The Ugly Side Of Being Self-Employed

In previous posts we’ve mostly talked highly of turning your back on wage slavery and setting up shop for yourself, but we thought it would be interesting for today’s video to share the ugly side of working for yourself. It’s not all roses, you know.

Speaking from our own experience, we originally started our business on a part-time basis while we were each working full-time jobs. We sacrificed our evenings and weekends for two and half years before we got to the point where we were ready to go all in. Most of that time we were scratching around in the dirt and making little to no money.

Since then, we’ve committed to self-employment and entrepreneurship and have been hustling away full-time for about a year now.

Knowing the downsides of self-employment means that you can prepare for them in advance, so we hope this post is of use to aspiring entrepreneurs. Without further ado, let’s check it out…

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Second-Class Citizen

During the first few years of being self-employed you won’t be able to prove your income. You’ll need to prove your income with mortgage providers, landlords, any provider of credit, for life insurance, and probably for many other reasons.

Instead of being asked to provide employment payslips (because you don’t have any), anyone that you deal with will demand at least 2 years of self-assessment tax returns. That’s 2 years where you’re out in the wilderness, a second-class citizen, unable to prove your income to take advantage of services that most people take for granted.

Worse still, in the first few years of self-employment your income might be low, so it could be several years before you can prove a decent income. This means you are effectively blacklisted from a bunch of essential services.

At the beginning of 2020 there were 5 million people in the UK who are self-employed, so that’s a lot of people who are potentially suffering with these problems.

Credit Lines Are Severed

The inability to borrow might not sound like a big deal but it’s absolutely essential for buying a house. Without a provable income to secure credit you will have no choice but to rent, but even that has huge barriers for the newly self-employed, which we’ll get to in a moment.

If you already own a home and are newly self-employed you won’t be able to remortgage with an alternative lender. You’ll be stuck with whatever rates your existing lender offers, which could be massively uncompetitive.

Most lenders reel you in with attractive initial periods and then stick you on their overpriced standard variable rate (SVR) after two years. For most people this isn’t a problem because you are freely available to go to the market and get the latest best offer. However, if you now find yourself self-employed you will have very few options.

How costly could falling onto the SVR be? With a £360,000 mortgage over 30 years at 1.5% you’ll pay around £1,240 a month. If you got stuck on their SVR – which could be 4.5% – you would have to pay around £1,820 per month. That’s almost an additional £600!

Also, for the newly self-employed who also own buy-to-let property, you will be oppressed even more. Most clued up buy-to-let investors wait for property values to increase, then extract equity out of them to fuel further purchases but this is out of the question with no “provable income”.

Ben’s (MU co-founder) property business is being held back as a result, which isn’t helping him with his early retirement plans, but it’s a trade-off he’s made to escape wage slavery by going self-employed.

Can’t Get A Mortgage – Can’t Rent Either

The inability to buy surely isn’t a big deal because you can easily rent, right? Well, no! Landlords are investors just like any other, and investors don’t like taking on additional risk, especially if there’s no increase in potential return.

If a landlord can rent their property out to a couple – say with one being a teacher and the other a doctor – who have reliable income streams, why would the landlord take on unnecessary risk of renting the property out to someone who is self-employed? The answer is they probably wouldn’t.

We know that someone who can create their own wealth from nothing and has chosen willingly to leave their steady employment is a much safer bet than an employee with one skillset who could lose their job at any time. Unfortunately, in the real-world current employment status seems to trump qualities like a high net-worth, or the ability to make money outside of a job.

This is precisely the problem I am dealing with right now. At time of filming, I am selling my house and can’t buy another due to the self-employed mortgage issue, and can’t prove my income to a landlord, so am left in no man’s land.

Fortunately, having been obsessed with freedom my entire adult life I have access to cash that will at least allow me to pay a lump sum of rent upfront. Most landlords will expect 6-12 months’ rent upfront in this situation – for me that could be an outlay of around £12,000. Not many people could afford that and therefore would run the serious risk of being made homeless.

The standard advice of saving 3 months’ salary for a rainy day doesn’t apply to the self-employed. You potentially need to cover a year or more of living expenses from your emergency fund.

Safety Net Removed

In the window between being newly self-employed and being able to prove your income you will have the safety net of accessible credit completely removed. It’s ironic, that when you don’t need credit, you have credit and store cards thrown at you to entice you into consumer spending, but the newly self-employed who do need it are denied essential credit lines.

If you have any existing debt that you would normally balance transfer to a 0% deal you may not be able to do this and could be forced on to the expensive standard credit card rate.

Abandoned By The Government

The newly self-employed are the potential job creators of the future. But during the Covid lockdowns the government completely abandoned them when they needed help the most.

If they had been set up as a sole trader for some time already and could prove their income then they could be entitled to the Self-Employment Income Support Scheme, which was similar to Furlough. However, it’s the same problem all over again – the newly self-employed couldn’t prove their income.

As for directors of their own limited companies who are paid in dividends, which is likely to be all of them – they got an even worse deal. There was no government support available at all to cover the loss of this type of income. This is another example of entrepreneurs and the self-employed being treated as second-class citizens.

Most directors are not wealthy – most are small business owners, many of whos’ families lost everything when the government took away their livelihoods.

No More Staring Into Space

Possibly the greatest aspect of being an employee is the guaranteed paycheck every month. In the medium to long-term this income is far from secure as you can quite easily be made redundant or sacked, but in the short-term a job can normally be relied upon for at least a few months’ income.

Not only that but you will normally be paid the same amount irrespective of performance. No matter if some report you’re working on takes one day or one week to produce you will be paid the same.

So, what does this mean? It means you can stare into space and not lift a finger for huge chunks of time, and you will still be paid. I know people (cough cough – not me) that have on the odd occasion literally not done a thing in an entire workday and still got paid.

We’re not saying you can get away with murder in every job, but in most jobs we’ve had there has been ample opportunity to avoid work as long as you do just enough to get by.

The bar is so low because practically everyone is doing this. This unproductive time is even expected – the only clause is that you cannot be seen to be unproductive. Dodging work is so widespread that being unproductive could be considered a work benefit.

Unfortunately, the self-employed don’t get paid if they don’t deliver. So, where an employee might put in, say, 20 productive hours in a 40-hour work week, if the self-employed person did that, they might not be able to pay the bills that month.

No Employment Benefits

Some employers are more generous than others, but all have a minimum level of benefits. At the very least employees will receive a certain number of days off in a year and matched pension contributions.

Better employers will also provide health and life insurance, additional holidays, study contracts, bonuses, share schemes, company cars, paid-for entertainment, and other benefits. The self-employed get zilch!

Jack Of All Trades

When you work for yourself you will likely need to do everything yourself at first. Outsourcing is the way to turn a small business into a large business but in the beginning the self-employed usually don’t have the resources to outsource tasks.

In 1913 Henry Ford developed the assembly line technique of mass production. Ford broke the Model T’s assembly into 84 discrete steps, and trained each of his workers to do just one. Today, even office jobs are treated like a production line, with employees typically only having a very narrow remit.

Employees are generally expected to specialize in individual tasks so that the workers become highly proficient in their specialized area. It would be highly irregular for an employee to be preparing the financial accounts one day, shifting boxes in the warehouse on another, and then sending out marketing emails and dealing with customer service the next day. But for the self-employed this is a typical description of their work week as they have no one else to turn to. 

Prior to setting up Money Unshackled as a business we both worked in the fields of accounting and financial analysis. As business owners though we have had to put our hands to content writing, videography, video editing, photo editing, website design, website analytics, SEO, email marketing, social media marketing, liaising with business partners, navigating the law, accounting, tax and payroll, and probably a tonne of other things that have since slipped our minds.

Having such a wide responsibility can be fun but it’s also very frustrating when you come up against a brick wall. At times the self-employed will be completely out of their depth but it’s sink or swim! On more than one occasion I have wanted to smash my laptop to smithereens! And it’s a miracle that I’ve managed to resist this temptation so far.

On Your Lonesome

Working as a solopreneur can be very lonely as you don’t have the interactions that you would have as an employee. There’s no meetings, no bumping into people in the kitchen, and no general banter. With most of the country having experienced working from home over the last year for the first time, a lot of people will know what we’re talking about. No doubt some people might even prefer this.

Even if you go on to build a larger business with its own employees, they say its lonely at the top. Most of the people around you are not your friends. They’re just ‘yes men’ who are trying to climb the greasy corporate ladder. Don’t believe us? When was the last time you told your boss what you really think?

Still A Slave To Money (At First)

Wage slavery could well be the worst element of employment. You know you have to turn up because you need the wage to pay bills. Being self-employed DOES eliminate many of the downsides but you are still a slave to money – at least in the beginning.

A Trade-Off For Something Better

Rant over! While everything we’ve mentioned are genuine drawbacks, they pale into insignificance to the benefits:

  • Potential for extreme profit.
  • Fast pay rises, rather than an insulting measly 2% annually.
  • A path to freedom – you can grow the business to the point that your input is no longer needed.
  • Work when it’s convenient for you.
  • Time moves in days and weeks, instead of years and decades.
  • Don’t need to ask permission to leave the building to go the doctors or anything else.
  • Continual learning and development.
  • The dignity and self-respect of being your own master.
  • Passion for what you do.
  • And, no pointless tasks. Only money generating stuff is done.

Are you dreaming of working for yourself? What are you doing about it? Join the conversation in the comments below.

Written by Andy


Featured image credit: fizkes/

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