Tuesday, January 1, 2008

House Envy and Earning Potential

Last night, I went to two different parties in two incredible houses.

The first house was well over 2000sf, and filled with great art, spacious rooms, wraparound decks. It was an older house, and the people living there (a couple? I'm not sure) have a history of buying homes, fixing them up and then selling them. I don't think they're flippers, but that they live in the houses while they do the upgrades.

The second house was just as large as the first, if not larger. It was also in a fairly expensive neighborhood, and the couple living there clearly had a certain amount of money. Lots of original artwork, beautiful furnishings, and just other small signs that the place had money, without there being a lot of flashy objects and electronics.

My friend and I both had extreme house envy in both places (the homeowners were friends with my friend's new boyfriend). We sighed. We ooohed. He was certainly thinking he couldn't afford to upgrade to the first house. I was thinking it would take me eons to save a downpayment for either (which at 20% would be over $100k).

What does this mean to personal finance readers? The inhabitants of those houses were all self-employed. To be employed in a traditional job, with the skills those people had, none of them (except maybe the RE agent) would probably be able to afford to live where they do based solely on salary alone.

I know it's incredibly easy to just let someone else make your financial decisions -- aka what your worth is and how much you will be paid. People working at regular jobs have consistent incomes, but they also (most often) have very limited raises each year and they don't have spikes for periods of high productivity. I think the most important thing is that self-employed people set their own value. There are few people I've ever met who feel they are overpaid for what they do, or that they are paid even enough. I know that for years I was underpaid, based on research I did about my area and skills, and I knew the hi-tech company wasn't going to pay me more...and I stayed at that job because it seemed "easier" than finding another one (I hadn't even considered what my skills were that could allow me to work for myself).

Whenever you hire yourself out, you have the potential to make far more than what you would as an employee. When I was in initial contact with my primary client, he sent me an email asking what my rate was. I did some research online, figured out what I'd want to make if I were a permanent employee, added the 10% or so to cover benefits and similar expenses, and then rounded up to the nearest $5 mark. When I spoke briefly with this client about raising my rate in the new year, he didn't have any hesitancy. We didn't speak about how much, but I plan on raising my rate by $5/hr. To me, this doesn't seem a lot -- in fact, I wonder if I should raise it more, though I probably won't. I know people that would be happy with $1/hr raise, at their permanent jobs. When you work for yourself, making what others see as Good Money doesn't seem like a lot. I often think that I don't make that much, when I only know of a couple friends who definitely make more than I do (based on what I make working full-time at my current rate). I'm sure I have friends that I out-earn, even based on the fact that I only work part-time. I know people who make less in a month than I would make in a week of working full-time... My primary client told me something to the effect of: he always makes people tell him their worth before he hires them. If someone answer the question of what their rate is with "well, I don't know" (note: he occasionally hires teens to do personal projects for him), he'll say "well, so is five cents an hour fine?" and they end up negotiating.

What does this all mean? It's simple: if you set your own worth, you make more money.

What's more, all of the people living in the houses I visited get paid very well for doing things they love to do. I get paid for doing what amounts to a form of play (for me, personally).

I know it's difficult to even think about being freelance, especially when you have debt and other financial responsibilities. Yet, if you have a skill that could be marketed (and I think many more people do have such skills, than the number of people who recognize and capitalize on their skills), it's not that big a jump to being self-employed (in many cases). Being self-employed takes a certain amount of imagination (e.g. what can I do that people will pay me Good Money for?) and perseverance (e.g. making all the contacts to get the projects coming in). Then, once you establish a reputation, you get referred and others flock to you. As an example, I've done petsitting for years -- sometimes for pay (I don't charge my best friend, and I've not charged other people in the past). In the past month, I've been referred or approached by other people 3-4 times. I haven't actually taken care of any pets yet, and I turned down one job because I would be out of town those days. My secondary client [for my technical writing] is someone I know, who after hearing about how much my primary client loves my work, gave me a project. My contact at my primary client, who has a couple of his own side businesses, likes my work so much that he gave me a project outside of my primary skills -- just because he likes my "stick-with-it-ness" and my work style. It all just snowballs.

When people are more actively able to control how much they earn and how much they work, their income is vastly different than a hired company employee, and is most often significantly higher than the hired company employee. This means more financial freedom, and more freedom to live in houses that others ridiculously envy.

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