Self-employment is way on the rise. Thanks to the internet, it’s become cheaper and easier to start a business, while many young workers are signing up to the ‘gig economy’ that sees them working as freelancers for larger companies. While this offers a lot of freedom and flexibility, it also has some significant financial risks that can make the many self-employed workers out there vulnerable.
You will get really sick of sick days
When you start working for yourself, the prospect of a sick day is something to be feared. Most people err on the side of caution with sick days, but there is always that occasional temptation to take a day off in the year or at least the safety in knowing that most employers are going to have protections so you’re not left bereft. If you’re self-employed, such as a freelancer, there is going to be no money at all coming in when you have to take sick time. You should take the time to learn about offers from Captain Cash and other ways to plug up the cash flow leak for those occasional days off. However, you need to also look at genuine income protection insurance in case someday you should find yourself seriously sick or injured.
Work can and will dry up
If you’re a freelancer working with a larger company, you will largely be aware of the risk that you can simply stop getting paid for work with very little warning. Ditto, if you’re starting your own business, things will be slow to begin with and you might occasionally lose one of your most valuable clients. The College Investor offers great tips on diversifying your income. For the self-employed, this means not only looking into investments as a potential revenue source, but also maintaining a broader range of clients so that losing any one doesn’t have to be the end of the world.
Taxes can get tricky
If you’re working as a freelancer, taxes can be simple enough since you might not be making lots of investments in your work. If you run your own business, however, it’s best to keep taxes simple by separating your personal and business finances, even registering the business as a separate entity. Otherwise, it can be a lot harder to prove which expenses are business related compared to the personal costs, and you can miss out on tax breaks that can save you a lot of money.
You have to plan way, way ahead
If you want any kind of retirement fund worth talking about, you have to start planning for your pension yourself. As with all major savings, the sooner you get started, the better. Like we mentioned above, diversifying can be key to safety here. Don’t just invest in a pension for when you’re much older, but budget savings into investments like property so you can guarantee yourself a rental income in future, too.
Yes, there are a lot of benefits to running your own enterprise, including more control over the money you earn. But if you’re going into the world of self-employment, you have to be ready for the risks, as well.