Very recently I left what can only be called ‘a job for life’ to work for myself. I am now solely reliant on myself. I support myself due to the business I run, I have no boss, I have no daily timetable, I don’t need to be anywhere at 9am. This is financial independence to me. However, I am not truly financially independent yet.
The Maths behind going Self Employed
I left what can only be described as an easy job. I was able to save £6-700 a month after paying all my bills (Including my mortgage), I had £412 going into my pension each month and went on nice holidays each year. All at the age of 24. Now I have no guaranteed income, I have no holiday pay, I have no money going into my pension. So how could I be better off?
Each month I took home £2380 after pension contributions of £412. This meant technically each month I am getting £2,792, annually £33,504. However I don’t have access to £4,948 of that. That £4,948 actually decreased last year by 0.3% to £4,749 and then taking off the management charge of 0.5% my pension was worth £4,502.
Where as if I put this towards the purchase of holiday lets at a return of 43% it would be worth £7,075. Take this over the next twenty years and you can see why this package isn’t looking so good. Admittedly this was an awful year for my pension but even so, with a 5% return I would be worse off.
Now let’s consider my take home pay. I took home, £2,380 or £28,560 annually after tax and national insurance. Well each of us now have a dividends allowance of £5,000 that is tax free, I will take advantage of this, something I couldn’t do in my current job.
Now I work for myself I can offset part of my household bills, my mortgage interest, my car mileage, my insurances, entertaining contacts, hotel bills against my income. Now I can. If I earnt exactly what I do now self employed I would be £8,960 better off. According to my business plan, I will be better off annually £19,120 a year after two years. Two years. Not ten years, not fifteen years. This is a conservative estimate, and no doubt this could be a lot better.
What it costs you to work
The costs of employment are things you take for granted, things that you just do without thinking about it. On average work related costs add up to £3,150 a year, what if you could wipe these off, get rid of them. You would do it in an instance.
The main cost that barely anyone talks about is commuting. I am writing this blog post following my 14 minute journey to where I base myself during the week.
Currently, over 3 million people in the UK spend over two hours commuting to work each day. That is 10 hours a week, 470 hours a year (Based on 5 weeks holiday). If you charged yourself for every hour you commuted you would be in trouble. Based on earning £30 an hour (What I earned whilst employed for the last 12 months), it would cost you £14,100 to commute every year. Imagine if you could use that time wisely, use that time to earn more money. Imagine if you could put that time to better use.
If you start your own company, or go self employed you can work from home, you can get an office where you want you can do what you want. Becoming self employed could save you £14,100 instantly. If you used that time to work for yourselves and on average you earned £10 per hour you would be £18,800 better off.
Why it is so easy to go Self Employed
I say this throughout the blog, you can earn money tomorrow if you go self employed. You don’t need a physical office to earn money. Each and everyone of us could stay at home tomorrow and earn money.
There are so many ways you can earn money online. The business I launched, launched without any physically offices, we don’t own a single piece of furniture. I launched with a website, a brand and an attitude that I will go out there and win business because I believe in what I can offer.
Don’t believe you can start your own business tomorrow? Read my article on ten businesses you could start overnight.
The cost of doing this? Well I did it for £142.20. That’s it. Of course you could spend more money, and I have done this extremely cheaply and in months to come I will expand on this massively and no doubt spend more money. However, it is physically possible to start a business for less than £150.
Why I really became Self Employed
Despite all these logical argument about why you should go out on your own and start your own company. There is one emotional argument that won me over.
Why work for someone else when I can take care of my own destiny?
I hear you all screaming, well this is easy when you have thousands in the bank and no mortgage to pay for. I don’t have thousands in the bank and I wish I had paid off my mortgage (Very close to paying it off!). I have no guaranteed income, no huge client bank to take with me. So why do it?
Because I believe in myself, I believe that if I continue to do what I am doing today that I will be better off financially, better off physically and in a position where I can do something that I enjoy.
This is the key, what is the point spending twenty years working towards financial independence if you are going to waste those twenty years doing something that doesn’t make you want to get up each morning? I am sure some of us are lucky enough to earn hundreds of thousands and have the ability to only work for ten years, but unfortunately that isn’t likely for most of us.
Let me tell you a tale. A tale that I am sure a few of you have heard before.
An American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.
The Mexican replied, “only a little while.” The American then asked why didn’t he stay out longer and catch more fish? The Mexican said he had enough to support his family’s immediate needs. The American then asked, “but what do you do with the rest of your time?”
The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siestas with my wife, Maria, stroll into the village each evening where I sip wine, and play guitar with my amigos. I have a full and busy life.” The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually New York City, where you will run your expanding enterprise.”
The Mexican fisherman asked, “But, how long will this all take?”
To which the American replied, “15 – 20 years.”
“But what then?” Asked the Mexican.
The American laughed and said, “That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions!”
“Millions – then what?”
The American said, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siestas with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”
I am sure we can all relate to this. We have all heard stories like this, and although this isn’t my attitude this is why I work for myself. I truly believe that I am in control of my own destiny, if in the future I want to pick my children up from school I can. If I want to work until midnight to build my own business, I can.
Financial Independence in the UK is all about working as hard as you can as quickly as you can to retire or to stop working somewhere you hate.
Why? All you are going to do when you stop working is enjoy yourself, why not enjoy yourself each and every day whilst working towards Financial Independence. It baffles me why people stay stuck in a job they hate!
I am truly in control of my own destiny. Each and every one of you can be. Don’t know where to start? Well send me a message using the contact me and I will listen to every idea you all have and would be happy to help you all.
So to summarise:
- I am better off financially working for myself
- It costs me less to work for myself
- I can work when and where I want
- You can start working for yourself tomorrow
- You could save £14,100 in time wasted commuting
- You are in control of your own destiny
This is just a brief summary. Every one of us different, everyone has different aims in life and these may not be for you. I love it, and wouldn’t change it for the world. Why not join me?
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