Self-Employed Americans Have Net Worth 4.2 Times Higher Than Those Who Aren’t

Being your own boss might be something of a modern American dream, but the number of those achieving that dream has been shrinking for years. The late 1940s and early 1950s saw more individuals defining themselves as self-employed than in recent years, despite the workforce more than doubling in that time.

Whether you freelance, own a business or find another way to be the boss, the latest MagnifyMoney analysis shows that being self-employed might go hand in hand with a high net worth. According to the latest Federal Reserve Survey of Consumer Finances data, the median net worth of self-employed Americans is 4.2 times higher, on average, than those who work for somebody else.

Key findings

• You can hit it big by working for yourself. In 2019, the median net worth for someone self-employed is $379,800, compared with $90,200 for someone employed. That means self-employed Americans have a median net worth that is 4.2 times higher, on average, than their counterparts.
• 2001 was the best year for self-employed Americans. At this time, self-employed people were worth $505,480, on average, roughly $125,000 more than in 2019.
• Self-employment can pay off — but it’s risky. Since 1989, self-employed Americans have had assets worth 2.8 times more, on average, than those who aren’t self-employed. But over that same period, they have averaged debt worth 1.5 times that of employed Americans.
• Despite the chance to accrue greater wealth, self-employed workers don’t earn that much more than those who aren’t self-employed. Self-employed Americans earned 10% more, on average, than employed Americans in 2019.
• Self-employed workers and employees alike are still struggling after the Great Recession. The MagnifyMoney analysis shows that both types of employees are worth about 20% less than they were in 2007.

Be your own boss, if you can stomach the risk

Since MagnifyMoney researchers looked at Americans who are currently self-employed, it’s safe to say those individuals have found some level of success in running their businesses. That being said, data from the 2019 Federal Reserve Survey of Consumer Finances shows these self-employed individuals have more assets and a higher median net worth than that of other workers.

For the past three decades, self-employed individuals have held assets worth, on average, at least double that of other employed individuals. The difference was highest in 2001 at 3.4 times ($634,310 for self-employed versus $186,450 for employed). 2019 was the second smallest at 2.5 times ($510,000 for self-employed versus $205,500 for employed).

When it comes to net worth, retired individuals came the closest to matching self-employed Americans with an average median net worth of $162,860 between 1989 and 2019. The self-employed group averaged a net worth of $377,310 for the same period, with both groups eclipsing other workers at $82,870.

But it hasn’t been all wealth accumulation for self-employed folks.

A dollar earned is a dollar in debt?

During the same period, self-employed people have taken on more debt, on average, than their non-self-employed peers. Since 1989, the self-employed group owes an average 1.5 times more in debt than employees.

Retirees record the lowest median debt owed over the last 30 years, averaging $20,160, a fraction of the average $104,210 that self-employed folks owe in 2019. Other employed individuals come closer with $71,710 in debt. The gap between self-employed and employees was the biggest in 1992 at 2.1 times ($77,410 for self-employed versus $37,540 for employees).

Who makes the big bucks?

Though a higher income might lead to a higher net worth over time, being self-employed might not pay off regarding salary. The self-employed group has continuously made more than other workers, but not by a considerable margin. Self-employed workers have earned roughly 22% more on average than other employees each year since 1989.

In 2019, for example, self-employed workers pulled in a median $77,380, 10% more than the $70,250 made by other workers.

It’s possible the 2008 financial crisis helped narrow the gap between the two groups as self-employed folks saw their median income drop by more than $18,000 between 2007 and 2010, versus dropping nearly $4,000 for other working individuals.

IMPORTANT: Self-employers may owe a self-employment tax and need to cover their health insurance premiums, among other things. Yes, median incomes may be higher, but be aware of the other costs when deciding whether self-employment is the right choice for you.

Self-employment doesn’t make up for Great Recession losses

The Great Recession is often remembered for the way it took down big-name banks and businesses, but self-employed individuals haven’t recovered faster than other working individuals. The median net worth of each group in 2019 was around 20% less than in 2007.

Additionally, both groups held higher net worths in 2001 than their 2019 holdings, but the gap between groups was slightly wider. In 2001, self-employed individuals had a median net worth of $505,480 — more than five times the median worker’s net worth of $94,450. So while the median self-employed net worth has dropped to $379,800 as of 2019, it’s still four times more than the median worker’s $90,200.

Since the most recent data comes from 2019, it’s possible — if not likely — different discrepancies could emerge after the economic fallout from the coronavirus pandemic.

Building wealth — like a boss

Whether you’re looking to become your own boss by starting a business or just looking to catch up in net worth to those who work for themselves, it’s not a bad idea to find various ways to build personal wealth.

RELATED: The Best 25 Careers for Being Your Own Boss

Get started with these three steps:

• Budget your cost of living: Many financial goals, from starting a business to buying a house, usually begin with a budget. Living below your means, having a budget and committing to and following through on savings goals are some of the best ways to start building personal net worth, LendingTree chief economist Tendayi Kapfidze says.
• Invest in a diversified portfolio: Even the most successful businesses can collapse unexpectedly. That means even if you create a lucrative and valuable business, your net worth could tank with the next financial crisis if you have nothing else in your investment portfolio. Before you create a new investment channel through a business, you’ll want to ensure your financial health stays in shape by maintaining a diversified portfolio.
• Protect your assets: Diversifying is one way to help protect your wealth. But on a more micro level, you’ll want to be sure your assets are protected from fraudsters and liability. That could mean finding a financial advisor to help you make smart and safe personal investments. If you are pursuing a business, an advisor could help you protect those assets from any business losses that might creep up. “You want to have a legal structure like an LLC that makes sure that if your business fails someone can’t come after your personal money,” Kapfidze says.

Methodology

Researchers used data from the 2019 Federal Reserve Survey of Consumer Finances to estimate the median net worth, assets, debts and income of self-employed workers and compared that to the same figure for employed workers.

Researchers used Federal Reserve Economic Data to see how self-employment trends have changed over time.