Leaving the ranks of salaried employees to become self-employed and master of your universe is a risk that can pay off in various ways. However, working for yourself may not be for everyone. A person who works for themselves doesn’t have a boss who pays them a steady salary or wage. People who work for themselves, also known as independent contractors, get paid by directly contracting with a business or trade.
Most of the time, the person paying won’t take taxes out, so it’s up to the person who works for themselves. Different fields of work offer self-employed people very different chances for growth. People who work for themselves in agriculture will likely lose 3% of their jobs over the next ten years. But self-employed people in fields like child care, real estate, personal care, and the media will likely have more job opportunities in the next ten years.
Self-employment is a good choice for most people because it gives them a sense of independence and freedom over how and when they work. Depending on what they do for a living, self-employed people can often choose when, where, and how they do their work best.
Many more self-employed people own thriving businesses with multiple employees. The question is whether self-employment is the best option for you.
Should I start my own business?
Starting your own business is risky at any time, but it is especially risky if you consider leaving a job as an employee to work for yourself. It entails taking risks that must be balanced against the potential rewards. It would be irresponsible to stake your career without considering such risks, so do some cost-benefit analysis before venturing into self-employment. There is a fine line between making an informed decision and becoming paralyzed by analysis paralysis, so let’s look at some of the benefits and drawbacks of working for yourself.
6 Benefits of being self-employed
There can be a lot to like about self-employment, including the ability to work when and where you want; greater control over your income, what you do, and who you work with; and potential tax benefits to consider.
1. Determine when you want to work.
Running your show and working when you want rather than facing the 9-5 grind can be very appealing. Being Self-employed can provide plenty of flexibility if you want to down tools early on a Friday afternoon or need time off to attend the kids’ school concert or get the car serviced. It would help if you still met client or customer deadlines. But if you succeed, your time will be yours to spend as you see fit.
2. Work wherever you want
Many small businesses can run only with a mobile phone, a computer, and an internet connection. Self-employed people who run these types of businesses can work from anywhere. You can work from home in your PJs or on the beach – that’s freedom! Even if your company requires an office, practice, or shop, you can choose where it is.
3. Potential tax benefits
When you work for yourself, you can take advantage of a wider range of tax breaks. Many of the expenses directly related to earning your taxable income may be considered business expenses that can be deducted from your taxes. These expenses can range from advertising costs and business insurance to the work-related portion of the cost of a new car or information technology equipment. Keep in mind that you must pay for these expenses in order to claim a deduction, and it may be a good idea to consult with a registered tax adviser to determine which expenses you may be able to claim on tax and what records you must keep.
4. Greater financial control
You don’t have to sit in on pay reviews with your boss when you work for yourself. When you work for yourself, you are solely responsible for your earnings. This may provide an incentive to work harder because there may be a stronger link between your efforts and earnings. You could make a lot more money by working for yourself.
5. Select the people with whom you will collaborate
Do you dislike your boss? Do you feel uneasy around your coworkers? When you work for yourself, you don’t have to deal with these issues and have some control over who you associate with. However, some clients or customers may need to be more reasonable and demanding. Of course, you don’t have to hire them if you have the financial means to pick and choose who you want to work with.
6. Do what you enjoy
Instead of being assigned dreaded tasks that make you feel undervalued by your boss, you can do what you believe you do best and are most passionate about. You can pursue more rewarding tasks that best utilize your skills. Keep in mind, however, that every job can involve mundane tasks from time to time, whether you’re an employee or your own boss. Nonetheless, according to a Vistaprint survey, self-employed people are more satisfied with their jobs than employees.
7 disadvantages of being self-employed
For many self-employed individuals, the benefits outweigh the drawbacks, but it is still important to be aware of the potential disadvantages of working for yourself.
1. Time spent not working is time spent not earning
When you work for yourself, time is money, and you may find that your enjoyment of time off is tainted by thoughts of how much you could earn. Working long hours is especially important when you’re just starting out and trying to build a customer and client base. “Starting your own business may require start-up funding, an idea, long hours, resourcefulness, and hard work,” according to the National Skills Commission. In the end, you may end up working more hours than you did as an employee.
2. The possibility of inconsistent pay
Earning an irregular income as a self-employed person is common. There may be times when you are extremely busy with clients and other times when you are not. The irregularity of your pay can make settling regular bills and loan repayments difficult. As a result, managing your finances and sticking to a budget can require discipline. Irregular pay can also make obtaining a home loan more difficult, though there is a good range of competitive low-doc loans available in the market. Canstar can help you compare low-doc loans and learn about non-conforming home loans.
3. Keep your books
Accurate bookkeeping is required for all small businesses and can consume a significant amount of your time. It can also be stressful if you need to learn how to do it correctly, but there are many low-cost software packages suitable for small businesses that can make keeping good records easier.
4. There is no sick pay and no annual leave
One of the most significant disadvantages of self-employment is that you will need access to employees’ paid benefits, such as sick leave and paid annual leave. When you’re your boss, if you’re not working, you’re not earning, making it difficult to recover from illness and limiting your ability to take long vacations.
It can be lonely for self-employed individuals who work entirely on their own. You may miss teamwork and be able to share triumphs and frustrations with coworkers. Without the get-togethers and social events that a company provides, you may become more of a hermit, completely absorbed in your work.
6. There are no superannuation payments
As an employee, your employer must contribute 10% of your base wage or salary to super each year, which will rise to 12% by 2025.
Your responsibility as a self-employed worker is to build your own retirement nest egg. This entails making substantial contributions out of your own pocket, which necessitates self-control. According to an analysis conducted by the Association of Superannuation Funds of Australia (ASFA), while some self-employed people are on track to secure comfortable levels of retirement income, the majority will need help. Self-employed men and women of all ages have lower balances than employees; worryingly, one in every five self-employed people has no superannuation.
To summarise, working for yourself entails having the discipline to save money for your retirement. When your business is struggling, it can be tempting to reduce your superannuation contributions.
7. You must plan for taxes.
Setting money aside to pay income tax is an important part of being self-employed. As an employee, your employer will typically deduct income tax from each paycheck. When you work for yourself, you must save enough money to cover your annual income tax bill.
8. Success is not guaranteed
Being self-employed can be challenging. It’s about taking the good with the bad and making the most of the opportunity to do your own thing in a job you enjoy. Not everyone who tries their hand at self-employment will be successful in the long run, but even if everything fails, will you be sorry you didn’t try? After all, there is always some degree of uncertainty, even in a regular salaried position as an employee.
Wrapping It Up
Self-employed people can do many different things, but usually, they are very good at one type of work. People who work for themselves can be writers, tradespeople, freelancers, traders/investors, lawyers, salespeople, and insurance agents. Starting a self-employed business can be extremely rewarding.
But some problems come with being self-employed. On the surface, being your own boss sounds like a dream. However, it takes a lot of hard work, dedication, and focus, and there’s no guarantee of pay, benefits, or success in your field.