Nest Egg Building For the Self-Employed

According to a recent study, on average someone who earns at least $60 thousand has just as good a chance at being happy as someone who makes $600 thousand. But you might have your sites set even higher than that! So let’s consider your self-employment options and see how far they can take you.

Freelance Living

A freelancer sells time for money and has a very limited inventory. You can only sell so much of your time. I use the word loosely to include anyone who provides a service such as a landscaper or a graphic artist. In order to truly be successful, freelancers need to build a steady customer base, continually improve their craft, eventually become an expert in a niche until they get the big bucks.

Let’s say that a really good freelancer, after some number of years of honing their craft earns $60 per hour. He spends half his time getting new business, staying educated, etc. so he can bill 20 hours per week. That’s the $60,000 per year happy income level. Then it’s just a matter of raising rates over time and putting some of that away.

The Power of Consulting

Consultants sell time for money too, and, like freelancers, they must also continually improve, raise rates over time, build a client base, etc. But consultants can also earn money through educational services and products like lectures, seminars, and books which can produce residual income for years to come. Consultants are often involved in developing companies as board members or advisers, which can also provide additional income. Consultants also sometimes leverage other people’s time such as freelancers, and many even have a staff of their own.

A good consultant can earn $75 to $300 an hour and more, and bill 10 to 20 hours a week. Add to that sales of books, lectures, seminars, investments, etc., minus expenses, that adds up to a potential six figure income. Most people would find it easy to live a nice lifestyle and retire comfortably at that income level.

Small Business, Big Leverage

A small business leverages employees’ time and adds value to a marketplace. A small business can be expanded, replicated, franchised, etc. A small business requires organized operational systems and the ability to delegate important aspects of your business to people you trust. People you can trust who are great at what they do are your most important asset.

Successful small businesses invest in brand identity through product or service development and marketing. They use profits to expand operations, expand locations, expand product lines, franchise, and so on. They sometimes invest in real estate. And some successful small business owners reinvest their profits into starting more businesses.

Assuming 5-10% profit, a small business which generates somewhere in the neighborhood of $1-2 Million dollars per year (not a lot of money) would earn you $100,000 yearly, which isn’t bad at all.

But something magical happens if you build your small business properly – the business itself becomes your nest egg and you can sell it when you retire!

A profitable business can sell for anywhere from 1 to 10 times the annual revenue of the company, sometimes more! A $2 million company will usually sell for $2 million to $20 million dollars depending on profit margin and good will. The average is around 2.5 times the annual revenue or $5 million in the above example. That adds up to a pretty okay retirement.

As you progress in your career you can move up from a freelance service provider to a consultant and maybe eventually build and expand you own business.

If done right, it generally takes a mere 3 to 10 years of hard work to build a million dollar business. For that reason alone, if you’re nearing middle age, going right for the small business might be your best option.

Best of luck in your ventures and may all your self-employment dreams come true!

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