For the past week and a half I’ve been in the middle of the desert, far removed from internet access, mobile phone service, electricity, running water or sewage. (Sorry if I haven’t responded to your comments yet!)
Regular readers to this blog might notice I’ve taken a huge number of trips this year: I spent one month in New York this past spring, two weeks in the Caribbean this summer, and now I’m camping for 12 days.
I balanced these “big trips” with lots of “mini-vacations” — I visited New Orleans three times this year (January, March and June), where I picked up a few lessons about time management, and I’ll be in New Orleans again in September just before I fly to Chicago for the financial bloggers conference.
I travel frequently thanks to the fact that I work for myself: I never ask for time off. My time belongs to me, and no one rubber-stamps how I spend it.
Unfortunately, the fact that my time off is – allegedly – “unpaid” startles too many people.
The concept of “paid time off” – if you’ll allow me to be blunt – is one of the greatest deceptions of modern life. I’ve heard countless friends say: “Can you imagine? I get paid while I’m on vacation!”
Well … no, you don’t. (Sorry to break the news!) You get paid a flat rate for committing 49 to 50 weeks per year to working for your boss. You boss “budgets” that flat rate into a series of payments that flow to your bank account at regular intervals.
You’re not “getting paid to go on vacation.” You’re getting paid to work. Period. Your boss schedules these payments in regular installments. Paid vacation is an illusion – a clever ‘marketing’ ploy that makes employment seem more desirable.
Doesn’t “paid vacation” sound more appealing than “getting paid in installments for work I’ve already done”?
RETIREMENT IS ALSO AN ILLUSION …
The same, by the way, is true for “retirement benefits.” Some people believe that a drawback of being self-employed is that you miss out on retirement benefits, such as a matching 401(k).
But pause and think about that for a second: fundamentally, a matching 401(k) is simply a “bonus” that you receive for participating in the retirement program.
Too many people think: “I get paid $50,000 a year plus a 401(k) employer match of up to 3 percent, plus 3 weeks paid vacation.” This is the wrong way to view your compensation. It’s too vague about what your time is worth.
Try conceptualizing your pay this way: “I earn up to $51,500 a year in exchange for working 49 weeks per year.”
As a self-employed person, you’re not missing any benefits – you’re simply responsible for earning enough money to match, or beat, what you earn at a conventional job.
If you earn $50,000 at a conventional job — Can you earn $51,500 working 49 weeks each year for yourself?
If you earn $40,000 at a conventional job – Can you earn $41,200 working 49 weeks each year for yourself?
Earning $60,000 at your job? You need $61,800 working for yourself. Earning $30,000 at your job? Earn $30,900 working for yourself. You get the idea.
WHAT I SAVE ON GAS, I SPEND ON HEALTH CARE
To be fair, there are several disadvantages to being self-employed: no secure paycheck, no discounted health insurance, and no vibrant office full of co-workers telling jokes and trading gossip (which is what I miss the most).
The main drawback is the risk. Some months you’ll get paid well, other months you’ll make next-to-nil. Live below your means and you’ll be fine.
But health care is also a downer.
You can value your company health insurance as part of your “salary.” If your company pays your $250 health premium each month, then your goal as a self-employed person is to earn an additional $3,000 annually to compensate for this.
Unfortunately, buying your own health insurance is much more expensive than company group coverage – that’s just the nature of health care in America. There are two ways to deal with this:
#1: Raise your self-employment goal of bumping your pay from an extra $3,000 yearly to an extra $4,000 to $5,000 yearly.
#2: Figure out how much you save by not commuting to work or buying fancy office clothes (I blog in my pajamas). Add that to your health bills.
Let’s look at a conservative scenario that imagines you live close to your office and you drive a fuel-efficient car.
If you drive a meager 5 miles to your office each day – 10 miles roundtrip – this puts 2,450 miles on your car each year (10 miles/day x 5 days/week x 49 weeks/year).
At a low estimate of 25 cents per mile (this is less than half of the IRS cost-per-mile estimate of a whopping 55.5 cents per mile, including depreciation, but we’ll assume you drive a super fuel-efficient car that has already depreciated), this short commute costs you $612 a year.
Add another $600 for buying work-appropriate clothes, and you’re paying $1,200 a year – an extra $100 a month – for the honor of being someone else’s employee. Save this money by working for yourself and apply it towards your inflated health care costs.
The Bottom Line: Your job ‘benefits’ are worth less than you might think. The biggest benefit to your job is reducing the risk of not earning enough; the biggest drawback is eliminating the possibility of earning — or traveling — more.
Please note: I’m out of town, so sorry if I don’t approve or reply to your comment until I get back.
Self employment allows you to the freedom of earning more than you did. More importantly, it gives you freedom! That is a huge benefit!
@krantcents — Freedom is paramount. I set “value-oriented” career goals, and freedom tops that list. I actually loved my job — my ‘employed’ job. Many people have stories about quitting jobs they hate. I quit a job I loved, because it didn’t give me the freedom I craved.
All of the factors that you mentioned have to go into the determination of total compensation and lifestyle. We all only have 24 hours per day to work with. It is up to us to make the most of it.
@cashflowmantra — ‘total compensation’ is a very telling phrase. How much you earn isn’t just your salary; it’s your ‘total compansation’ …. and as long as you can fairly assess your compensation, you can make better comparisons. You’ll also know what to aim for if/when you decide to go into biz for yourself.
Fascinating post Paula.
I like to tell people that their employer buys their life. And one day, everyone will die. So if you love what you do….no problem. But if you hate your job, then you really are selling your life for a silly paycheck.
@Andrew — absolutely!! I like that saying — “your employer buys your life.” It’s absolutely true. Life is too short to spend it doing something you hate.
I have a short list of jobs that I’d be willing to “sell” myself into, not because of the pay but because it would provide an experience and education that I couldn’t create by working for myself …. e.g., being an editor at a magazine in New York. Short of that, it’s self-employment for me!
Howdy! Back to your post’s title.. how much do you earn?
@Financial Sam — LOL! Enticing headline, huh? A lady never
kisses and tells…. er, earns and tells.Congratulations on being self employed. It is something I’m striving for, but I make quite a bit at my day job and it will be very hard to replace that income, let alone the benefits. Plus I can work from home, so I get lots of underwear work and gas savings already.
@Kevin — hooray for working in your underwear!! I’m almost certain the world would be a better place if every major decision could be made while wearing sandals and a 10-year-old Smurfs T-shirt.
I just looked through our company benefit renewal plan the other day, and realized the amount I’m paying for group benefits for a family of four is actually getting pretty close to private insurance premiums. I’ve always assumed the difference would be way more, which is why I so often discount self employment. But I’ve never put that assumption to the test.
Thanks for this article. It’s so important that we think outside of our own myths.
@Lindy Mint — You know, I had that same experience when I worked for my father’s company. He didn’t offer health insurance — its a small company that consists entirely of our extended family members (uncles, cousins, etc.). When my boyfriend and I started working there, I looked into seeing if we could start our own “group plan” through the company. Turns out, each of us buying individual health insurance is cheaper than the “group plan.”
Granted, that might be partly because its a small company — the ‘group plan’ would only apply to 4 employees plus their immediate families. Still, it was eye-opening. You never expect individual health insurance to be the cheaper route … but in this case, it was.
I earn far more at my day job than I could dream of earning online right now. But I’m starting out small, because who wouldn’t like an extra $100 a month even? When I get closer to being able to pay myself as well as my employer does, I might consider making the switch
@Kellen — I earned about 50% of my “employed” salary through freelance work before I made the leap to full-time freelancer. What inspired me to make the leap was seeing that earning 50% of my “employment” salary took far, far less than 50% of my time. My hourly rate, in other words, was higher.
but if you have a pension…. that’s a benefit you can’t really swap for…
@SCG — Props to anyone who has a pension!! The only people I know who have a pension are teachers and other government workers (and most teachers don’t work for the money, they work for the love of the job). My dad, a professor, was lucky enough to get a pension through the state teacher’s system — otherwise his retirement would be in trouble without it. I’m certain I’ll never have one, even if I return to the traditional workforce.
Great article putting things in real perspective
I have had very similar thoughts along these lines about what reality is and how people perceive things. Self-employment has many benefits, and it requires strong budgeting skills – keeping living expenses low definitely helps.
I worked or a company where you “bought” vacation time. You told them how many weeks of paid vacation you wanted (up to a limit) and then they reduced your weekly pay by that amount over the course of the year.
When I had my own employees I didn’t pay for vacation and some people complained. I asked them how many weeks of vaction they wanted and then figured out much less per hour I would pay them in order to cover their time off. Not one person took me up on the deal… and they never complained about it again.
This is so interesting! I have no idea that my leave is just an idea that I get paid on a vacation instead it’s already included on my days of work. I should also start working like you did. Do you have any job suggestion?
@Nicole — Self-employment isn’t for everyone — only you know, in your heart, whether its the best choice for you or not. I encourage everyone to consider it, but ultimately the drive should come from within.
As to what to do … that depends on your passions. Pick an interest: writing? teaching? cooking? caring for children? and build off that interest. This is a highly personal choice.
In the meantime, here’s a post on 3 ways to earn side income without getting a job.
lol.. I love this post! I love how you calculate everything out and how you really do think ‘outside the box’. Its true.. people work for their boss and they make money on a flat schedule. Ive also done that little math problem of how much I save from gas, comparing to my last job.. I save $2400/year from not driving as much as I would have, and that’s just on gas, not calculating oil changes, tune ups, new tires, etc.
I love being self employed.. it has its negatives like you stated, health insurance. My first 2 years of being self employed I had no insurance, but now that my wife is working I get to be on her insurance
Soon I’ll be supporting her also and we will be back to square one.. us paying for our own health insurance.
@Ben — Congrats on being self-employed and on making it work!! I wrote this post after I started getting jealous of friends with guarenteed paychecks … I needed to remind myself that, despite the dry spells, I’m still making the best choice for me! Framing employment in terms of “total compensation” helps a lot; its a reminder that we’re not really missing out on any ‘benefits.’
Wow that’s so good. I have been there many times! Getting jealous of my friends who have a steady income and guaranteed checks, and not to mention that ‘all’ of their taxes are paid throughout the year. The fact of the matter is, I still make way more money than them, it just comes randomly throughout the year. This has been a great post for me.. puts everything back into perspective for me and my family.