It is good to spend barter credits on personal expenses.
I’ve run into a couple of traders who have set up rules for themselves that keep them from ever fully realizing their best possible return on barter. These people are generally conservative in nature and in their zeal to make sure they don’t “waste” their credits on frivolity, have decided that they will never spend barter credits on personal expenses. For some this is just an out-cropping of self-discipline gone wrong, but others actually believe that there is a legitimate business reason to avoid personal spending on barter.
When you accept payment in cash in your business, you take some portion of that cash and spend it on personal expenses. Realize it or not, it is something every profitable business does. Obviously you will have some book-keeping problems if you start paying for personal expenses directly out of your business account which is why most folks draw cash out of their business in the form of payroll, owners-draw, dividends, etc. These funds are pulled out of your business, you are appropriately taxed on the funds as personal income, then you spend the money on personal expenses. Barter is no different! You can pay yourself in barter credits rather than cash, then turn around and spend those barter credits on personal expenses. There is nothing to it! It doesn’t matter if you are a sole proprietorship, llc, or some type of corporation.
The advantage in spending barter credits on personal expenses is that it opens up more opportunities to spend barter credits wisely. It totally baffles me that a business owner would sit on thousands of dollars of barter credits, yet still pay cash for dental work or carpet cleaning in their home. By paying yourself (in part) in barter credits that you use for personal expenses, you free up cash in your business that can be used EITHER for cash business expenses that you can’t trade for, OR EVEN BETTER, cash profit payouts to yourself. Either way you win.
A final passing thought: Just because I’m saying it’s good to spend barter credits on personal expenses doesn’t mean that I’m indicating to spend frivolously. All the normal rules of wise purchasing still apply. I’m just saying there is nothing inherently bad about using barter credits for personal expenses.
As I continue to develop my barter strategy I’m beginning to see my purchases fall into a handful of categories. Where your barter purchases fall into these categories in a large part determines how successful your barter effort is over all. Additionally, I think looking at these categories can help traders find more trades that help their bottom line. In my opinion trade purchases fall into three categories: Cash Replacement, Value Added, and Luxury Purchases.
Cash Replacement Purchases
These are the absolute best kind of trade. This is when you trade for something that you would have bought for cash. Personal examples of things that I trade for in this category include food, dentistry, automotive repair, etc. . These trades represent a direct conversion from barter dollars to real dollars assuming that you purchase these goods/services at comparable prices to cash prices. If you are looking to get the absolute most out of barter, dig through your checkbook and credit card statements looking for things that you can switch over to barter.
Added Value Purchases
This one is the hardest one to grasp of the three categories and I’m only now realizing the value of this group. Purchases in this group are items that you would not have purchased for cash, but they still represent significant real value to you because they free your time for family or cash generating work. Of all things of course time is one of the most limited and I’ve met few productive people who aren’t interested in freeing up more time. Examples of these types of trades would be hiring a landscaper, book-keeper or even a house-keeper. I like doing my own yard-work and I would never hire someone for cash to do it for me. That being said, I am willing to hire someone on barter that will do a better job than I do and it will free up time for me to work or play. The same thing applies to book-keeping. My wife enjoys doing our books, and was very resistant to the idea of hiring a book-keeper. She was more open to bartering for one and now that we’ve made this switch she is extremely happy with it and uses that time very efficiently in other areas of her life. Although this kind of a trade does not generate a direct conversion of barter dollars to real dollars, it has a very real positive effect on your business and personal life and is a good area to spend barter credits.
This is the one to be careful with. They are purchases that are totally for fun that you would not have made for cash. Certainly I would be the last person to tell you that you shouldn’t spend barter credits on yourself for fun (check on the barter vacation I bragged about), however I know that some people go over-board in this area. My only comment on this area is that you don’t want to make so many luxury purchases that you don’t have credits available for making the other two types of purchases described above.
It’s worth mentioning that some folks are so against luxury purchases that they don’t believe you should make any personal purchases at all. This is totally incorrect in my opinion and I will write more on this topic later. For now suffice it to say that you should make as many “cash replacement” trades as possible regardless if these purchases are business or personal.
So….take a look at how you conduct your trades and see where your purchases fall into these categories and start making some changes as you see fit.