5 Financial Disadvantages of 'Being Your Own Boss'

While there is no denying that probably everyone’s dream is to be their own boss, it does come with a few disadvantages.

If you are currently working on your own and in any of these categories, you should continue to read on:

• Freelancers
• Contract workers
• Commission earners
• Real Estate Negotiators
• Network Marketing Agents/Leaders
• Self-Employed Service Suppliers

Inconsistent Income & Budgeting

Your income potential is probably higher than when you were in employment, but it may be inconsistent. When it is inconsistent, it is harder for you budget for things in the future. There will be two type of people here.

One, those who will spend all that they earn just enough until the next payment. While they spend lavishly in the first few days, they would probably starve on the last week before payment is due.

Two, those who keeps so much in their current account because they are worry not knowing when their next job/sale will be.  They may only keep cash so much and do not do any investment because they do not want their money to be tied up.

There are also those who uses the excuse that ‘I have not reach a certain income target’ to do anything, especially those doing Network Marketing. However, this delay will continue to build as your dream becomes bigger and bigger.

What Can You Do: Read up a book entirely focused on helping people to budget for inconsistent income.

While Fixed Deposit can provide you higher interest, it will not allow you the flexibility of withdrawal anytime in case of need. You can set your extra cash into a cash fund which earns you interest higher than current or savings account. This fund will also allow you easy withdrawal or redemption without any locked-in period like Fixed Deposit.

Inconsistent Savings for Growth

While it might be luxurious job, most people do not set aside money for investment, but instead the money will be spent on lavish goods. You can actually set a percentage of your profits / sale / payment to be saved. By paying yourself first, this discipline will ensure that you put your future as priority first ahead of your commitments and expenses.

What Can You Do: Arrange for savings for long term with a fixed percentage of your profit/sale/job. It can be done monthly or as and when you receive a payment for your job. Depending on type of business you do, it could start from a low 5% of profit/sale/job and when the amount starts to be bigger, you can have the option to diversify to different types of investments.

No Retirement Planning

Being an independent freelancer or service supplier would also mean that you are not contributing to EPF like regular salaried employees. You may think that it is troublesome, you are getting paid less, or you do not want to ‘benefit’ the government. All these excuses are distractions to the reality that you do not contribute to save for a retirement fund. If you compare yourself to a peer, he or she may have a hundred thousand in their EPF, but you can only look at your own savings account as your retirement fund. Because of the lack of planning, you may need to work far longer years than your peers. You only started to really look at creating a retirement fund too late in life.

What Can You Do: Start a Private Retirement Scheme. It offers similar concept of retirement savings like EPF, but being managed by financial institutions, instead of a government agency.

No Insurance Benefit

Most companies offer medical insurance claims as part of their employee benefits. There is also SOSCO which provides minimal protection in terms of medical and cash benefits. Being self employed and on your own, you basically do not have these benefits. As you are aware, the cost of hospitalization due to accidents or sicknesses increases every year. Some companies do offer discounts or pay for health checks or dental to their staff.

What Can You Do: You would need to take care of medical insurance arrangement yourself. Because your health determines your wealth, you would also need to stay health by engaging into health programs.

Not Taking Advantage of Tax & Deductions

It is a known fact that many freelancers and self employed individuals do not file in their taxes for fear of paying taxes at all. These are the same group of people who complains that that are unable to get a loan to buy property or a car. If you don’t file in your tax return, your income is not recognized, hence the bank would not approve the loans.

What Can You Do: But if you are already paying taxes, there are a whole list of deductibles which you can apply to reduce your taxable income. By taking advantages of all the tax deductions, you are still able to apply for a housing / car loan, while paying lower taxes.

As you can see, while there are financial disadvantages of being in the category of ‘your own boss’, it does not mean you can’t do anything about it. A total financial solutions advisor would be able to help you along the way to make sure all your financial needs are properly advised and taken care of.