Considerations When Making the Leap to Self-Employment

Working for yourself may be your dream; it is certainly the dream of many who imagine not having a boss looking over their shoulder, being able to set their own schedule and spending all of their working time working for themselves and their own business.  If you are a writer or artist, being able to make enough from your craft truly can seem like a dream come true.

However, many people often think of the perks of working for themselves without realizing the significant drawbacks.  If you are considering making the leap to self-employment, you need to be aware of these downsides:

  1. Health insurance.  Unless you have a spouse who can add you to his or her health insurance, you will need to find insurance to cover yourself.  This can be very expensive, so you will want to shop carefully.  You can call each health insurance company individually yourself, or you can go through an insurance broker, or a group such as The Health Insurance Group.  This one expense will probably be one of your most expensive as a self-employed individual.
  2. Disability insurance.  When you have an employer, they offer disability insurance in addition to paid sick days.  When you are self-employed, those perks disappear.  Would you or your family face financial difficulties without your income?  If the answer is yes, you need to buy disability insurance.  Yes, this can be expensive, but you need to protect yourself in the event that you are unable to do your job.  One car accident could render you unable to do your job for several weeks or months, if not longer.
  3. Retirement contributions.  Many employers automatically deduct your retirement contributions and may match your contributions.  When you move to self-employment, you will want to make sure to set up a retirement fund for yourself and fund it, ideally fully.
  4. Vacation time.  If you think it is difficult to take a vacation when you are employed by someone else, imagine trying to take a vacation when you are self-employed.  It is hard not to think that any time away from work is time away from growing your business.  However, a vacation is necessary to rejuvenate and may offer you the chance to come back refreshed.  Make sure to set aside money so you can afford to take time off; also, make arrangements for someone else to cover your job if need be.

Being self-employed can be a dream come true, but to be successful, you must consider not only your work itself, but how to supply your own fringe benefits including health and disability insurance, retirement savings and paid vacation time.

Post by Melissa 

5 Responses to Considerations When Making the Leap to Self-Employment

    • I think I am going to find myself self employed eventually, but I am with you…way too cautious to want to deal with any of these considerations

  1. i would add, that with a job, once you punch out, you punch out. when you are self-employed, there is no off button.

  2. @investlike1percent: Holy mackerel, is that the truth!

    For the self-employed, a small business is like a small baby: it occupies your attention 24 hours a day. If you’re not working on it every waking moment, you’re thinking about it. It’s very hard to stop.

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