Two people walk into a bank looking for a loan. One is the owner of a company and one is an employee. Why is it that the employee’s income is treated as more stable and secure than the owner’s? That makes no sense?!
It annoys me that self employment income is considered less reliable than employment income. That makes me a little banana-cakes. I know what people say “Well, when you have a job you know that money is coming in every other Friday. And when you are self-employed it doesn’t come in regularly.” That may be true, it also may not be true. But either way, it’s nothing some strict budgeting can’t handle.
It does take more work to manage self employment income than w-2 income, for sure, and maybe it gets bad rap. Not everyone is willing to put in that extra work. You have to put enough aside so you aren’t blindsided by taxes, you have to run your business finances in a specific way so you can keep track of all the business expenses, you must have enough in savings to get you through down times in your business, but so does the company you work for as an employee. You have to market your services so that you keep customers coming through the door. But at least when you are self-employed you have control over all those aspects.
When you are self-employed your income is more diversified. Let’s say you own a landscaping company and you have 20 clients. One of your clients doesn’t like your work and fires you. That’s too bad, but you still have 19 yards to landscape. If you work for a company and your boss doesn’t like your work, you are out on the street. As a w-2 employee one person holds all your cards. When you are self-employed you aren’t dependant on the thoughts and feelings of just one person. You always have more baskets with more eggs.
So this idea that because you are employed with a company that your pay is more stable than a self-employed person just doesn’t fly with me. A w-2 employee can still be fired for bad work. They can still be laid off because the company you work for was poorly run. The benefit of self employment income is that you have to upset a heck of a lot more people in order to be completely out of work and you have total control of how your company is run.
I’m not saying that owning your own business is good for everyone. I don’t think that at all. Some people are better off working for others and that is 100% a-ok. I’m just saying that I don’t believe that self employment income is less reliable over all than w-2 income.
What do you think?