On Being an Owner

In a previous post that I wrote this week, I talked about the difference between an owner and an employee. There's a big difference and you definitely want to be an owner

Remember: an owner is a person who owns the process of production. They have the capability to make changes to way work is performed, and to reinvent work where necessary. 

So, okay: why do you want to be an owner and not an employee? 

Let’s say you’re an employee and you earned $1.00.

The federal IRS gets paid before any of your other debtors. That’s roughly $.20 taken from your $1.00 check before you receive anything.

Your state, too, may incur an income tax and let’s say that was $.10.

Then it’s your turn to contribute to Medicare/Medicaid which is another $.10, if you make less than $63k/year.

So far, instead of earning $1.00, you’re netting $.60. Right off the top.

The employee pays their taxes first. Remember this. It's important.

Now, from here, an employee's condition may vary but their plight is predictable.

The next largest expense is housing which could be as high as 30% of net income, or, $.18. After housing, the common everyday employee is now left with $.42.

Okay, now the employee must subtract utilities, food, and transportation. What’s interesting about these expenses is that they’re variable depending upon the price of energy. These expenses can rise faster than your than an employee's base pay. Let’s say, combined, they’re ~9% of their net pay, or 5.5 cents.

Following thus far? Subtracting necessities, the employee is now looking at  $0.36 for disposable income.

Then there is life, medical, and auto insurance. Yes, certainly, these things are disposable and not required ... still, you might feel differently about that assessment. Premiums on medical, in particular, rise about 25-percent per year, out-pacing the growth of income, just as utilities and transportation, insurance premiums rise faster than your earning potential and erodes your disposable income. Let’s pretend those are another 10-percent of net, or, 6 cents.

As an employee, your net disposable income is now about a third of your gross, or, $0.305. And from that 30-odd-cents, you must save for retirement, and experts suggest that should be at least 10-percent of gross wages, or, $.10, leaving the employee with $0.205.

You see, employees really don’t make $1.00. They actually make a fifth of their gross, or, $.20.

It is from that 20-cents that employees pay for daycare, apparel, entertainment, charitable contributions, education, student loans, and the like.

And employees feel the pinch in times where those variable expenses like utilities and insurance erode what little play they’ve left.

That’s an employee's view of the universe. It is a cycle of debt and poverty. It also explains why real wages for the middle class have flatlined since the the 1970's. Meanwhile, the employee owns nothing, really – not the guarantee of a job (thanks to the demise of unions), not a real pension, not even his house because the bank can foreclose on it on default – and the employee has little money or assets by which to create wealth. 

Employees just have obligations

Employee poverty is a form of socially-accepted slavery, heck, we even tell our kids, “Go out there and get a good job”, or, “Go to school to find work”, or, “Man, I can’t wait until I find a job.” 

The owner’s view of the universe is quite different.

If an owner makes $1.00, something made it for them - like a business, royalties, an automated system, or, as interest off of their investments.

For the owner, money works for them, not the other way around, and because they’re not making a straight swap of time/labor for money like employees, owners can earn a lot more money … even when they’re not working.

Unlike employees, owners aren’t taxed right away. Instead, the owner gets to make pre-tax deductions to lower their taxable income. Think about that. They’re allowed to generate expenses that employees must also pay for (transportation, meals/travel, lodging, housing, vehicles, even employee-sponsored daycare), and then used that to lower their tax burden so they’re taxed at a lower rate, unlike employees, that must make such expenses after-tax. Owners pay taxes last.

So owners make more, by working less, and are taxed at a lower rate than employees, because they're allowed to deduct their expenses prior to being taxed, and are therefore taxed at a much lower rate. 

Income an owner earns can also be hidden. Unlike employees, instead of having to pay income taxes or capital gains, they can roll those earnings into real estate or other assets which, in turn, makes them more money without incurring more tax liability.

And sometimes, owners may not even have to pay taxes.

In paying considerably less taxes yet making more money, the owner has real assets: things that make them money without trading their time/labor for cash flow.

Thus excess money can be poured into tax shelters, charities, other businesses, land improvements, or other financial instruments that lower their taxes and yet further increase their cash flow.

Owners have more cash flow. More cash flow = more financial freedom.

Meanwhile, owners own the obligations owed by employees. The employee must pay out mortgages, insurances, living expenses, health care, retirement … all of these commitments … to other owners, yet meanwhile, the employee owns nothing.

Employees cannot be an owner and have others indebted to them. Employees don’t have the excess capital to build businesses, make investments, or buy assets that’ll make them money without trading their time/labor for it.

Owners know all of the tax loopholes and incentives, yet employees can never exercise them. They don’t have the means.

To be an employee is a form of servitude. Employees owe to owners and can never pay themselves.

To be an owner is a form of empowered self-mastery in a capitalist system. Owners own the capital and means of production by which to reduce their obligations, and pay themselves first

This is why you want to be an owner. Are you an owner? Or are you an employee? If you're a small business owner, how are you responding to the problem of managing your business: from the perspective of an owner or of an employee?