There are financial perks of being self-employed like being able to deduct expenses but I have found that there are also many problem areas. It is important to consider both sides before deciding to be self-employed. There are several areas I wish I had considered before making the move.
No Paid Vacation or Sick Time
When you work for yourself, there is no employer who is going to pay you when you want to take vacation or when you get sick. This means that you need to plan ahead financially for vacation and sick time. I have a hard time doing this so I often simply end up earning less during a month where I take vacation or when I am sick. This means that my already tight budget becomes a little slimmer that month so I have to cut from non-essential budget items. It was much easier when I worked for someone else because the time I took for vacation and for sick time were paid for so my budget never suffered.
When it comes to insurance of almost any kind, it is cheaper through an employer. The first time I became self-employed, I had to buy health insurance for myself and my daughter. It ended up costing me three times the amount that I paid through my employer each month. My employer also had short-term disability, long-term disability, and life insurance coverage that I received at no cost to me. When I became self-employed, these types of insurance were simply not in my budget.
When you work for someone else, they take the federal, state, local, Social Security, and Medicare taxes out of your paycheck so you never end up seeing that money. When you are self-employed, you have to set money aside to pay for these taxes. For federal, Social Security, and Medicare taxes, you have to make sure that you do not owe the IRS more than a certain dollar amount (typically $500) in any given quarter of the year. If you do not make accurate estimated tax payments to them quarterly, you can end up having to pay a fine. Getting accurate figures for this has been the most challenging area for me. I overpaid one year and underpaid last year.
I wish I had factored all of these areas into the equation before I decided to become self-employed. It would have helped me plan out my financial life better and I would have been better prepared for the financial realities I faced.
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