Expense Hacking

 Sometimes being productive is about using your resources well and reducing your expenses. Productivity Falcons engage in what I call “expense hacking” or “life hacking” related to finances.

“Expense hacking” is what I call it when you dramatically reduce or eliminate most or all of your personal or business expenses in an area.

3 “Expense hacking” case studies:

Patels

-The Patels came to America without much to their name.

-They found a hotel chain was hiring.

-They negotiated that they would get to stay in one of the hotel rooms as part of the job.

-They never bought a car or paid for transportation

-They didnt have a mortgage or rent payment.

-They slept head to foot with 6 in the same bed and spent money on food across the street from the hotel and a video rental for entertainment for a large family.

-When your expense approaches zero your return is almost infinite.

-They soon bought the hotel and found they could employ family members and deduct taxes up to a certain amount as expenses. 

-As a result they could lower prices dramatically and still profit.

-competitors in the area could not. Competitors would go out of business so they bought the competitors. Slowly but surely they expanded. Their kids would grow in the hotel and grow up to have kids and work in the hotel.

-they currently own about half the motels and 25% of the hotels in the U.S.

Elon Musk

Elon Musk practices expense hacking.

Personal expense hacking

-He ran an experiment to see if he could live off a couple dollars a day. He could. 

-Then he wanted to see if he could live off a dollar a day.  (Hotdogs, peanut butter, noodles. Lots of different sauces)

-He realized although it wasn’t pleasant, it wasn’t bad either and he would never starve as he could find a dollar of change in the streets if he needed to. 

-This motivated him to take the risk of starting a business.

-Even when he was worth multimillions he was “homeless” for much of that time as he would travel and crash at a friends house or sleep at the office of Paypal then wake up and code.

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Company expense hacking.

-The model of Tesla and Space X is to find out if parts can be eliminated altogether or done cheaper, and if it can’t be done cheaper buy out a company that does. Rather than pay $1.05 on a part that costs $0.95 to make, he can just make the part and if they have excess, sell it. 

-If you go from $1 to make $1.05 to spending $0.70 to make $1.05 you go from netting 5% return on capital to 50%. A “30% reduction in cost” can totally transform a business and even make unprofitable ideas profitable.

-Solar City and Tesla were started with the knowledge that a large part of it would get significantly cheaper to produce over time. Tesla could pay $50,000 for a battery plus $20,000 to make a car that cost $70,000 and sell it for $50,000 knowing that price of the battery would cut in half in a couple years, many other costs would cut in half.

-Elon would use financial tricks and gimmicks and free advertising that came from them to buy time until the economics works in his favor.

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Integration

-Integration is used to further hack expenses. 

-Expenses you already pay for to one company if you can find another use to another company you can share assets you aren’t using. (You can also use collaboration with other businesses for similar effect. Many successful businesses help others in business.)

Possible vision:Space X mines asteroids, bringing down material cost for Tesla. The tech will always get better and cheaper.. Boring company digs under ground reducing land cost and heating cost for giga factory. Property plant and equipment is always the major problem with car companies.. Solar city and solar panel roofs increases accessibility and reduces battery cost of Tesla, self driving tech allows membership where customers can rent out their car when it isn’t being used to an uber service and get paid to own their Tesla. Self driving semis reduce shipping costs of materials around the US. Rockets transport materials around the US. Boring company mines under planets and asteroids. And creates holes to store them under ground. Shipping network and rocket transport and AI and self driving tech allows the infrustructure to beat amazon on shipping costs and have it delivered. Smart tech in Tesla’s let you order from car while driving or play in tesla App Store. Tesla rolls out tech to compete with Apple. This process is repeatable on Mars.

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Richard Branson expense hacking.

Richard Branson was stuck in a Puerto Rican airport without a returning flight. He had pilots liscense. So he got the agreement up front from the passengers to cover his expenses. He got price quote on a charter plane. $10,000. He divided the cost by 50 passangers. He called back competitor and negotiated down to $8000. He also had the plane for 48 hours and only needed it for a 12 hour flight to New York. Virgin Air was born.

His net expenses before even providing the service? Zero dollars.

Same idea for Virgin Galactic. One day there will be a space tourism industry. Multimillionaires will gladly put a lot of money down in a deposit for the future promise of being next in line to fly around the moon. That money will allow him to form a business, qualify for loans take no personal financial risk and begin working towards the idea. Zero risk but a lot of upside if it works.

If you ask for money up front you can pay for a service you otherwise wouldn’t be able to afford. There are other businesses where playing the middleman allows you to control assets you don’t own and make monster commissions or profit off of relationships.

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So there you have it. You can find unconventional ways to have zero cost, you can be the pioneer knowing the cost will eventually become economical and focus on dominating the space or you can get the money up front for a promise in the future and use that to pay to build what they are asking for less.

While there is value in being the “millionaire next door” cutting coupons and tracking costs, there are other ways to do use those concepts to become successful and actually expand your means. It may require some trial and error and creativity and risk, but hacking your expenses is a way to free up cash to use to build assets, grow income and expand value.