Canadian Finance Blog

Posted: 01 Sep 2010 02:00 AM PDT

Nobody likes to make mistakes. However, the simple reality of life is that at some point, all of us are going to be wrong, do something bad, or somehow screw something up. That’s just life, and it has been since we learned how to walk, write out the alphabet, and do calculus. We are going to make mistakes. The trick is to learn how to fail fast, so that you can get back to doing things right again. Let’s look at a couple examples and see how failing fast will help us earn more money and save more money.

Small Business

Imagine you are thinking about starting a small business. You want to open a dog sitting company. You’re not sure how much to charge, or how to advertise, but that’s pretty normal when you’re embarking upon a new adventure. Instead of dumping all your money into online advertisements or setting a firm price of $75/hour, recognize that you are going to make a lot of mistakes and set yourself up to learn from them. Spread your advertisement dollars around by trying online ads as well as newspapers, flyers, door to door, cold calling, church newsletters, whatever you can think of. The key here is not to simply spread your money around, but to see what actually works. Do you get a lot of sales from going door to door, but none from picking up the phone? Then recognize that you’ve made a mistake (cold calling), chalk it up as a failure (lost money), and move on.

Budgeting

What about learning to fail while using a budget? Let’s say you take some time on a Saturday, sift through your bills, and build a budget for the next couple of months. You want to keep groceries at $300/month, and you want to cut back on entertainment and restaurant bills. Except you hate keeping receipts and refuse to use cash, so you pretty much have no idea how much money you’re spending. At the end of the month, you realize that you actually spent more than $300 just at the restaurant, and your grocery bill is nearly double that! Instead of buckling down and saying, “Well, this month I will just have to have more self control” and keep on trying to work on a failing budget, chalk it up as a loss and move on. Instead of trying to keep your grocery bill at a certain level, just track back over the last few months, see how much you’re already spending on groceries, and just put that number into your budget. Or, set up a secondary account just for groceries and automatically funnel a set amount of money into that fund. That way, when you’re out of money in the account, you’re out of grocery money. No tracking or receipt counting required.

Investing

Maybe a coworker of yours just let you in on a hot stock tip. He says that this particular stock is just about to skyrocket. So you scrounge around, find some money, and purchase a whole bunch of this stock. Except it doesn’t skyrocket. Maybe it slowly starts to lose value, but your tipster keeps telling you that someday it will go up, you just need to be patient. So you sit on it, and you wait, and wait, and wait, and eventually, you realize that your money has been tied up in this stock for about a year and it’s lost about a third of its value. The company is no longer on the edge of a leap forward, but your tipster has a new stock for you. “Sell that other one”, he says, “and put all your money in here. It will skyrocket”. Instead of just keeping on doing something over and over again that isn’t working, that is failing, then just tell yourself that this is a learning experience, and from now on, I will only put my money into safer investments. Or you can just choose to learn that your tipster isn’t much of a tipster, and really, more a gambler.

The sooner you can realize your mistake, and the sooner you can own up to it, the sooner you can move on with a lesson learned. The only way you will learn is through failure, so if you want to learn how to be rich, you’re going to have to fail a lot. Just think of the lost money as investing in education, and remind yourself that the sooner you can learn the lesson, the sooner you can stop paying for your education.

What have you failed in? What lessons did you learn?

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