The Cost of Independence

When considering a move from salaried, full-time work to independent, self-directed work, there are a variety of factors that come into play. The changes in your commute, working hours, possibility for income, and enjoyment are just a few. I recall that when I went independent for the first time 5 years ago these were the factors that I was most focused on when weighing the relative value of leaving the ‘stability’ of my 9-5.

When you jump from working for a company to being self-employed you loose a lot of the financial supports that you may never have realized were surrounding you in a typical salaried position in a technology company.

Note: the analysis to follow is based on dozens of individual assumptions and choices, my goal is to draw a framework that is helpful for indies starting out, but your individual situation will vary. Also this is entirely US focused.

Here are the general costs associated with a single person starting a company. For the purposes of calculation I’m assuming that you are married, your spouse doesn’t work and you have no children. Here are the costs I currently face living in northern virginia. I suspect some of the insurance values would change state-to-state. For the values that are income based I’m using $100,000/year as the basis income.

  • Medical: If you can find a way to get into a group plan, either by having your spouse work for your business or forming a coop. For a $10-copay generously apportioned plan: $790/month
  • Medical: If you are going the individual route then you are looking more in the range of $2000/month.
  • Dental: A typical indemnity plan: $93/month
  • Vision: A basic new glasses every year plan: $12/month
  • Disability: Short and Long Term coverage: $50.27/month
  • Business Insurance: Basic liability and property coverage: $41.67
  • Local Taxes: A business license and incorporation costs: $58.33
  • Self Employment Tax: Social Security add-on to your federal taxes: $967.10

The resulting total cost is around $2,012/month. Or $24,148/year. ($38,668 if you need individual medical insurance).

That money is coming right off the top of the income you receive from your new venture. iOS development is a very lucrative industry right now so generally speaking you can easily cover these. For example, if you consult at $125/hr and work 48 weeks a year only around 10% of your income is going to these types of expenses.

I hope that these numbers are helpful to other indies thinking of taking the plunge. I found it very difficult to track down actual numbers shared so I was only able to get a sense of the costs I was facing after a lot of back and forth with an insurance broker.

David Smith