While self-employment isn’t a new work style, in the past number of years, the capabilities of the self-employed to build robust businesses have improved.
Areas of the employment space have always had self-employed people trying to eke out a living. But it’s only recently (when compared to employment history) that those who worked solely for themselves or in small practices could not only survive but thrive. This has left several unknowns about the benefits and downsides of the self-employment lifestyle.
Working for yourself comes with some known downsides to address.
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Take, for instance, the health benefits of working for yourself. If you look at studies, the health results will vary widely.
A 1991 study found that the stress and health impact on the self-employed results in higher rates of behavioral and physiological risk factors. In essence, when self-employed, the risks one faces can lead one to have a less healthy lifestyle, resulting in a higher probability of medical concerns. Similar findings were concluded in a 2022 study in Japan, where the self-employed experienced higher “health risk behaviors” than the gainfully employed. The effect was particularly prominent in young men.
Meanwhile, another 2022 study from the University of Michigan found that self-employed women had lower rates of obesity and cardiovascular disease.
What’s true and not will depend on the person. But through technology, societal shifts, and employment trends, self-employment can become a worthwhile endeavor physically, mentally, and financially.
It requires, however, addressing the risks that anyone will face, no matter what type of self-employment they choose. Here are three to consider, which will more than likely pop up in your self-employment or practice journey.
Sequence of Cash Flows Risk
Everyone faces sequence of cash flow risk, but the self-employed are unique in the fact that they will have to manage this throughout their business life.
This financial risk arises because with the self-employed, payments from clients aren’t always set in stone. They’re variable, coming in late, for different amounts (often) and different number of clients each month. Meanwhile, monthly expenses come in at the same time each and every month. For the self-employed, it can create situations where you’re waiting for money to flow in from clients while rent, mortgage, utility bills, and other monthly costs hit.
If not properly managed, it can create a sense of financial doom, even as the business begins to thrive. As a result, people can go into debt or rush back to a day job.
To avoid this risk requires building an emergency fund of three-to-six months of expenses in both your business and personal accounts. Why both? By keeping the expenses separate, the need to pay the utility bill will not interrupt your business planning. For business expenses, include your monthly salary.
Then, as profits come in, only pay yourself the amount you need to cover your monthly expenses. Once you have the emergency funds in place, well, then you can give yourself a raise.
Isolation Risk
When you’re self-employed, you cannot avoid the fact you will feel isolated at times. This can weigh on a person, making it feel as if they’re doing something wrong or not part of “society” in some way. It can force people back into a traditional work environment.
Unfortunately, this isn’t something that you can overcome simply by having a lot of clients. Your clients do not replace personal connections that care about your well-being, even if they care about you to some degree.
To overcome this risk, dedicate part of your day to others in some way. If you have family, it’s important to be there when they’re out of school or work. If you’re single, then it’s important to keep a schedule filled with activities with friends, even if it’s just cooking dinner with someone at the end of a tough day.
Also, finding others in a similar situation as you can go a long way to help. Since you will have similar concerns, you can lean on a group or person to bounce off the concerns and find solutions. Meanwhile, you’re creating a community that helps support you.
Health Risk
In spite of the studies on the impact of self-employment to health, one thing is certain: You will face health concerns. That’s not because you’re self-employed, but because you’re human.
Too many people that work for themselves think that they can put off paying for healthcare insurance. About 20 percent of the self-employed that live in metropolitan areas lacked health insurance, based on 2018 figures, according to the U.S. Department of Agriculture. This puts so much risk on not getting sick or injured, while adding further stress to your plate.
Finding healthcare, while expensive, can also improve the business’s finances. That’s because you’re able to write off health insurance expenses as a solopreneur. This reduces your taxes. And while you’re building your business, reducing your taxes can ease some of the stress you have about paying other bills on time.
Plus, you don’t want an unexpected health care bill to derail your plans, force you into debt, and send you back to an office.
Like all risks, these issues arise. But finding solutions and tactics to reduce their impact will be key to the long-term success of your business.
And with that, you can focus on ensuring your self-employment is a happy, healthy experience.
