We all dream of a life where we can sit back and do what we want. We all want to live lives where we can truly experience our dreams and do the things we love. We don’t want to be told when to wake up and when we can go on holiday. We just want control over our lives. This is why some people are drawn to self-employment and the fantasy of becoming ‘their own boss’.
By definition, someone that’s self-employed doesn’t work for an employer. They usually charge an hourly rate and they get paid for the work they complete. The amount of hours worked reflects the amount of money received. Examples of self-employed jobs include, builders, photographers or web designers. They essentially trade skills in return for money.
But quitting your comfortable 9-5 job to pursue a life of self-employment is a waste of time and if you keep on reading, I’ll tell you why.
1. Irregular income | Self-employment can be up and down. Sometimes business is booming and other times there’s nothing.
2. Difficult to plan for the future | The irregular income makes it difficult to plan for holidays or to buy big purchases. One month you may get triple the amount you usually make then the other month you could get nothing. This makes it difficult when trying to work out a savings plan because your income fluctuates.
3. More difficult to apply for credit | The criteria to apply for credit, loans or mortgages are a lot stricter if you are self-employed. Due to the irregular income; creditors are more cautious about lending money. Currently in the UK the self-employed need to provide 2 – 3 years proof of income before approval. So if you’ve just left your job and started to work for yourself and you want to buy a home in the next year or so…good luck trying to secure the mortgage.
4. No sick pay or annual leave | Being self employed comes with poor perks to the job. If you go off sick, so does your money. Want to go on holiday? Well unless you can complete the work remotely, it is likely you won’t be getting paid. Unless you can find a reliable person to take on the work for you, it is likely this particular income stream will stop until you return.
5. No guaranteed pension plan (unless you sort it yourself) | You have to become responsible for your own pension plans (and so you should).
6. No work life balance | You may find yourself working round the clock and putting in more effort than you did in your job. It becomes more difficult to establish a work life balance because your work becomes your life.
7. 100% responsibility and accountability | You are solely accountable for the business. If your customers are unhappy with your service they are coming straight back to you! However, a 9-5 job can buffer the brunt of disgruntled customers as the responsibility and accountability of the company are shared. This can leave you a bit more stress free than if you had to deal with it your self.
8. Limited earning potential | Although you become your ‘own boss’ your earning potential is similar to when you were working a 9-5. You get paid a hourly rate or salary for the year for the work you put in. Your income will always be relative to the time spent doing the job. For example, part time hours yields part time money. But the problem is that there are only 24 hours in the day and unfortunately you cannot work for all of them. This means that your earning potential will always be capped.
Self-Employed < Business Owner
A lifetime of self employment does not provide you with the same rewards as a ‘stable’ 9-5 job. It requires you to turn up early for the job, work overtime with little rewards, poor pension plans, no annual leave/sick pay and 100% of the accountability if anything goes wrong. Now for me, this doesn’t seem appealing.
The problem is, is that people don’t realise that your earning potential in self-employment will always be capped. Your earnings are based on how much work you can complete in a given time. So when you think about it, there’s only so much you can do, there’s always going to be a cut off point.
So in the long term, self-employment is a waste of time. Do you think the richest people on the earth actually work for their money? Think about it. Do you think Bill Gates actually hand made any of the Microsoft computers on the market today? No! He’s a business owner. He owns systems and he distributes his products. He has people work for him which gives him more time to expand his business and generate more profit. Do you think if Bill Gates was self-employed he would be able to distribute his products to millions of people as he does today?
Now if the rich are not working for their money, what makes you think working for your money at a lower level will give you financial freedom? It won’t. That’s why it should be our goals to move from employee/self-employed to business owners or better yet, investors! This is where you’ll start to generate residual income and be on your way to financial independence.