Are you really ready for Self-Employment?
Hey guys, here's a little piece by one of our very own Real Life Traders, Pat K. She was inspired by a blog we sent out, and put this together. We hope you enjoy it!
Most people have NEVER been self-employed and responsible for themselves. When they have had little sidelines, they have either had continued support of parents or a spouse, or done so while they are still receiving a paycheck. Believe me, self-employment can be great, but it presents a whole NEW and sometimes unexpected set of challenges. As the piece says, having been self-employed for a long time, I can tell you that experience is a great teacher. Sometimes the lessons that you learn are not the ones you expected. Please, read on! _______________________________________________________________
While we are commuting to the city, fighting the traffic and the parking, it is easy for us to dream that someday soon we can quit our job and trade for our living.
We tell ourselves that our clothing costs, our lunch costs, our gas costs and a myriad of other expenses will vanish. We think of how much we will save and we imagine that employing ourselves as real life traders will be mornings lingering over coffee in sandals and sweats and propping our feet up in front of the wood stove with double marshmallow hot chocolates as we wait for our trades to trigger
As someone who was self employed for over 40 years, I would like to bring a glimpse of reality to these golden visions. Most of the time, I was running at least two and sometimes three completely different business ventures. There is some security in numbers. Unlike when you work for someone else and are laid off, there is no unemployment compensation to tide you over when things are tough. You have only the other enterprises to fill the gap.
When you employ yourself as a trader and quit your day job, you will enjoy the privilege of paying twice as much in the social security tax. Why? Because currently, unless you are an independent contractor, you pay only half of your social security tax, while your employer pays the other half.
Do you enjoy spending your tax refund in the spring? Forget that. Now, you get to cough up hefty payments on your profits; payments which you have saved all throughout the year. You haven't saved enough? Hmmm, mama IRS can be VERY difficult. Need to borrow to cover your short fall? See below in the section about a new car. And, now you will have to repay the loan AND be disciplined enough to save for NEXT year's taxes...double pain.
When you are your own boss you will be responsible for ALL of your health insurance costs, and because you will no longer be part of the 'group' those costs will either be much higher than what you are currently paying (if your employer is not paying those now) or the deductibles will be significantly higher and the services far fewer....or, goody goody . . . all of these!
Do you now get paid vacation? Do you get two weeks to go to the beach and forget about your worries while knowing that your paycheck continues? You guessed it . . . you can go away and forget about your troubles, but now you will have to SAVE ahead of time in order to have the funds you need to survive in the weeks you are tanning and splashing.
Sick days? Forget it. You will be dragging yourself to the computer while sipping bowls of chicken broth (like I am currently) while you struggle through the next upper respiratory infection
Does the company cafeteria have good lunches or do you currently go out to eat with co-workers? Welcome to lunch alone . . . lunch that you must shop for and prepare. Sure, you can put a crockpot of delicious food together for dinner, and eat a sandwich for lunch, but you will have the dishes to wash to prove it . . . and the extra grocery purchases.
You want to get a new car when your current car loan is paid off? Hmmmmm, now, you need a couple years of tax forms to prove you are able to repay that loan . . . no longer do you just bring your most recent pay stub . . . and guess what, it sounds simple but it isn't
And while we're at it . . . you will likely find some of your charge cards will not be renewed when they expire, or will have your balances lowered, even if you have made all your payments on time. Why? 'We don't know what your income will be in the years to come'. 'You have insufficient history of self-employment to make a determination'. And when your cards are not renewed? You guessed it, your credit score will be lowered.
Forget the short form for your taxes. Now you will be paying a tax preparer to fill out schedules and forms...and you are more susceptible to an audit. You haven't lived until you've dragged yourself to one of those! And, woe to someone who does not keep receipts and documents that are necessary for these little events.
And now the one that really bites . . . your retirement plan. Do you, like many, have a plan where your employer matches your contributions? Bye bye . . . what does that amount to for you? And you swear you will contribute to your retirement in a disciplined way. Forget it . . . the statistics show that is not likely to happen. AND, you will have to contribute your amount AND your employer's amount in order to keep up with your current level contribution.
So now you will cut costs by NOT buying that new vehicle (all those miles saved) and the full warranty expires . . . welcome to the costs of maintaining a vehicle outside of warranty.
Now, let's approach the HUMAN costs of trading for a living. Do you have kids or aging parents? Guess what. . . you are now available to run them to appointments, volunteer for projects for your clubs, and field the nasty comments when you decline. After all, YOU are free to reschedule your time, while others (who are secretly envious of your new 'freedom') try to impress you about how they simply cannot do these essential things. If THEY had to do them they would likely not be essential, but now that someone who 'doesn't work' is available, they suddenly become essential. And YOU are not willing to help.
And then, heaven forbid, you decide to go back to work after the reality of self-employment settles in, now you have a hole in your resume . . . showing you were willing to leave your former employer . . . so now you are viewed as 'too independent' and perhaps even 'undependable' or 'too old' . . . and that 'too old' starts in your 40's...and you are giving up your seniority
If you decide to take the leap you deserve a badge for bravery. My suggestion is to find a way to keep a lifeline. Consider a transfer to an office closer to your home. Team up with another employee and pitch the possibility to your employer that the two of you will work part-time to fill ONE full-time position. Are you eligible for a sabbatical? Take a couple college courses and take a one-year sabbatical. You are increasing your value as an employee while giving yourself an opportunity to have the time to trade the markets
Whatever you decide to do, wipe the rosy view from your vision and deal with the gritty reality. It will be a slog. Are you willing to do what is necessary and make the adjustments that are required to successfully transition to the personal responsibility required for self-employment? Because if you are not, believe me, that alarm clock and commute are nothing compared to what you will face.
- Pat Kauffman