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Insourcing vs Outsourcing

566060_workers_05Outsourcing has been practiced by corporations for years. Outsourcing is also practiced by regular people when they pay others to do things for them.  Best selling author and shyster (*) Tim Ferriss advocated pushing personal outsourcing to the extreme in the 4-Hour Workweek, the idea being that the less grunt work you did, the more time you could spend building a business.(**)  On the flip side, much of the FIRE (financial independence/early retirement) community advocates the opposite, insourcing.  They make the very valid point that you can save lots of money by doing things yourself.  It just so happens that I know quite a bit about both approaches.

On Outsourcing

In my current job, I manage a number of our outsourced vendors.  As you might expect, we pay through the nose for their services and I could easily do most of the work that we pay them for.  On the other hand, their services are scalable.  If I need work done, I can pay them and get it done.  If I don’t need work done, they don’t get paid.  If, as a company, we insourced their entire function, we would have to pay for labor and equipment year round, even when there wasn’t any work to be done.

By leveraging other people, outsourcing allows me to do a lot more work.  At present, I’m working on about five times as many projects as I could have if I was responsible for doing all the work myself.  That is powerful.

In order for you to be able to outsource something you need two things:

  1. Money to pay for the work.
  2. The ability to manage your vendor.

On Insourcing

My parents were big on insourcing.  They did just about everything themselves, and saved a ton of money in the process.  But there were downsides.  If you’re spending large chunks of your free time fixing the car or the house, that time isn’t available for spending with your family, doing something fun, or just plain relaxing.  Occasionally something will break at the worst possible moment (i.e. holidays, anniversaries, birthdays), and then what should have been a time for celebration turns into another grueling adventure in home repairs.

By insourcing tasks you will undoutably save money.  If you go to a mechanic or higher a handyman to fix something, take a look at how much they are charging you per hour for labor – it’s often quite obscene.

If you are going to insource something, you require three things:

  1. The necessary skill to actually do the work correctly.
  2. Enough available time to complete the project.
  3. The necessary tools and workspace.

Insourcing / Outsourcing and Freedom

By favoring insourcing you will be able to achieve financial freedom faster, at the cost of sacrificing your time for maintenance.  By favoring outsourcing, financial freedom will take a bit longer, but you’ll have more available free time.  It’s a tradeoff, and as such you must make a choice.  Below are my suggestions.

Limit how much of your life requires any kind of sourcing

Sometimes the best choice to make is to make no choice at all.  You could debate endlessly about whether you should outsource your yard work or do it all yourself.  Or you could rent an apartment or buy a condo, thus letting someone else worry about the yard work since it’s already included in your rent or association fees.  Hard core frugalists may still consider this outsourcing, but I consider it an alternative housing choice.

Some people who work long hours also have dogs, and then they pay someone else to pet sit and walk the dog.  Another endless debate about how much dog care you should be investing in or doing yourself.  I’d suggest a different approach, if your hours are such that you don’t have time to take care of a dog, considering getting a cat, or some fish, or a chinchilla.

Outsource activities with a high price for failure

I prefer to have someone else perform my car maintenance.  I could probably change the oil myself, but if I screw up and drain the transmission fluid, the car is no longer usable and I have to scramble to figure out how to fix it, otherwise I have no other way of getting around.

Insource activities with a low cost for failure

I insourced cooking a long time ago.  The cost of failure is pretty low.  I made plenty of bad meals as I was learning, but I can count on one hand the number of truly inedible meals that I produced.

Some other good targets for insourcing are cleaning your home, basic yard work (if you have a small lawn, mowing your grass yourself shouldn’t be very hard), and painting.  If I had a house and wanted to paint a room, I would probably try it myself first.  If I fail miserably, poorly painted walls are not the end of the world.  I’ll either try again or call a professional painter and have them do it right.

Outsource activities which are psychologically stressful

I’ve moved a lot in my life, every time was both a physically and psychologically stressful experience.  Most recently, I used professional movers.  What a relief.  All I had to do was pack, they took care of all the lifting and logistics.  Yes, it cost money.  But it was such a stress relief that I don’t care.

Finally, if you find yourself insourcing so much maintenance work that it begins negatively affecting your relationships, consider outsourcing.  You should not spend all of your family time fixing stuff.  If you aren’t budgeting time for fun, bonding, and intimacy, it’s time to call some contractors.  Don’t sacrifice your relationships to save a buck.

Insource activities you enjoy

After I started learning how to cook, I found that I really enjoyed it.  So I insourced more and more cooking.  If there is some activity that you enjoy doing, consider insourcing it.

Outsource dangerous activities

If there is any risk of substantial physical harm befalling you, outsource it.  Pay someone else to take on the risk.  Personally, I would proactively avoid doing any activity that requires a ladder.  And I would never, ever, under any circumstances, go on the roof.  One fall, and life takes a serious turn for the crappy.  The thought of broken bones or paralysis secondary to spinal injury makes me cringe.  I’ll happily pay someone else to do this kind of work.

Learn as much as you can about everything

Regardless of whether you choose to insource or outsource, you should make a point to learn about as much as possible.  If you choose to insource, you need to know enough to be able to do the work correctly.  If you choose to outsource, you need to know enough to determine if the work has been adequately completed.

Readers:  What do you insource?  What do you outsource?  Do you have any guidelines that you use to determine which approach to use?

(*) Tim admits to having made his first fortune selling bogus supplements.  He also admits to scammed his way into a a number of other achievements including a kickboxing championship.  Those he can’t scam his way into, he just invents – such as gaining 34 pounds of muscle mass in 4 weeks.

(**) If you are wondering how building and maintaining a business is going to be done in only four hours per week, you are not alone.  The whole premise of the 4-Hour book series is to take something that takes a lot of time (e.g. building a successful internet business, working out, cooking) and claim that it can be done in virtually no time by dressing it up with buzz words like ’80/20 rule’ and ‘black swan’.

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7 Responses to "Insourcing vs Outsourcing"

  1. Great post! I especially like the part about outsourcing things that are psychologically stressful – that’s very important in these stressful days!

    1. MFIJ says:

      I firmly believe that if my parents had outsourced a bit more and indeed were a little less cheap, their marriage would still be intact today.

      The part about doing home repairs on anniversaries wasn’t a hypothetical. It was real. I lived through it.

  2. MFIJ,

    Awesome post. I would have never thought of writing something like this, but it does hit home and the debate of insourcing vs. outsourcing is something that anyone in search of FI must face.

    I know that a lot of people who are looking to retire young espouse becoming a “Renaissance Man” as Jacob @ ERE puts it and insource as much as possible…but I’m not handy. Even worse – I have no desire to be such. I’m not into building stuff or breaking stuff or “getting my hands dirty”. Sucks to be me.

    I instead quite enjoy your listed approach of making the choice to avoid sourcing at all. I live in a relatively cheap apartment and don’t have to worry about sourcing household repairs/maintenance, which is nice. I own no car, which eliminates auto sourcing needs. From there, it’s pretty much just food. God, I need to learn how to cook! :)

    Best wishes.

    1. MFIJ says:

      I’m not handy either. I can cut grass (edging is beyond my capabilities), install child cat proof cabinet locks, and hang pictures. That’s about the extent of my abilities. And much like you, I have no real desire to learn.

      Almost everyone I work with has a house. And all they seem to be doing is various home repairs or renovations. They’re either doing the repairs themselves or contracting someone else to do them. I can’t think of a more miserable way to spend hours days of my free time than being involved in home repairs and yard work. This leads me to think that I will likely always be a renter, or at best buy a condo.

      If I lived in a big city, I would probably ditch my car. But as things stand at the moment, I’d be largely paralyzed without it.

  3. [...] from My Journey to Financial Independence presents Insourcing vs Outsourcing, and says, “Outsourcing has been practiced by corporations for years. Outsourcing is also [...]

  4. Very interesting article. Large law firms and accounting firms use this concept to delegate tasks to lower status professionals freeing up time for the senior partners to do more complex and rewarding work. Accounting firms especially need to do this to survive.
    When you get to a certain age outsourcing is the most important way to free up the precious and dwindling time you have on earth to devote to things you really love.

    1. MFIJ says:

      The other thing about getting older is that selective outsourcing may become necessary. For example, my grandmother pays someone else to do her yard work. She grew up in the Depression, so it’s not her natural inclination to hire people to cut grass and trim hedges. But given her age, the only other choice would be to sell her house and move to a condo or apartment. It’s probably much easier (and maybe even cheaper in the long run) for her just to higher landscapers.

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