NFIB

Can You Afford Not to Move to the Beach?
04/ 01/ 2002

In today's Workshop, Jeffrey Moses relates the story of a freelance copywriter who was recently contacted by a recruiter and tells what this self-employed individual learned during the conversation.

The subject of this article is a self-employed freelance copywriter who specializes in financial, banking, and industrial writing. He has more than 15 years experience in a variety of positions with ad agencies and other companies. Four years ago, he began freelancing from his home near the beach.

Working out of his home office -- using phone, fax, e-mail and overnight courier -- the freelance writer maintains contact with clients around the country, writing articles, brochures, newsletters, ads, and Web site text. A professional recruiter obtained his name and phone number from a client and called the freelancer recently with several job offers in large advertising agencies in the Washington, D.C. area.

While talking with the recruiter, the writer gathered a wealth of information. Here's the financial breakdown of what he learned during his conversation with the recruiter:

The salaries offered by the ad agencies looking for account executives were in the $50,000-$85,000 range. The freelance writer currently is earning about $55,000/year, so being hired at $85,000 or thereabouts would be a significant raise in salary, right? Wrong.

If he went to work for an ad agency at $85,000, he would have no deductions for tax purposes, because the entire amount earned at the agency would be salary, not self-employed income. Today, working out of his home office, he has an enormous range of deductions that greatly lower his taxable income. These include: percentage of mortgage, percentage of medical insurance, utilities, property taxes, and automobile usage. In addition, he deducts all business supplies, his business phone calls, all business conferences and training he attends, and even some of the entertainment costs when hosting clients who wander down to his area in order to enjoy the sun and beach.

What's more, he is able to put retirement money not only into his IRA and his wife's IRA , but into an SEP -- giving him great flexibility in choice of mutual funds, individual stocks, and bonds.

The savings go on: working at home, he can dress more casually and eat economically. And his commute expenses while working at home are zero, while commuting to and from work in a metropolitan area could run many hundreds of dollars per month in gas and wear-and-tear on his car.

The cost of his home would probably be about the same in the D.C. area as at the beach in Florida although many neighborhoods in D.C. are extremely expensive to live in.

All of these costs must be considered when figuring out what his net income really is. This net determines his disposable income, and the amount that he can put into various retirement funds. He figures that his current $55,000 yearly earnings yield him an approximately comparable or even slightly higher net income than he would earn while working at $85,000 for an upscale ad agency in a large metropolitan area.

Finally, he considered the quality-of-living issue. His $55,000 current income is based on a rather comfortable weekly schedule, while any responsible job with a large ad agency would entail 50-60 hour work weeks. His current commute in the morning is from the kitchen to his office, which involves a pleasant stroll of about 40 feet through his living room.

There are pros and cons to being self-employed, but people who start their own successful businesses quite often do just as well or even better financially than they would in a "real" job -- even when their yearly earnings are somewhat less than what they would make from being employed by others.

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