I just realized that everything I have been blogging about to date has been horse crap.
It is absolutely false information that has misguided so many aspiring corporate employees to start a side business.
As a result, an outraged group of “side-giggers” set my house on fire. But then I woke up this morning and realized that it was just a bad dream.
Yeah. I made that dream up. A dream which is counterintuitive to everything I stand for and talk about on my blog. But hang with me for a few sentences here and there might be a valuable take away for you, especially if you are in a successful corporate career.
Should you start a side business? That question can be partly answered if you know the value of time. Do you know what your time is worth to you and to your employer?
Consider this example. Let’s hypothetically assume you are a consultant and make the equivalent of $60 an hour. What do you think your employer makes for every hour you work on your client?
Your client is really your employer’s client, and because your employer has to pay you as well as for your computer, office rent, lavish lunches and dinners and much more, they likely bill your client 5 times what you make, or $300 per billable hour that you work.
From the above example, we can conclude that one hour of your time is worth $300 to your employer and $60 to you. Do you see an opportunity here? Are you thinking about getting on your own and providing the same consulting services to your own clients at a rate much lower than what your employer charges but much higher than the $60 you get paid?
Although you may not be able to charge the full $300 to your client if you worked for yourself, you maybe able to triple your hourly wage easily while getting more time off from work too. The fundamental question to answer is what is your time worth to you? Is it $60? Is it $120? Or is it $180?
In other words, are you willing to simply work more hours and make the same $60 you make at work? Or is your free time worth more than that? If so, how much? What can you reasonably expect to command and get paid if you worked on the side for yourself?
If you are confident that you can make a lot more working for yourself, then starting a side business as a freelance consultant or contractor might sound like a no brainer to you at this point.
However, consider that there are limited hours in a day and the things you like to do with your free time. How do you put a price tag on hours spent with friend and family, for fun and pleasure?
While the answer varies across the board depending on personal situations and preferences, only you can answer this question for yourself. Whatever that monetary value or worth is, be sure that you are clear on it.
Lack of clarity can cause confusion, and often leads to professionals to accept side gigs that pay less than what their spare time is worth to them.
Hopefully the answer is quite obvious at this point. You shouldn’t start a side business if the return on time invested is lower than what’s acceptable to you. I can appreciate that there are several other factors involved as well that may contribute to you taking up a lesser paying task in your free time such as a burning passion for an activity.
For example, I am quite confident that FMF makes more per hour in the office than he does refereeing soccer games. However, being out there on the field allows him to pursue his passion while spending time with his son. The money is simply icing on the cake.
However, strictly speaking from a financial perspective, starting a side business makes sense if you project your business to earn you more money per work hour input compared to your career or job, therefore increasing your effective hourly wage rate.
Sure, you will still end up trading spare hours for dollars, but can you increase the dollars per hour significantly enough to compensate for lost free time? Again, this is where the clarity of the value of your free time comes in to play.
If the answer is no, you might be better off spending your free time with family, friends and other activities that you derive pleasure from, unless of course you either desperately need the money, are bored or want to purposely indulge in activities knowing that it is a poor decision from a financial perspective.
Personally, it takes quite a bit for me to pursue a task that eats into my personal time. I have done it sparingly on a selective basis, but the reason I have worked over the years to design systems and processes that work on auto pilot is so that I can increase my “personal time”.
I do realize that not everyone is in the position that I am in. For numerous reasons, may successful working professionals start side businesses, and while I am a big advocate of doing so, many fail to calculate what their time is worth to them and therefore end up working for peanuts when compared to the alternative.
There are countless opportunities out there to make money, and some are better than others from a financial perspective. A thorough evaluation of each opportunity is critical to ensure you are spending your time in a manner that provides the highest return on time invested. Some factors to consider are scalability, investment capital, initial time requirement, ongoing time requirement, compliance requirements, cash out potential such as a sale, etc.
There are many blogs and websites, including mine, that constantly publish the top X business ideas, top side gigs, this, that and the other. However, take a step back and evaluate your individual situation before diving into one. Only you can answer what your spare time is worth to you. Get clarity, pick wisely and don’t sell yourself short.
Just Looking Out
~ This was a guest post I had published on the Free Money Finance blog back in December. Because this blog is relatively new, I want to ensure my readership doesn’t miss a beatPrevious: Investing in a Small Business to Diversify Your Portfolio