starvation are NOT the same as motivation – they’re in two very different categories, and if you confuse the two, you’re in huge trouble.

You need a long-term mindset to make strategically sound decisions.  If you’re desperate, you’re going to be thinking in the short term.  It doesn’t matter what’s going to happen 5 years from now – you need to pay the rent in four days.  So instead of doing smart things with beneficial long-term implications, you do whatever the hell you need to.  Try using a desperate one-move mindset in chess and see how well your games turn out.

So how do you walk the line?  How do you maintain motivation without making bad decisions?  I have two key pieces of advice for each.

Ways to maintain your motivation even if you have money:

1. If you have extra cash, aggressively invest it in yourself, you business, or long-term vehicles to avoid large cushions. A little while ago, I hit one of my first real business windfalls.  I could have probably kept the money in an account and hung out for a little while, but I knew that behavior would be the death of my business aspirations.  So I hired a new web developer, bought a Hubspot account, launched a new project, and tossed most of the rest in my SEP plan.  Result?  I feel like I need to get things going.  I’m still comfortable, but I don’t feel like I can take a 4-year vacation, either.  In effect, I “hid” the money from myself in the form of valuable investments.  I still feel like I need to work, but now I’m working with money saved (peace of mind), better resources, and more effective ROI.

2. WORK ON SOMETHING YOU ENJOY. This is 1,000 times more effective than any other tip, financial or otherwise.  PLEASE do not start a company that you don’t want to be working on in the first place. Have an idea for a waste-management efficiency software, but don’t care about the environment or waste-management?  Then do not start that company.  Money or not, you’ll always be motivated if you think of your business as a hobby, and you’ll always think your business is a drag if you view it as a chore.

Ways to maintain your sanity if you don’t have money:

1. Focus on making enough money to meet your basic needs before you do anything entrepreneurial. I’m not saying you need to live in the penthouse suite and use caviar to lubricate your appliances, but I am saying that you need to be able to buy food and pay your rent.  If you can’t do these things reliably, DO NOT start a company.  Absolutely awful idea.  It’s too risky and you’ll take years off your life.  Instead, get a job doing anything, make some money, and then work on your project in your spare time.  Is it as romantic as the idea of the intrepid entrepreneur, risking it all for the big payout? Nope – it’s also a lot less stupid.  Take care of your basic needs before you start gambling with business ideas.

2. Put yourself in your future shoes to see if you’re actually making a good decision. If you’re broke and running a company, you’re going to make rash, insane decisions all over the place.  Your short-term mindset will hurt you.  So just do yourself a favor and go through this exercise: pretend that, three years from now, you were looking back on what you were doing, and ask yourself, “would I be happy that I did this?”  That’s all I’m asking you to do – you’ll be blown away by how powerful this method is.  The fog of insanity you reach when you’re broke and entrepreneurial can be cleared with logical, long-term thinking exercises such as this, and they should be used. 

Everyone is different, and there are plenty of rich entrepreneurs who are still motivated and plenty of poor ones who make great decisions day in and day out.  But these trends are well established, and I’ve lived through them myself.  When it comes to personal finance and entrepreneurial activity, be like goldilocks: you don’t want too much money, and you definitely don’t want too little.

ABOVE ALL, MAKE SURE YOU ENJOY THE WORK THAT YOU’RE DOING

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Anthony Green is an entrepreneur, educator, and skilled at breaking down business concepts into everyday language.  When he’s not teaching others how to master their SAT’s, you can catch up with him on his blog Take Care of Biz.