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I’ve recently been thinking about why people think that self-employment is such a big risk, especially in industries where human capital is important and economies of scale tend to be less important — like professional software development, for example. What is it that makes it so risky?
- Is it the fact that you have to compete in a free market? Sure, but then again, so does your employer.
- Is it the fact that you lose out on benefits and retirement savings match? That stuff doesn’t come for free, and you should consider it as part of your salary, but it doesn’t mean you couldn’t provide that for yourself.
- Is it the fear of not receiving a stable pay check, and perhaps living on a low income for months on end? That is a valid concern, but there are tens of thousands of jobs out there — it’s not like you’ll go broke and die alone just because you took a shot, no matter how dramatic some people make the choice out to be.
Why is it risky to live off some of your savings, and either become successful or re-enter the workforce? What exactly are you risking?
Our anchors are too heavy; they drag us down and dampen our curiosity and sense of exploration.
Anchor #1: Our fear of not keeping up with our peers. The more I think about it, and the more I dig into the reasons why I myself have been averse to the idea of self-employment in the past, and why I think others are averse to the idea, is the fear of failure to keep up with our peers. As much as we try not to, and perhaps we don’t admit it, but we are always comparing ourselves to our friends, family, neighbours, coworkers and colleagues, and judging ourselves in relation to them. What other metric is there to go by? What will my mom/girlfriend/etc… think of me if I do this and am not wildly successful?
Anchor #2: Our fear of not accumulating enough wealth for ourselves and our family. At the same time, we have a fear of not achieving our goals. Jobs usually aren’t all that bad, and through a job, we can build up retirement savings, go on vacations, and stash money aside for the future, for our retirements, and for our children. We count on our jobs to get us there, even in today’s world where employment is less than assured, and governments are racking up so much debt that job-destroying inflation and taxation are sure to increase in the future. However, that lies outside of our realm of experience; we don’t see that, we only see our own lives, desires, dreams, and goals.
Self-employment seems like a big risk when you take all of this into consideration. Will I still be able to reach my retirement savings goals? Will I still be able to provide for my family?
What happened to your sense of exploration and excitement?
Do you remember the sense of wonder, excitement and curiosity you had as a child? You probably got yourself into all kinds of trouble, scraping some knees and bruising some elbows, but at the same time, you probably had a blast and gained so many great memories. What a shame it would be if you were too afraid to climb up into the treehouse cause you might have fallen off the ladder, or if you never got on a bike because you might have fallen off and scraped your knees and elbows.
Nothing worth achieving is ever easy in the beginning. A sense of fear is a good tool to prevent us from rushing headlong into danger, but at the same time, especially with all of the wealth of modern society, I am afraid that we get too attached to this wealth and we become so afraid of losing it that, ironically, we are unwilling to make the choices that could help us to increase our wealth.
You will not die alone like a fool.
I sometimes think about what people had to go through in World War II, and I think “now that was a real risk!” No matter what side of the war you were on, that war was nasty, brutal, and one of the worst evils that humans have ever done to themselves, if not the worst. Could you imagine being an Allied soldier, facing the bullets and mortars at the beaches of Normandy? What about the Germans and Russians alike, who fought bitterly in subzero temperatures and watched as their comrades were killed or frozen to death. What a life a Russian soldier must have had: Turn back, you get shot; press on, you probably get shot anyways, and at the end of it all, you might still have ended up in the gulags!
Somehow, all of that madness came to an end, and people’s entire lives were changed. My own grandmother grew up in this world, and she faced tough choices in her life that I will never have to face in mine. She didn’t grow up in a world that was interconnected and online, and while she did have her own business at one point, she had to risk a lot more than simply “not making a dime” for a few months!
I’ve also travelled to Ethiopia, a country where many people today live a very primitive agricultural existence and where the only real choice for them is if they wake up or starve. Ironically, though, the further away you get from the cities the happier people seem to be, because they don’t know what they are missing. It’s not their fault at all — if I had been born there, would I have the opportunity to be doing what I’m doing now? I don’t know. My life would certainly be very different.
Take the opportunities that you have been given in life, and be grateful for them
Every time I feel fear and doubts creeping up in my mind, I just remind myself to be grateful that I even have the shot. I am only an average Canadian, but hey, that is pretty good if you look at all the possible places I could have been born! I don’t understand how some people with millions in net assets and hundreds of thousands in income can become so paralyzed. At the same time, it seems that those with little wealth but big envy are the least happy in life.
My advice for getting over the fear
- Get over what other people have. No matter how much you have, someone else will have more than you. Keeping up with your peers in this way is unsustainable. I believe in surrounding yourself with people better than you so that you can learn from their qualities, but if you can’t get over your jealousy of those who have more than you, you will never reach true happiness.
- Get over yourself. Your life is not so dramatic that leaving your job will end up into some sort of a Hollywood tragedy where your entire life is ruined. Don’t use your desire to take the easy road and get some wealth the easy way be the excuse that prevents you from living the life you truly want to live.
- Dream a little. Bring back some of that inner child. The universe won’t care if you spend your life worrying or not, but you owe it to yourself to give that inner child a chance.
Fear of embarrassment and fear of failure is the biggest ones. I had to interview several high ranking folks in my organization, and that’s what kept coming up. When I do my own self assessment, I too, am afraid of failure and embarrassment when I think back on why I did not do some things I wanted to do.
Now, I do it anyway. I thanked Google on Yakezie.com, and I launched a product on FinancialSamurai.com today. And after that, I will launch some more services.
Sam
Great job on the product launch, and best of luck, Sam! I find it interesting that you brought up “fear of embarrassment and fear of failure” since it really ties into our nature as social animals, and our intense fear at lowering our social status through various mistakes. It can be really hard to get over that fear sometimes.
This ties in with everything else, but I think I have a fear of missed opportunity. If I choose to do one thing, I sometimes wonder if it’s the best option that I am taking. And if I choose incorrectly, will I miss out on something else?
This is, of course, I ridiculous way to live. But, I am working to step out and try new things this year that are definitely riskier. I’m excited!
Looking forward to it, Jeffrey! One of the veteran developers told me that he had worked at many companies over his lifetime, and changing jobs or going out on your own is really no big deal at all. Maybe it’s like a first date or something like that — expectations make you go crazy, but once it’s done it wasn’t so bad, was it?
Thanks for the mention. There definitely is a LOT to thing about before becoming self employed and getting comfortable with the risks is a lot harder for some than others. There is always going to be uncertainty in life and we have to learn to embrace that and do the best that we can to be prepared.
Traveling to Ethiopia must have been a life changing experience. When we see how differently other people live and find ways to survive it really makes us appreciate what we have and be less scared of taking chances.
Hi Sydney,
I think you have it exactly right! That’s probably been one of the biggest benefits of travel for me. I most certainly don’t want to make it seem that I think any less of those people because of their situation, as it’s really not their fault at all (well, it could always be partly the government’s fault). I really enjoyed my stay there, and while some things made me uncomfortable, it also opened my eyes. North America is a bubble when you think about it, especially if you’ve been fortunate enough to live there for a couple generations!
I think some people are held back by high salaries. I was talking about this with a friend of mine over the weekend, and we mentioned how envious we were of stay-at-home moms, because any amount over zero that a stay-at-home mom earns is good news!
Heh, that’s true! Ironically I think this also hurts companies. My old company has seen a lot of talent leave, but a lot of comfortable people have stayed on, because after 10 years of raises during a good economy, you’re getting a nice salary, even if the company is bleeding money today.
Failure. Quitting my job, starting my own business, and having my business fail is a huge thing that holds me back from pure self-employment. It’s not that I’m trying to keep up with the Jones or whatever, I’m beyond that kind of thinking at this point. It’s that my family doesn’t have much and if I sink what we do have into a failing business, then we’ll actually have nothing. I’m not sure I can do that to them.
Hi TB, I understand. That is a rational fear, and one I have, too. I’ve dealt with it by rationalizing that I needed to leave my job, anyways, and what I’m doing now is far better, even if I do go back into the workforce one day. It also helps that I’m part of a DINK household. Sooner or later the “NK” part will no longer be true, and that will change things. Hopefully I’m off the ground by then. 🙂
Number 2 is my fear. I couldn’t stand the idea of not being able to support my family in the way we’ve become accustomed. I’ll admit – having a regular old job is just easier.
Hi MMD,
That is a completely fair thing to say! That’s one of the trade-offs of no longer working for the man — the rewards are balanced by risk. That’s why I really try to head off lifestyle inflation, because it removes a big safety buffer between your income and expenses.
Self employment is scary when you’ve worked at brick and mortar jobs for over 30 years. You get used to that steady pay check and nervous about verturing out on our own.
I can’t imagine! I was out of school for 4 years before taking the leap. I do believe that as we get older we get more risk averse, and it’s rational since there’s less time to recover from a mistake. On the other hand, with the kids grown up, debt paid down, and savings increasing, maybe there’s more flexibility, too?
My aversion to self employment is simply that I’ve seen a lot of people (both of my parents, at the same time and separately, many friends) struggle through self employment and there is so little work/life balance. I don’t really want to make my whole life my work and I think it’s a little difficult – from what I’ve seen with family members, friends, colleagues – to just leave work where it belongs when you have to live and breath it.
I think it’s great for a side thing, but not as my main sense of income for me.
Hi Daisy,
That is probably a fair statement to make. On the other hand, if you really enjoy it, it doesn’t quite feel like work anymore. Oh, there are the gruelling days to be sure, and you’re totally right about how balance can break down, but there’s something good about knowing that you’re doing it for yourself. 🙂
“You will not die alone like a fool.”
Gosh, I hope not!
I definitely fall into the trap of comparing myself with others far too often. GAH.
I don’t think anyone ever dies alone like a fool, unless they become an alcoholic or something like that and refuse to get help. There’s risk in everything we do in life, but the point is, you’re alive. That’s a gift to cherish and embrace…
For me failure is not much of a problem but there are times when I just lose my motivation at work because of the desire of quick success. For me bieng lazy and greedy are the metal anchors
Laziness and greediness… two other human emotions we gotta deal with! I hear you on the short-sightedness sometimes taking over. That’s something I also have to manage, on this road that I’m on.
Interesting article. I usually read your articles and I remember last time you posted about your trip to Ethiopia. I do hope that you had a good experience. Ethiopia is one of the poor countries in Africa but to generalize most Ethiopians as their “only real choice for them is if they wake up or starve” is quite unfair. It’s good to motivate people by pointing others economically lower than us. There are so many good and luxurious places in Ethiopia which are even unaffordable for a middle income Canadian.
I had a really great and mind-opening experience, and certainly don’t mean to generalize most Ethiopians. At the same time, they might consider that an unfair assertion, seeing as how most people have no chance to get into those good and luxurious places, and will be shooed away by guards if they even get too close.
For me – it is the chains created by being comfortable. I have a wee one at home, but we have a good standard of living on £800 pcm – we are “comfortable” – but barely.
But I realised that working for someone else (rural area, minimum wage using none of my specialist skills) wasn’t going to rebuild my family’s finances from being comfortable to being great ……………… so after much gnashing of chains, the decision is made to move on to self employment.
Funnily enough, the “What?” has been much easier than getting my head around the “Why?”
Wow, congrats Elaine! You have a lot of guts, especially with the “wee one” at home. I wish you the best of success and hope you keep us updated. 🙂
Kevin, I love this post. I’ve ventured into several businesses. I’ve also worked most of my life. I’ve felt anxiety first time when I quite my job to take care of my businesses, but once I overcame my anxiety, I’ve been doing very well. It’s really the fear that you have to overcome to achieve your dream.
It’s really all about mind. That’s probably the #1 issue I face every day : managing my own emotions and fears, and strategizing the best use of my day.
Once you get over the fear, I would also add, visualize the outcome and never let go of that visualization.
Good idea, James. Too often we don’t visualize the longer-term goals, which help makes the shorter-term pain seem very small in comparison.
These anchors can also be found in the workplace. I’ve often found myself trying to keep up with peers when promotions start circling my group of peers. It doesn’t just keep us from an open mind about doing our work, it also wears you down and makes you bitter.
Hi Wayne,
I completely forgot about that, but that is so true. It’s really a let-down when you find out how disparate the pay is between peers, simply because some have been there for longer or were there during the good years. Things like that tend to drag down morale.
What about when under performers get let go with generous severance packages and the more important personnel get “rewarded” with no bonus or pay raise? That can be demotivating, too. 😉
I think there’s another mental anchor people have and it’s the fear of responsibility. When you’re an employee it’s easy to just bad-mouth your boss and blame the company for not paying you enough. But if you’re self-employed you can’t just pass off the blame when your life isn’t quite what it should be.
If you’re struggling to make ends meet you have to actually look in the mirror and see what you’re doing wrong instead of just blaming the guy in the corner office for handing out shitty raises.