Those who consider themselves self-employed can have many working definitions of what that means for their careers. For some, it could simply serve as a tool to bridge either a new job or retirement while for others, it’s a way of life that becomes both an identity and a career.
In either scenario, self-employment also provides signs of reduced depression and increased wealth among workers, when compared to regular employees. But these facts also tend to benefit more privileged groups, such as those who are male, white and generally well off to begin with.
How, then, can the benefits of self-employment reach a wider audience? It’s an important question, one that has become more vital in the current economy. For instance, according to a pair of new studies highlighted by The New York Post, the number of self-employed mothers with children under six years old saw a significant increase when compared to rates prior to COVID-19. The rate of self-employed black women grew from 4.1% to 5.2%, according to the Center of Economic and Policy Research. The percent of Hispanic women jumped from 6.1% to 7.4%.
What could play a part in this dynamic? The number of child-care workers fell by 8.4%, when compared to pre-pandemic rates, according to a separate study by the Center for American Progress, and could have played a role.
Forced into self-employment because of childcare needs, loss of job or other reason isn’t ideal – even if it remains common. If you’re facing such a scenario, then look to manage the situation depending on your needs.
Tackling your business, depending on the goals of what you want the venture to achieve can ease the burden you may face while transitioning to self-employment, whether it’s forced or not.
Self-employment due to child-care needs
Raising a child is a full-time job, in and of itself. Juggling both child-care and trying to launch a business – even a solo business – can leave you with little hours left in the day for anything else.
In such a situation, from a financial perspective, develop a plan that provides you with the most cash for the least amount of work, as possible. Of course, this sounds like everyone’s dream – work less and get paid more. It’s not quite as idyllic; often when people start out as solopreneurs or consultants, they will take whatever gig comes their way, no matter the rate. Doing so, while also having limited time to work due to the child-care needs, could force you to handle the business in the wee hours of the night while the kid finally sleeps. Nobody wants that.
To ensure you’re only taking gigs that can pay you properly for your time, set an annual income goal and then divide that by 12. Next, take that number and divide by the number of hours you want to work in a week. Say you want to use your solopreneur job to secure $75,000 a year in income. If you have 40 hours a week to work, then you need to charge at least $156 an hour. If you want closer to 30 hours, then it’s closer to $208.
But you will also want to add buffer, since you have other tasks as the business owner – such as signing contracts, accounting and other admin duties. Consider that when setting the rate as well.
Of course, you must be realistic with the industry that you’re in. If the numbers don’t work, you may need to alter your goals or find other ways to use your expertise that can command a higher pay scale.
There’s no easy solution to this, but make sure you only accept jobs that match the goals that you set out in this initial analysis.
Self-employment due to a lost job
When moving to self-employment because of a lost job, it can often be difficult to pinpoint how serious you want to take your solo-venture if you’re also searching for a new role. But one of the benefits of self-employment is that it can give you leverage when looking for a job, since you can afford to wait for the dream position if you have enough revenue flowing in.
If you decide to consult or freelance while looking for a new job, go through the process of formalizing your business. Creating a limited liability company (LLC) for the business can both give you an air of legitimacy as you begin seeking out clients, while also providing you with tools to save for retirement or reduce taxes. You can even create a retirement savings vehicle, like a solo 401(k), with the business entity in place.
As you begin taking clients, you can treat the business as a business; this can drive higher paying clients or better clients that reflect the company you would want to work for since you have a legitimate, professional presence. And if it turns out that you enjoy an experience with one organization, then you can also begin asking about the potential for a full-time position.
Closing the business will cost very little, if you end up finding a path to a new job.
Self-employment as a bridge to retirement
For long-time employees, as they get closer to retirement age, will face many decisions within their current career path. Do they want to begin reducing their hours? Does the employer have early retirement benefits? What happens if they do get laid off?
A common reason for self-employment is to provide a bridge from the last days in the office to retirement. By doing so, you can expand the years before you tap retirement funds, allowing them to grow larger before you do – this allows for continued growth in your portfolio, before you begin using the funds. But you also don’t want to work yourself ragged by trying to do it all yourself at the end of your career.
To accomplish this, it requires some budgeting. Understanding what you need each month, both to fund your lifestyle and to provide more funds into a retirement account before you retire, will give you a sense of what you need to do with your time as a solopreneur. If you want to add $2,000 to retirement accounts each month and you also need $2,000 a month for living expenses for the next three years before you retire, then you know how much you need to make to ensure your lifestyle doesn’t take a hit.
Having a clear target for when you can retire, can also give you a sense of purpose as you launch the business. If you know, for instance, that you need to make it three more years before tapping the retirement accounts and you also know in those years you need $4,000 a month, then you know your business needs to bring in $144,000 (after tax and adjusting for inflation) over 36 months. If your business proves more robust than expected and you reach your mark early, then it might be time to consider early retirement.
It’s an option that few employees have – but a possibility with self-employment.