Being self employed has many powerful advantages, and those who are able to leverage these advantages set the stage which can allow them to become rich. One thing that I must emphasize at the start of this chapter is that most of the people who choose to become self employed “do not become rich.” Many of the people who become their own bosses simply end up with a higher income, and little else. However, to truly become rich by being your own boss, there are a number of steps and strategies that you will need to follow.
Once you make the transformation from being an employee to being your own boss, you will immediately gain a number of powerful advantages. To understand these advantages, think of the typical corporation as being like a pyramid. At the top of this pyramid sit the CEO, board of directors, and the upper level management. Beneath them are the employees, who form the base and lower rung of the organization. Within this pyramid structure, money enters the organization through the top, and after those at the top are done paying themselves, they pass down whatever is left to the employees.
However, before the employees can receive their money, they must first pay the government in the form of taxes and social security. This means that as an employee, your money has to pass through two channels before it reaches you, and you pay the highest taxes. By becoming self employed, you effectively create your own pyramid, as opposed to working at the bottom of a pyramid created by someone else. While your pyramid is much smaller and less stable than an established business, this can all be changed by hard work and strategic thinking on your part. To become successful, you must create your own pyramid, and as your pyramid grows in size, so will your riches.
When you're self employed, the money you earn goes directly into your hands, and it doesn't have to pass through other channels before reaching you. Instead of paying the government before paying yourself, you get to pay yourself before paying the government. This has powerful implications when it comes to the reduction of taxes. If you're an employee, most tax planners will tell you that there is little they can do for you as far as reducing your taxes is concerned, since you are taxed before you even receive your salary. However, being self employed opens the door to tax planning and reduction, a key component in becoming rich.
Many financial authors cite the fact that those who own their own corporations get better tax advantages than both employees and those who are self employed. While this is true in the United States, in this book we recommend becoming self employed “first” as a stepping stone towards owning a full scale corporation. Being self employed is simpler, and it gives you the skills and mental strength which is necessary to run a corporation later on.
The key difference between owning a corporation and being self employed is that with a corporation, you're leading a group of people, and when you're self employed, you're leading yourself. It should be obvious that one must become skilled at leading themselves long before they have a chance at leading a group, and becoming self employed puts you on this path. Many people who attempt to start full scale businesses without becoming self employed first often fail within the first five years.