For some people, it is hard to convince them to go out on their own to work for themselves.
People will argue that with employment, the pay is more reliable and is a safer bet than with entrepreneurship.
While there are plenty of articles out there (as well as the current economic conditions) that prove employment to be unstable, I would like to present a brief case as to why entrepreneurship makes more fiscal sense, not in stability but in monetary value.
Below are two scenarios, one where you are employed and the other where you work for yourself.
Scenario 1: Employment
By definition, employment means perpetual work for perpetual pay. As long as you work, you will continue to get paid. Now with this statement you can draw two conclusions: a) you will not work forever, and b) you must spend time to earn money.
Lets say you start earning a generous salary of $150,000 at age 25, and you retire after 45 years. Lets also pretend you earn a 4% raise every year in order to slightly outpace inflation.
If we were to determine today’s value of all of your pay for the next 45 years (using a finance term called discounting), we arrive at a value of a little over 3 million dollars.
In other words, with this scenario, your entire salary paid to you from age 25 to 70 is equivalent to being paid a little over $3 million today.
Keep in mind that this scenario requires you to continue investing your time in order to earn this salary.
Scenario 2: Entrepreneurship
With entrepreneurship, you are not required to work in order to earn income. As long as you own a stake in your company, you are entitled to payments. Because of this you: a) can receive payments indefinitely since retirement won’t stop income, and b) you are only required to invest more of your time in the beginning.
Lets be a lot more conservative with this scenario. Pretend you start out earning $35,000 in profits in your new business. Granted the first few years you may be earning zero, but after that you will certainly be earning more than $35k.
Lets also say that your income will grow by 19% every year. This too, is modest because once your business takes off, your growth will not only be larger than this, but your growth rate will continually increase.
Considering this more modest scenario, today’s value of all of the income in this case amounts to $3.5 million.
In other words, all of this income you earn from entrepreneurship is equivalent to earning $3.5 million dollars today! This is almost $500k greater than the previous, generous employment scenario!
You will, in the long run get paid more in the modest entrepreneur scenario than you will in the generous employment scenario. PLUS you are not required to invest your time perpetually in order to get paid in scenario 2.
. . .
You can also look at it this way. Let’s say that you earn 150k per year as either an employee or entrepreneur. As an employee, you must work 40 hours per week in order to earn this. This is equivalent to being paid $75 per hour.
Conversely, as an entrepreneur, over the course of your entire working career, you average 20 hours per week, since you have the ability to delegate and outsource. This is equivalent to earning $150 per hour.
Under which scenario is your time valued to be greater?