It’s sobering that in a nation of 317 million people (of which 145 million people file tax returns), only 3% of all those reporting income are self-employed people earning enough to support a middle class life without the additional income earned by a working spouse.
Many people rightly aspire to improve their household’s state of resilience through actions such as storing emergency supplies, starting a vegetable garden, and learning basic readiness/maintenance skills, etc. In general, resilience boils down to self-reliance. But like it or not, in our largely urbanized society, true long-term self-reliance needs to include some measure of financial independence.
By ‘financial independence’ I don’t mean so much wealth that you no longer have to earn a living. Rather, in this discussion, financial independence means owning income streams that you control lock, stock and barrel.
Some of this income may be passive (for example, royalties earned off a patent you own) but for most people, ‘independent’ income is actively earned via their own labor (i.e. self-employment).
Of course, the easiest path to financial independence is beg born into a wealthy, well-connected family.
But since few of us win that born-rich lottery, this article addresses the important question: How do “the rest of us” carve out financial independence?
How Many Make a Middle Class Income from Self-Employment?
Let’s start by defining ‘self-employment’ as an enterprise without employees that has more than one client. If a consultant’s entire annual income is from one client year after year, for example, the Department of Defense (DoD), the consultant is more of a proxy employee of the DoD than a sole proprietor. In an era where Corporate America and the government attempt to shed employment costs by hiring independent contractors rather than employees, we need to differentiate between quasi-employees who work for one client and the truly self-employed. Unfortunately, the officially-reported employment data does not distinguish between the two.
But of greater use is a recent article published in The State of US Small Businesses that included a chart by Docstoc.com regarding self-employment in the U.S. According to Docstoc.com’s research, there are about 22.5 million businesses with no employees in the U.S. that report at least $1,000 in annual receipts. Of these, 3 million are partnerships or S corporations (typically licensed professionals such as attorneys, engineers, architects, etc.) and 19.4 million are sole proprietors.
Docstoc.com found that only 20% (4.4 million) of these no-employee enterprises have receipts of $50,000 or more annually. The remaining 80% earn considerably less: 5.5 million bring in less than $5,000 annually, 3.8 million gross between $5,000 and $10,000, 5.7 million bring in between $10,000 and $25,000, and another 3 million had receipts of between $25,000 and $50,000.
