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The Challenges of Independence

Marc Tracy bizbox.slate.com

2 Comments

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June 16, 2009

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“Let me add that I make at least two or three ...”

PRESTON SMITH

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To someone who simply can't stand the thought of working for someone else anymore, striking out on your own is the most obvious and easy decision to make in the world. But the fact remains that in many practical ways, owning your own small business is much more difficult, trying, and challenging than working for someone else. Which is not to say it isn't worth it! But it is to say you should be wary of the full implications of opening your own shop.

The Wall Street Journal does an admirable job today laying out those implications--admirable both for its thoroughness and also for its tone, which points out, "higher expenses and other costs come along with your newfound liberty," while acknowledging, "That doesn't mean you shouldn't try. There are few more gratifying accomplishments than making it on your own."

Briefly, the Journal says owning your own business could mean:

Higher taxes. The self-employment tax essentially sees you paying both sides of the payroll tax.

401(k) mishaps. The bevy of deductions you'll be inclined to take could lower your taxable income to the point that you are unduly restricted in what you can contribute to a retirement plan.

Mortgage obstacles. Since lenders will look at your earnings after expenses, you could find yourself turned down for mortgages you know you can handle.

Insurance costs. You'll need to purchase insurance for your business and health insurance for yourself.

And this is all before we even talk about the logistical nightmare that is known as having employees.

All in all, the article estimates that if you want to end up as an independent businessman with the same amount you take in as a wage-earning employee, you should plan to gross 20% more. But maybe that's not discouraging--maybe you see that as a challenge. In which case, you're probably a natural entrepreneur anyway.

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Marc Tracy, Article, insurance, taxes, independence, mortgage, obstacles

What do you think?

Join the conversation ( 2 )

PRESTON SMITH 2 years 7 months and 22 days ago

Let me add that I make at least two or three times more income than I ever made working on somebody else's payroll. Sure, I now have risk, worry about paying employees and am always concerned about making all my clients happy. But I absolutely would not do anything else. I'm nearly 50 years old, worked for myself the last five years. These have been the best years of my life.
DANIEL ZUKOWSKI 2 years 8 months and 0 days ago

There are other benefits as well, to quaility of life. I find myself healthier, better able to manage my time, and less stressed out. I have more time to be creative. And I've been doing this for nine years.