2 reasons why being an employee is bad for your financial growth
Employment is a great opportunity when you’re just getting started, but as you gain experience, most jobs become a bad deal.
The below graph shows how with time, the gap between the value that you create and the value that you keep becomes wider and wider. There comes a point around the 10-year mark where you start to offer more value that you keep.
But why can't the company just pay you a percentage of the value that you create? Because the company has other expenses apart from you. They pay rent, they pay non-performing employees’ salaries, they have annual retreats, they save up for a rainy day etc.
It's at this time that I usually recommend that people start thinking about offering their skills as a service instead of offering it as employment. But that’s not all, there are 2 other reasons why I finally decided to never go back to a job.
Personal Growth
When you’re employed, you’re paid to do a particular task. While it helps you build expertise in that task, it doesn’t help you grow holistically.
Here’s what I mean.
When you work at a job, you also don’t have skin in the game. (”Skin in the game means” to have a personal investment in an organization or undertaking, and therefore a vested interest in its success.) Because of this you never truly learn to do things in a way that maximizes the chances of profits.
You don’t learn higher-value skills like strategic risk-taking, developing profitable innovation engines, building resilience into company strategies, networking, etc. Skills that make you dangerous and irreplaceable to a company.
You see, when you have lower-value skills, or shall I say common skills, you quickly become a commodity in the market. A commodity is a basic good that is interchangeable with other goods of the same type.
Imagine you are a 40-year-old coder or program manager and that is your only skill. You can be easily replaced by a hungry 25-30 old who can probably do a better job with new tools and charge less.
When I quit my “so-called high-paying” job in 2020 and started consulting - I learned so many new skills that made me a unicorn in the market. Not only did my skills grow, but I also started earning more as well. In just two years, I earn more in a few months, than what I earned in a year as an employee.
This is probably the biggest reason why I’m never going back to being an employee if I can help it.
Taxes
Let’s talk about taxes. When you do high-value work, you get high-value payment. But as an employee, you lose 30% of its value in the form of taxes even before you get the money in your hand.
Think with me for a second.
You get taxed before you get your money.
You get taxed when you buy something.
You get taxed when you sell something.
You get taxed when you earn something from investing.
This is only true if you’re an employee. Businesses don’t pay as much taxes as individuals.
How?
Because businesses show expenses and depreciation of assets and are taxed on their profits. This is why businesses can buy things that help them because they can write it off as in their taxes. If they don’t reinvest or spend their money, it will end up going as taxes, which doesn’t make sense.
This is another major reason why I don’t ever want to go back to being an employee.
So what next?
When I stopped being an employee, I came into my own. By running my own consultancy, I began to maximize my freedom, creativity, and impact. Today I recommend entrepreneurship, freelancing or contracting as a key ingredient in the Thrive Framework.
To learn more about The Thrive Framework and see if it's for you, Download an introduction to The Thrive Framework here.