Hey Dad, I think it’s time we stopped my allowance. I’m ready to start a business and earn my own money. I just want to make sure I’m making the right decision. I figure I can work out of the house, cook food (I have the hat) and the sell it with drinks from a booth. What do you think?
Well son, I think it’s a great idea. Let’s go over the mechanics of how this will work and how much money you’ll be able to put in your pocket.
Okay dad, fire away, I’m ready.
Son, you’ll have to use all your current savings and borrow some money to purchase some equipment and supplies. You’ll also need money to advertise and hold you over until your business takes off. You’ll be giving up all your free time, no more extracurricular activity, since you still need to study for school. You’ll be spending all your free time preparing what you’ll be selling, spreading the word and manning you sales booth. You should be prepared to pay for a business license and all your taxes.
Dad, that all sounds good so far, although I’m worried about spending all my saved money and taking out a loan. Can you tell me how much money you think I’ll make?
Yes son. Let’s review the numbers. First, you will be using up all your savings. You will need the loan, so you’ll owe money and you’ll start paying that back on a monthly basis. You’ll owe the money no matter how much you make and even if your business fails, you’ll still have to pay back the loan. You’ll have to get a business license and meet all the state and local requirements for running a business and pay all the ongoing fees. Now let’s talk about the taxes you’ll have to pay on your income. Let’s assume you’re fairly successful.
Okay dad, fire away
Well, let’s see. First there’s federal income tax; maybe 15%, or 25% if you do well. Then there’s FICA and Medicare taxes. Since you’re self-employed, it will be about 15%. Then the state wants about 3% for state income tax and the local government wants 1% of your income. That’s about it.
About it!!!! WOW. Dad, let me get this straight. I’ll give up all my savings, go into debt (whether I succeed or fail, I have to pay back the debt), have to buy supplies and equipment, advertise, give up all my activities, and spend all my free time working. Then with the money I make I have to pay taxes. The taxes add up to somewhere between 35% and 45%. So for every dollar I make I keep about 55 to 65 cents? Is that the deal?
Son, sounds like you’ve got it down perfect. Are you’re ready to go?
Dad, I may not be the brightest kid on the block, but I need to weigh all that against collecting my allowance, keeping my savings, not owing anybody, having fun at my extracurricular activities and having free time.
Dad, let’s pretend we never had this conversation. Can I have my allowance now?
Essays From a Fed-Up Middle Aged, Middle Class American" By: Andy Strum
on Amazon at:
http://www.amazon.com/Essays-Fed-Up-Middle-Class-American/dp/1453640460/ref=sr_1_1?ie=UTF8&s=books&qid=1290438649&sr=1-1
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