Outsource or DIY?

We all face countless decisions about whether to pay someone to do something for us. For example, as tax season is upon us, do we choose to file our own taxes or hire a professional to take care of it? A professional tax preparer comes at a cost, but can save a lot of headaches and time. Some of us are more capable of doing our own taxes, but the decision is about more than just our ability.

We face this outsource versus DIY question on a near daily basis—and it becomes a fundamental financial planning question. Are you the kind of person that’s willing to pay someone to free up your time, or do you prefer to figure things out on your own? It may depend on the task in question.

I use the word “outsourcing,” but I’m really talking about something bigger. We all choose to pay for certain conveniences. For example, we could choose to raise our own animals and grow our own food, but we tend to lean on farmers and grocery stores to help us get food more efficiently.

Division of Labor

At an economic level, there is a lot to be gained for society when people are able to specialize. Spending on services, especially at the local level, can ripple through the economy.

‍Let’s say I choose to hire a mechanic to fix my car. I could probably learn how to fix cars on YouTube, but that seems like an awfully big commitment to something that I’m not particularly interested in. My mechanic takes my $1,000 and uses it to hire a plumber when his toilet breaks. The plumber uses the $1,000 to hire a lawyer to put together a will. The lawyer uses the $1,000 to hire a financial planner, who takes the money to hire someone to mow his lawn for the summer.

In this simple example, the $1,000 I’ve spent on the mechanic gets spent five times, creating $5,000 worth of economic production. I’ve slightly exaggerated the effect here, since most people choose to save some of their income, but you get the idea. As a society, we are better off when we can all choose to specialize in what we’re good at. This was Adam Smith’s big insight—what has been called “the central miracle of modern prosperity,”

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To Do or Not to Do

From a financial perspective, we can save money by doing things ourselves, but we can’t do everything. We’re better off if we can create a career out of something specialized and use our income to pay others to do things we’d rather not.

Many of the decisions we face, especially as we age, come down to this fundamental concept of outsource or DIY. Yardwork is a perfect example. New homeowners often mow their own lawns, but over time they tend to outsource this task. Outsourcing means freeing up time, potentially when you want it most on the weekends, and it comes at a relatively low cost.

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Whether to outsource any task depends on factors such as cost, complexity, and how much satisfaction you get out of the task. If you hate doing something and it doesn’t cost a ton for someone else to do it, why not outsource it?

As technology advances, there are going to be more opportunities for people to accomplish even difficult legal and financial tasks without the need to hire a professional. If you’re the kind of person who manages your own investment portfolio, I suspect you’ll have more sophisticated and flexible investment management tools readily available in the future, and they should help you manage your portfolio. Or if you want to write your own will, you can probably find an online tool to assist.

But that doesn’t mean that everyone should start doing everything by themselves. Many people find the world of investments or legalese overwhelming. These people will likely continue to hire advisors and lawyers even as DIY technology advances.

Humans are good at learning new things, and technology improves that capacity for learning and doing. But that doesn’t mean that we should all be DIY’ers for every task in our lives. We get great benefit from outsourcing the tasks we don’t love to those who are practiced.

Personally, I’ll keep mowing my lawn and shoveling my driveway while I can. I love being outside and I don’t mind these tasks. But I’ve decided to outsource my taxes and all legal work. Time is the one truly finite resource in this world, and hiring professionals allows me to keep more of mine. As you review the things you are willing to outsource versus DIY, consider what you like doing and where you can afford to free up your own time.