Are you tempted to flee the corporate world, but are worried that self-employment is too risky in the prevailing economic climate? Or do you perhaps wonder whether you will be able to motivate yourself without a line manager breathing down your neck?
I faced a similar dilemma some years ago. However, I eventually took the plunge after my financial advisor did the Maths and confirmed that self-employment was a viable option for me. I have been freelancing successfully for ten years now, and have no regrets.
Facts to think about before you leap
Before you consider self-employment as an alternative to working for someone else, consider these important facts:
- As the head honcho and chief bottle washer, you will shoulder all the stresses and responsibilities on your own.
- You will definitely bid farewell to a fixed monthly salary, which can be scary.
- Before you fully establish yourself in your new work, you are likely to experience an initial dip in earnings. Money may not come in as predictably as it does with a permanent job.
- Your current employment package probably includes a pension fund and medical aid, to which your employer contributes. With self-employment, employer contributions will end. It is therefore essential that you put a portion of your monthly earnings aside to compensate for this, and to enable you to continue your retirement planning.
- Freelancing – particularly in the publishing industry – is all about feast or famine. This is likely to be true of other professions as well. There are months of the year when, like Jack Sprat, work is lean and little money comes in. Fortunately, the drier months are counter balanced by busy, lucrative ones.
- To accommodate the ebb and flow, you should ideally have sufficient financial reserves to see you through the tougher times. If not, there should, at the very least, be a second breadwinner in the household whose income will cover essentials such as food, school fees, car repayments, the mortgage, medical expenses, and so on.
- Initially, you will have to outlay a considerable amount of money to buy the things you will need to enable you to work. These items might include a car, if your job entails visiting clients, a computer, a printer, telephones and Internet connectivity, office furniture, stationery, and so on. In permanent employment, your company or boss provides all of these.
- Office space is another important requirement. You will have to convert a room in your house into an office, ideally somewhere away from the hubbub of family life.
If you are a technophobe, you must decide who you will call on at short notice if the Internet goes down, your computer freezes or the printer jams. Kicking the equipment won’t help. Trust me, I’ve tried.
Tax time hits you twice a year
- As a self-employed person, you will no longer be a regular taxpayer from whom the revenue service deducts Pay As You Earn tax or PAYE. In my case, this is the South African Revenue Service (SARS) . You will become a provisional taxpayer and do your own tax (or get someone else to do it for you). You will pay tax to SARS twice a year – in February and August.
- The plus side is that you can deduct your home office expenses from tax, along with a long list of other things.
- The downside is, if, like me, you have no system whatsoever, tax time can be extremely stressful.
Tax deductible items
A range of tax-deductible items are listed below. (Note that the list is by no means exhaustive, but is relevant to the work I do.)
|Fees and charges||Accounting fees, bank charges, bank interest|
|IT equipment||Consumables, hardware, software|
|Sundries||Entertainment, refreshments, gifts, donations|
|Home office costs||Alarm, armed response, domestic worker, lights, electricity, rental, insurance, office maintenance, interest on bond, soft furnishings, office assistant|
|Resource materials||Magazines, subscriptions|
|Medical expenses||Medical expenses, above a certain percentage, not covered by medical aid|
|Motor vehicle||Insurance, licence, maintenance, parking, petrol, repayments/purchase|
|Postage and stationery||Postage, printing, copying, courier costs|
|Professional development||Continuing education, work-related courses|
|Retirement annuity||Your monthly contributions|
|Telephone||Land line, cellphone, Internet, website|
|Travel||Local and overseas|
Self-employment: Pros and cons
As with everything, there is an upside and a downside to self-employment. I’ve itemised the most relevant ones below.
- To establish a name for yourself, you have to tout for work. This is a soul-destroying task. However, once you have established clientele, it becomes less arduous.
- You won’t have people in the immediate vicinity to call on for help or advice, or by whom you can run ideas.
- There is more to worry about, from whether you’re earning enough, to whether your rates are competitive, and when the next job will come in.
- There is a temptation to take on too much work, for fear of not getting any more. As a result, you can end up working harder and burning out.
- It becomes difficult to separate ‘home’ and ‘work’ as they happen in the same space. As a self-employed person, you must learn to be strict with yourself. Deadlines notwithstanding, it is best to close your office door at a set time every day, for your own health and sanity.
- It is easy to fall behind on new trends and technological innovations.
- Paid leave comes to an end. You have to budget for holidays and public holidays become expensive. With no work, there is no pay!
- Training courses are no longer provided free of charge. You have to fork out for your own training.
- The fridge is a constant temptation and is definitely not your friend.
- If you have children, school holidays can be long and stressful. While you may be ‘physically’ at home, you are ‘mentally’ at work. Younger children may find this difficult to understand.
- People, even close family and friends, don’t fully understand what you do. They tend to regard you as a stay-at-home parent who does not work very hard.
- It is more difficult to apply for a loan or bond if you are self-employed than it is on a permanent salary as the banks see you as a financial risk.
- If you are intent on climbing the corporate ladder, you can’t do this from home.
Self-employment can get lonely. If you have a sunny disposition, and enjoy other people’s company, it might not be for you!
You are your own boss and can make all the important decisions. This ranges from determining your own working hours, to deciding how much work you want to take on.
- It is possible to achieve a better balance between work and family life.
- It is easier to fit exercise into your day.
- You no longer have to put in leave to look after a sick child, watch a cricket match or take a mental health day.
- Peak-hour traffic becomes a thing of the past. The time it takes to get from your bed to your office is short. In my case, it’s less than a minute.
- Your dogs, cats, budgies and bunnies can keep you company.
- Comfy PJs, track pants and slippers become your attire of choice. This way, you spend less on clothing because you don’t need to dress to impress.
- There will be no more obligatory office Christmas parties and no more cheap office coffee.
If you are shy and introverted, bordering on anti-social, hallelujah! What are you waiting for?
Acknowledgements: Photographs from Bigstock: Self-employment sign, Gustavo Frazao; Surprised emoticon, Tarchyshnik Andrei; Happy emoticon, ober-art