Tuesday, December 17, 2013

A Case for Outsourcing

A Case for Outsourcing
Like a lot of personal finance junkies, I am a big fan of Mr. Money Mustache. Latecomer that I am, he was the first blogger I found who was writing about early retirement through frugality. And one of my favorite early posts of his was on the subject of outsourcing housework and, more broadly, about outsourcing in general. The MMM approach is to "insource" everything: domestic chores, home improvement, car repairs...do everything yourself. His argument for insourcing states that, regardless of your hourly wage, you cannot work any job or freelance activity for all waking hours: you would burn out. The breaks taken to clean your house, maintain your property, cook your own food, and wash your own dishes provide variety, prevent burnout, and save money. In addition, insourcing larger tasks, like home improvement, builds your base of skills. What's not to love?

But is the approach to "insource everything" truly possible, or optimal?

Readers will note that when Mr. Money Mustache says he does not outsource "ANYTHING" there is a footnote: he buys food from the store and outsources the formal education of his son. These seem like reasonable things to hand off to someone else. But it should be noted that while these aren't exactly small chores, some people do these jobs themselves. Homesteading and gardening are certainly possible, as is homeschooling. But I think these exceptions underlie the point I'd like to make: living in a society with others provides a strong incentive to outsource some things. When we have such a diversity of skills available in our society of people, there's no need to perform every single task or produce every single good yourself. Trading money instead of time is often the smart choice. Additionally, it's impractical (maybe impossible) to say that an individual is going to be entirely self-sufficient. One might maintain his home, but it's likely he did not build it. Even if he did hammer in each nail with his own two hands, it's likely that someone else was holding the boards in place.

The question isn't whether outsourcing should be done; rather, it's just a question of what we choose to outsource.

Mr. Money Mustache might do all his own construction work, but the base materials involve a series of outsourced services. Why buy two-by-fours when you can learn to fell the trees in your yard and process them to lumber? Why buy furniture when you can build your own with a table saw, planer, and a router? Why buy nails when you can learn to make your own from steel wire? Heck, why not smelt the steel yourself? 

There are certain goods and services that would require so much time and effort as an insourced job that their dollar cost is more attractive. Due to the huge advantage of industry and mechanization, companies can perform things at many times the efficiency of a single producer. Additionally, there are some goods and services that if I tried to make (or perform), the quality would simply be bad for a long time: the learning curve might involve a dozen iterations before I make a decent two-by-four from the trees in my back yard.

And perhaps most importantly, there is the aspect of personal enjoyment. People and jobs are different, and some provide a better match than others. I might find a zen-like pleasure in washing dishes (I do) but hate going out into the Arizona heat to do yard work in the summer (I do). Not to admit wussy pants status, but shouldn't our personal preferences on how to spend our time matter?

Besides, the argument to insource everything is kind of a curious one in the early retirement community. If our limited time on this earth is so precious that we ought to try to reach financial independence and leave our corporate jobs in short order, why doesn't that rationale apply to the time we spend doing everyday tasks? Why is it only important to get back the eight hours a day we spend in the office?

The outsourcing versus insourcing debate seems to be a bit of a false dichotomy. We all trade time to save or earn money, and we all trade money to save time, too. It's just a matter of personal choice. Going back to another of Mr. Money Mustache's concepts, the simple math of early retirement shows that savings rate is the one metric that really matters. If you achieve a savings rate that puts you on the path to financial independence in short order, does it really matter if you go to a restaurant regularly or hire someone to clean your house? Spend your money, and your time, as you want.


*Photo is from Dan4th at Flickr Creative Commons.

69 comments:

  1. I use the 80/20. Do 80% of the tasks, 20% of the things I dislike - I outsource. I am going to pay someone to do my yard next summer. I dislike hanging and floating sheetrock and will hire someone if I have a large project. Walmart changes your oil for almost the same price as you can yourself.

    ReplyDelete
    Replies
    1. Elroy, I like the suggestion of using the Pareto principle. MMM is right that most of us could probably benefit from insourcing more tasks...80% sounds like a good round figure.

      Agreed on yardwork, oil changes, and probably sheetrock, too. That last job seems to be the one where DIYers end up with subpar results.

      Delete
  2. Wonderful post. I like Mr. Money Mustache, but there are things he gets too extreme on for my taste. I'm not a fan of extremism in most forms, and when it comes to the kind that says "this is the ONE RIGHT WAY" to do something, I start getting skeptical. I think as long as you're sticking to basic principles - like having a high savings rate - you should be free to, as you said, spend the rest of your time and money as you see fit without someone telling you that's wrong or somehow not good enough. Keep on preachin' it, friend :)

    ReplyDelete
    Replies
    1. Aw, thanks, Kali! I'm glad we're blogging buddies.

      I'm similarly skeptical (or combative) when I hear there is one proper way to do something. There are lots of ways to skin a cat.

      Delete
    2. I have to admit, having enthusiastically agreed with every word that came out of MMM's keyboard when I first discovered him, having thought hard about converting "the whole way" to his lifestyle this was one of the areas that I can't be having whilst still working. Maybe once you make the leap into retirement it's a bit easier to outsource more things.

      A good book that supports your "macro" argument (which is obviously sound and even MMM would not argue against I am sure!) is The Toaster Project by Thomas Thwaites - Just think how hard it would be to make your own toaster from scratch!

      Delete
    3. I agree that some of the MMM approaches seem to be easier to implement once you have more free time in ER, but I think he would argue it's the other way around. Doing what he does gets you to ER faster...

      I'll have to check out that toaster project. Thanks for the link!

      Delete
  3. I don't think there's anything wrong with outsourcing. For instance, we have paid someone to mow our grass the past year. We both work and it's easier to pay someone $20 once a week than to do it ourselves. I would rather spend those two daylight hours with my children.

    ReplyDelete
    Replies
    1. That's the one chore I think I want to outsource going forward. Plus, I seem to remember reading somewhere that yardwork (and commuting) correlate negatively with happiness. In a way, you might be buying happiness by outsourcing...

      Delete
  4. We tend to insource most household tasks, which works out when you have a complementary partner (I don't mind cooking/cleaning, while B is super handy around the house and why we'll most likely get a fixer-upper for our forever house). I think if people don't mind the work, or find it enjoyable, then it's a win in terms of using one's time in the way that they want and save some cash. But, I get what you mean about things that one might not like - in those cases, it might make sense to outsource so that one can spend time on something they genuinely want to do.

    ReplyDelete
    Replies
    1. That's great to have complimentary skills and personalities. The missus and I split up the work along the lines of who dislikes certain tasks more, too.

      I agree that insourcing is probably good from a financial perspective and might even be something people enjoy doing in some ways. But I read stuff from Tim Ferris (really should have worked him into the post) and I wonder if outsourcing low value work might have an even better ROI...

      Maybe a future post someday.

      Delete
  5. We outsource house cleaning (because otherwise it would never get done - no matter how much time we have), and lawn mowing/leaf cleaning. We spend a bit for the two services, but we feel that they're worth it because they are things we just really dislike doing. Might as well enjoy life a little!

    ReplyDelete
    Replies
    1. Oh, there's a part of me that would love to hire someone to clean the house. Luckily the roommates help out a lot there, but maybe just an occasional deep clean would be an option...

      Delete
  6. I have heard an interesting theory on the topic before. If you can invest your time somewhere else and have a higher return, then outsource the task. Here is the example that was given to me. It costs you $25 to outsource mowing the lawn while, you can utilize the half an hour to make $50. Then outsource. Most of the tasks we insource, as we do them on the weekends or after work. We are not generating more income during that down time. So saving is a form of making money.

    ReplyDelete
    Replies
    1. Mrs. Y, that's a good approach and, if you have side income or are an entrepreneur, a reasonable way to justify outsourcing from a financial perspective. I'm unfortunately not there yet, so I'd just be spending the extra time gained on some leisure activity.

      Delete
  7. I'm with you on this and I'm a big fan of Mr. Money Mustache. I don't have a problem with outsourcing certain things, especially when there are time constraints or perhaps lack of skill. I could learn to change my oil, but it would take too much time, and the savings would not be too much. I might have issues with outsourcing some easy and basic tasks if you're just spending time watching T.V instead performing those tasks though.

    ReplyDelete
    Replies
    1. I hear you on changing the car oil (which seems to offer just a tiny savings) but I do end up changing the oil on my scooters. Mechanics are charging $50-$75 for an oil change, and the things only take one quart of oil. Forget that.

      On the other hand, I really am just spending any gained time on leisure activities (i.e. - sitting on my butt, drinking with friends) so maybe insourcing isn't such a bad idea. :)

      Delete
  8. Totally agree. There are occasions where it's just not worth my time to learn how to do or fix something, especially if I'm going to do more damage and incur more costs doing it.

    ReplyDelete
    Replies
    1. Good point, Stefanie. I glossed over the aspect of possibly damaging an asset and incurring additional costs. For someone like me, that's a risk on DIY jobs around the house.

      Delete
  9. I've been trying to learn as much as possible from my Dad about cars, and trying to learn basic repairs. I'm able to do an oil change with no problem as well as some basic part changes (with the help of Haynes manual or Google) as well as replacing the brakes.

    I still choose to get the oil change outsourced, as most places do it basically at cost and they are always offering coupons. It saves me time and effort, and I don't have to worry about how I'm going to be disposing of the oil.

    ReplyDelete
    Replies
    1. I've come to the same conclusion with changing oil, Debt Hater. It's good to do it once just so you know how to do it, but with a car I don't see much savings there.

      Would love to learn to change brakes on the car though. I'll have to give that a go the next time they need changed out.

      Delete
  10. "the quality would simply be bad for a long time: the learning curve might involve a dozen iterations before I make a decent two-by-four from the trees in my back yard." ha ha, so true! I think it's OK to outsource when you could be making more per hour with your time freed up then it would be to do the task yourself.

    ReplyDelete
    Replies
    1. What if you could be making more per hour, but instead just, you know, lounge around? :)

      Delete
  11. There's a balance to everything - we insource quite a bit, but when it makes senses in terms of the time/money tradeoff, we outsource. In general, we like to at least try a project or research exactly what it would take to DIY before outsourcing.

    ReplyDelete
    Replies
    1. That sounds like a reasonable method, Mrs. Pop. At least learn a bit about the project and its possible costs/time commitments before making a decision.

      Delete
  12. I would totally pay someone to clean my house if I can afford it. I'd rather spend the time with my kids than spend it cleaning!

    ReplyDelete
    Replies
    1. That's a great example of where money spent is better than time spent, Cat. Congratulations again on the twins!

      Delete
  13. Another thing to consider is the expertise level when it comes to outsourcing. Granted you can insource and do the job yourself but how close could you replicate the job of a professional. For something like mowing the lawn, it wouldn't be hard. If you were going to melt iron and make steel, chances are your end product would be pretty crappy.

    ReplyDelete
    Replies
    1. That's a key distinction that I glossed over, Micro. The quality of my work matters. Do I want to move my way up the learning curve, and deal with the shoddy work in the meantime?

      Delete
  14. I really liked reading your thoughts here. I agree that a balance is ideal. You're very right that there can be learning curves that may take months or years to overcome, and there also might be tasks you just can't bring yourself to enjoy. It's not worth it to be miserable trying to keep up the yard, just like it's not worth it to be miserable at a job. My dad is currently making some furniture, but it's something he has a passion for and knowledge of, whereas I'd rather purchase it.

    ReplyDelete
    Replies
    1. I'm impressed that your dad makes furniture, EM. I made our coffee table but it is a ridiculously simple design...it's just an old door with legs from an old table cut down on a chop saw, and held in place with pocket screws. I like it (since it has the doorknob) but if I had to make "real" furniture, it would be a mess!

      Delete
  15. This is something I think about all of the friggin' time actually. There are a lot of variables to this equation. As for construction, I feel that I can do a better job than most people because I really, really take my time. No-one cares more about the tile on my floor than me.

    Also, trying to find decent people to do work is probably the most difficult thing to do in the world. I'd rather be tasked with solving cold fusion or finding subatomic particles than finding a decent carpenter.

    And then there is time. I still change my own oil and people look at me like I'm nuts when I tell them that. In this case, it's not even about money. I can change the oil in my car far faster that the time it takes driving down to Jiffy Lube. Same goes for cutting my hair. I get it down in under 10 minutes.

    ReplyDelete
    Replies
    1. You speak the truth, Mr. 1500: no one cares about your stuff the way you do. That's got to be the main advantage of DIY: all the incentives are set up properly for you to do the job, whereas an outsourced supplier's are backwards. He is aiming for "good enough", and tries to get there as quickly and economically as possible. And as you noted, their skill level is kind of a crap shoot (though I'd imagine it's still higher than the average new DIYer's).

      I do change the oil on my scooters as the job saves me like 90% of the cost and is pretty easy, but I haven't run the numbers on my car's oil change in a while. Maybe it'll be worth it.

      Delete
  16. That's interesting... Lately, I've been finding myself to have the complete opposite viewpoint when it comes to outsourcing. I'm trying reach FI by 30, and I plan on getting there BY OUTSOURCING. Real estate agents, tax consultants, attorneys, construction crews, property management, handymen, etc.

    I really don't want to do everything myself... I'd rather use my free time to play. :)

    ReplyDelete
    Replies
    1. I think about the same thing, FI Fighter, especially after having read some of Tim Ferris. There's something really attractive about making active things passive and still being profitable.

      Delete
  17. I believe in outsourcing. I hate doing yard work and pay someone $40 a month. If I did it myself it's like working for $15 an hour doing something I hate. Since I make more than that it's worth it for me. My rentals I have a handyman that takes care of everything, he's much more efficient than I ever will be.

    ReplyDelete
    Replies
    1. That's a great rate for yard work, Charles. Maybe I'll hire my odd neighbor again....

      I need to learn about real estate from you, too. That sounds like a nearly truly passive stream of income you have going there.

      Delete
  18. Love this quote: "If our limited time on this earth is so precious that we ought to try to reach financial independence and leave our corporate jobs in short order, why doesn't that rationale apply to the time we spend doing everyday tasks? Why is it only important to get back the eight hours a day we spend in the office?"

    I think the balance here is going to be different for everyone, and I think you're absolutely spot on that there is no right answer. To me, the important thing is to not simply outsource everything by default. That's where you get into trouble, where you think you always need to spend money to have someone else do something for you. But there's nothing wrong with making a conscious decision to outsource either because it frees up your time to do something else or you simply don't enjoy it (and you CAN afford it).

    ReplyDelete
    Replies
    1. Good distinction, Matt. I wonder if making insourcing the default, to at least try it out, and then outsource after you know, personally, whether it's enjoyable, disgusting, not worth your time, etc. It seems like defaulting to outsourcing is asking for trouble because it's always going to seem nice to get more free time.

      Delete
  19. Yes, I outsource, too. Some things are just waaay above my skill level. Sure, I could probably figure things out but it's going to take me several hours to learn and do the job vs paying someone $20-$30 then I think it's worth it. This is especially true for things that only need to be once and I don't see doing again in anytime soon (ex. migrating my blogger blog to wordpress). Although I have been thinking I'm going to be a much happier person if I get a housekeeper to come in once or twice a month to do a deep cleaning. :)

    ReplyDelete
    Replies
    1. Good point, H. A one time (or likely one time) expense has a limited ROI from insourcing. (Though I suppose the flip side is that there's a limited expenditure of time, too.)

      Delete
  20. Thank you, Mr. DbF. Thank you. This was extremely refreshing to hear, particularly your last and most important point - it's all about the savings rate. Too often I feel guilty buying certain things, paying for certain services, etc. As Ron Swanson said, "People who pay for things are suckers." In this mad dash to become financially independent, early on in my journey though I may be, I find myself taking some pleasure out of life either because I feel guilty about buying something, or refuse to. I've got it good. Real good. I need to remember at all times though, that the purpose of this path is to gain more enjoyment from my life. To be able to be independet. To have the freedom to do what I want when I want without any restraint. Yes, obviously that takes some restraint in the present to not live beyond my means and spend on total frivolities. It doesn't mean I can't have any fun though, right? I'll get to financial independence. Done by Forty? Maybe. Either way, when I get there, I don't want to regret anything about the way in which I got there. Cheers.

    ReplyDelete
    Replies
    1. I dare not disagree with Ron Swanson. But that's the tradeoff we make when we outsource: we get the convenience of having someone else do the work and we get our time back, but we miss out on the mind blowing badassity that the Ron Swansons and Mr. Money Mustaches of the world have. Tough choice...but I am lazy.

      http://www.youtube.com/watch?v=d0YAhykMMxc

      I think you're striking a pretty good balance between living right now and planning for the future. The really great thing is that you're still young and have plenty of time to adjust the plan as things change. So, if you decide you want to ratchet up your savings and retire at 35, that's still a possibility. If you want to travel more and retire at 55, no big deal then, either.

      Delete
  21. I like mowing the lawn when it's feasible but I can see paying someone to do that, especially a young teenager who wants some spending money is so much easier than doing it yourself. I'm with you on the time thing... no point in doing everything yourself if you don't have free time to enjoy with your loved ones!

    ReplyDelete
    Replies
    1. Yeah, that was one of the points I was trying to get at but didn't really drive home. FIRE is all about getting time back. It's a weird that insourcing everything would be the means to get there.

      Delete
  22. I tend to outsource work when there is a danger that I will not do it right. When it comes to basic car maintenance, I will do that, but if it is more complicated and requiring a special skill set, I will respect my limits and the talents of others and pay for it to get done.

    ReplyDelete
    Replies
    1. Well put, Michael. I think the whole thing can be summed up as you put it: we need to respect our limits. While we can learn any skill, we can't learn every skill. We have to pick our spots.

      Delete
  23. While there is undeniably benefits in doing things yourself, the fact is there are just times when one cannot help but seek outside help hence outsourcing. No man is an island no matter how frugal one wants to be.

    ReplyDelete
    Replies
    1. Another good adage, Jen. No man is an island. There's a value and a logic in reaching out to others for assistance. Why try to become an expert when there is one just across the street?

      Delete
  24. Ah, I would actually do more damage if I tried to do it all by myself. My handyman skills are close to zero and even though I'm learning to do basic stuff and I would love to be able to perform the more difficult task, I would never be able to insource everything. I am not a very patient person and a lot of housework requires you to be patient. I also work so much that I would indeed burn out at a point.

    Great conclusion for your article too!

    ReplyDelete
    Replies
    1. Thank you, C! I'm a fledgling handyman who does some DIY work himself, but I feel no shame in calling someone when the job warrants it.

      Delete
  25. Right now, I'm at the stage in my life where I have more time than money, so it makes sense to insource what I can. There are certain things (like electric wiring) that I do leave to the professionals because I don't want to kill myself, but I don't require their services all that often. It's all about where you are and what's important at that point in your life.

    ReplyDelete
    Replies
    1. Ryan,

      I wish I'd hit on the balance you commented on: the amount of time you have vs. your available cashflow is probably the most important factor to consider. Even if I don't like yardwork, if I have a bunch of free time (or not much disposable income), I should probably get out there and just do the work myself.

      Delete
  26. I too have the great debate on what to insource and outsource. I think one thing that is neglected from the discussion (although mmm mentions it often), is that insourcing also decreasing risk, dependance on income, and increases knowledge. We I choose to do my own car maintenance, it does take a bit of time and gets me dirty. It does however, give me the knowledge to understand how a car works, how it is put together, the ability to troubleshoot future problems (even if I pay someone to fix them). In addition, if I were ever in need of more money it is a way I can dramatically drop a major future expense as well. That being said, I still pay someone to change my oil even though I know how.

    ReplyDelete
    Replies
    1. That's a good defense of the MMM philosophy. Insourcing does build your base of skills and the savings generated does help you reach FI earlier. But like you noted, there are things that still make sense to outsource, like the oil change.

      Delete
  27. I totally agree, DB40! I don't mind trading money for skills/goods that I couldn't possibly do myself, at least at the quality that I'd like.

    ReplyDelete
    Replies
    1. Thanks, Lisa - and thanks for the tweet, too! I'm glad I'm not alone on this one in the PF blogger community.

      Delete
  28. Hmmm I think it depends on each person's situation. If I made $300/hour for each hour I put into a small business, I'd probably just work the small business and outsource everything (housework, yard work, anything else I can think of) simply because it wouldn't be worth my time to do. Right now I'm paying off debt and trying to save money so I push myself to work my 9-5, run my side hustles, and do as much work myself as possible. There may come a point where I am making enough off of my side hustles to justify contributing more time to that, which will mean outsourcing housework, yard work, etc. Either way I enjoyed hearing your perspective on this.

    ReplyDelete
    Replies
    1. I think that sort of thoughtful approach is exactly what we should all be taking, David. Your side hustles have the potential to net you much more value than insourced work...but if they're not at that point yet, it might make perfect sense to DIY the work.

      Delete
  29. I am really torn between outsourcing and insourcing. I have a full time handyman and a maid (they alternate but do a full time between the two) so there is someone in my house 40 hours a week, which I really don't like. But the job they do for $300 a month is amazing and not really worth my effort in doing it. I don't outsource cooking because I love it but am happy to delegate gardening, cleaning, and many blog tasks too. For me it is not about the price that much, I had a maid in the UK too because I made more money working on side income than her cleaning my house. But when things are really tedious it is worth a premium price. I think in ER you also have a lot of time so standing there doing nothing while people clean, cook and garden for you is pretty weird.

    ReplyDelete
    Replies
    1. All great points, Pauline. With that sort of thoughtful approach between what you want to give to someone else and what you enjoy, I don't see how you can go wrong.

      I haven't experienced ER yet, so maybe the MMM approach makes a lot more sense once you have all that free time.

      Delete
  30. I would totally outsource my dirty dishes to you, zen master.

    ReplyDelete
    Replies
    1. Ha! Just mail them out and I'll send them back in the self-addressed stamped envelope.

      Delete
  31. I am going to have fancy new closet organizers installed in my master bedroom next month and before that, I am going to have the closets re-painted, nail holes patched, some drywall patched, and some other scratches erased. Total cost: about $2,500. I debated doing the painting myself, but it's going to take about 1.5 days for the professionals to do it and it really isn't that much. Plus, patching the ceiling? That doesn't sound like much fun to me. I'd rather just outsource. The catch with outsourcing though is that they tend to also only work business days...

    I've stopped outsourcing my income tax return, but that's because I enjoy doing it. I'd rather do my own income taxes and general cleaning while someone else paints and installs things.

    ReplyDelete
    Replies
    1. Just to be clear - the $2,500 includes the closets, install, and the painting. The painting is more like $700, which isn't that bad.

      Delete
    2. Hi Leigh,

      I can definitely see how you'd want to outsource that. I'd be tempted to try to do the painting myself but I can assure you that you'd be able to tell the difference between my work and the professional's. Besides, you hit on the key bit: if you just hate that job and would't get the kind of enjoyment out of it that you do with income taxes, then it's not a great candidate for insourcing. How we spend our time matters at least as much as how we spend our money.

      Delete
  32. AMEN, DB40!!! We all work better when we work together, don't you think? It's called community. No man is an island, all that jazz. My neighbor, for instance, comes around every fall and spring to till up the gardens on our street. He loves that he is helping others, and we love that he uses his giant tractor to till up our garden in about 10 minutes, whereas us with our hand-tiller would be out there for a good hour. It's a win-win for both of us.

    ReplyDelete
    Replies
    1. Thanks, Laurie. I think that's a fantastic example of how outsourcing and relying on the right neighbor can save the community a ton of time, effort, and money.

      Delete
  33. With a slow economy and expanded rivalry, quick officials swing to outsourcing as the most savvy technique to meet the main issue and look for a higher rate of return. How would you change over outsourcing leads into customers? You may need to put forth the defense for outsourcing. More Information

    ReplyDelete