Is self-employment a trap?

I don’t think 99% of us like to think about personal finance. That means bills and taxes, both of which can be punishing. Those of us who live in Washington know the pain all too well, as our state is one of the top ten states when it comes to housing costs.

There is no doubt that we have faced many financial challenges in the last 20 years. The recessions of 2008 and COVID-19, in particular, pushed many people out of their regular day jobs. While some took it as a vacation opportunity, many turned to self-employment for financial support.

A recent study offers some insight into the pitfalls of self-employment. In general, most self-employed people feel “stuck”: but how did they get there?

My experience with self-employment

I was working in finance when the Great Recession started to hit the market. As a new employee, I was laid off and work was hard to find. While working a few part-time jobs and struggling with health issues, I started writing content (mostly about video games) online. Over the course of several months, the availability of long-term employment dried up, but my writing career was taking off.

I eventually turned to freelance writing as a full-time career. The first years were the hardest: I was paid per piece on some websites, or per view at an abusive rate from content factories. Often, I couldn’t pay the rent and had to rely on help from family and friends to get me through the month – even when I was working 12-16 hour days.

However, persistence paid off and I eventually found a steady client who hired me as a news editor and eventually became editor-in-chief while still working as a freelance contractor. After all, I spent 14 years working self-employed, full-time.

The ups and downs of working for yourself

I have the right personality for self-employment. I am very self-driven and able to manage and stick to a schedule. The with hatred when I’m not productive, so working hard without someone as my boss wasn’t a problem. In fact, I thrived without strict supervision and without worrying that my income was tied to an employer’s opinion of me.

Working for myself, at home, also meant I had the flexibility to deal with health and family issues. Since my health often led to warnings about attending work before I started freelancing, this was a huge benefit. It also helped support my parents when my father was diagnosed with a dangerous auto-immune disorder.

The real challenge for me was taxes. Initially, the taxes were small and did not cause any problems. Changes to the self-employment tax laws, however, eventually meant I could no longer claim exemptions, and a few years later, I couldn’t even claim home office expenses. I was stuck: I couldn’t afford to pay my taxes because I was living paycheck to paycheck and I didn’t earn enough to set aside 15% for tax payments. This meant that instead, I was racking up a debt to the IRS while trying to make ends meet.

Being “stuck” is a common feeling for the self-employed

My experience with self-employment is not unusual. Many entrepreneurs and freelancers find themselves feeling stuck—not just by the IRS, but by work in general. Latenode recently conducted a survey to look at the struggles faced by the self-employed and found that nationally, 45% of small business owners feel “stuck in their businesses”. In Washington state, that number rises to 57%.

Created by Latenode • Largest version

The study finds that barriers to exit include emotional attachment and financial dependency, as well as economic barriers and a lack of suitable buyers for those trying to sell their business. Financial dependence was the main chain around my ankle: unless I could find something that paid too AND it gave me job stability, I had to continue working independently.

Latenode also reflected on the importance of work-life balance, saying that 72% of business owners considered it very important. This is something I’ve struggled with throughout my time as self-employed, and many others see the same: you often find yourself spending too much time with family and not enough time working productively or , in my case, do the opposite. When work is unstructured and “always available,” you can forget to separate it from your life outside of work.

Should you choose self-employment?

Everyone’s situation is ultimately different. As someone who had over a decade of self-employment experience, my advice is to ask yourself these questions:

1. Are you driven enough to work without someone else telling you to?
2. Can you divide work time from personal time without a fixed schedule?
3. If you will be working from home, can those you share your home with respect your workspace and work hours?
4. Will you make enough income each month to pay business expenses, including self-employment tax?
5. Will you be able to afford professional services (printing, accounting, etc.)?

Whatever you choose, I wish you luck on your journey. Success is possible, but self-employment is not for everyone.