I have always have employment income as the vast majority of my income, and this has always been working for a company. I have run a limited company on the side, so I’m not a total noob to working for myself.
As I contemplate transitioning from employment income to other forms, it strikes me that the nature of my income in future will be very different. And the difference gives me the willies. As Susan Jeffers’ book title implies, that isn’t a good reason to not do it, but these are some of the differences:
Paid employment income
- Stable (till you lose your job)
- easy budgeting
- usually the single or main source of income
Compared with that, the business owner, writer or freelancer’s income is
- highly variable month to month
- very difficult budgeting, either needing borrowing or a large cash float/emergency fund
- diffuse – several strands of work at the same time
I’m glad that I paid off my mortgage while running on steady employment income, I’m not sure I’m cut out for such a large and critical regular outgoing on a variable income. There again, I have been lucky enough to be able to weather two recessions without losing my job, for the downside of employment income is that it is usually the only source of income. An employee is stuffed when they lose their job, compared to a freelancer who happens to lose just one income stream of several.
The feast or famine income pattern of freelance work isn’t to my taste at all. In some sorts of work I am looking at clients have a quarterly cycle of payments, add a couple of 90-day terms to that, and you can end up flogging your guts out but still being skint for six months, and when it comes through the temptation will be there to kick back for a while.