Sitting on my desk as I write this is an application I should have filled out months ago. Twenty-two months ago, to be exact.

It was then that I left my 40-hour-a-week office job, which included a convenient 401(k), dependable health care plan and, most refreshingly, a kind and understanding boss. It was tough to leave that job, but I wanted to pursue a career in freelance writing.

The entire experience was overwhelming. Details of that are for another post, perhaps, but the point is: what I found most overwhelming was dealing with my own finances. Administratively speaking, my employer had taken care of my retirement plan, taxes and health insurance. It was great.

The application on my desk is for rolling over my 401(k). A 401(k) that has been inactive for the past two years. At first, I didn’t even remember who the account was with, to be perfectly honest.

I’m 29 years old, and I’m no financial expert. You might’ve noticed that from the topics of my previous posts. I can talk about the philosophy and psychology of frugality all day long, but when it comes to tangible, financial issues — Roth vs. traditional, hedge funds vs. mutual funds — I shy away, because, like I said, I’m overwhelmed.

And this post is no different, really. Overall, I want to share my experience in being inundated with the idea of taking control of my own finances — not having an employer to do it for me. But as I try to do in all of my posts, I also want to share what I’ve learned and how it applies to frugality.

But first, my budget basics:

As a freelance writer, my future is generally uncertain. I’m in a comfortable spot right now. But being in such a fickle industry, who knows what will happen in a year? Actually, I think that question could apply to anyone. Without sounding like a total downer, who knows when you might lose your job, especially with the state of the economy?

Because of that uncertainty, I don’t establish my budget based on my current income. Even though I’m making quite a bit more than I was last year, I budget myself using my lowest monthly income of the past twelve months as my projected cash flow.

Thus, I’m still living by December 2011′s budget, although I’m earning significantly more than I was at that time.

Since my cash flow has increased while my budget remains the same, my excess income goes into my emergency fund. I don’t have a set amount in my emergency fund. My plan is simply to save as much as possible until the end of the year, and then reassess my finances at that time. Next year, if my financial situation remains the same, I will likely give myself a bit more budgeting leeway.

Overall, I stand by a cliché that works well for a frugal mindset — don’t count your chickens before they’re hatched. My projected income right now may be X amount, but unless I have X in my account right now, it’s not yet my money. Maybe that’s a bit paranoid for those who aren’t self-employed, but for my budget, I think it’s necessary.

The High Cost of Ignorance: $5,000

I have never been more financially depressed than I was in April 2012, just five months ago. I was devastated. It was my first full year as a freelancer, and I owed $5,000 in taxes. The worst news was — that was all I had left in my “move to California to pursue a writing career” fund. In one lump sum, it was gone. It was the first time since college (and when I was in debt) that I’ve been seriously worried about how to make ends meet.

The problem was twofold. First — and this is such a common mistake, I can’t believe I didn’t know better — but I didn’t realize just how much I owed in taxes throughout the year. Because of the fact that I was making so little, I figured my taxes would be little, too. So I didn’t do much research, planning or saving in preparation for April 15, 2012.

The second problem: penalties. Again, because of my lack of research, I didn’t realize I would be charged a penalty if I didn’t pay my quarterly estimated taxes. (My other freelance friend argues that these don’t need to be paid, but I’m telling you — I incurred a penalty for not paying them, and so did this guest writer.) This year, I’ve started paying my estimated taxes, and in this case, I determine my income based on the average amount of the last three months.

What You Deserve Vs. What You Can Get

Sometimes, instead of making my own mistakes, I try to learn from someone else’s.

On another personal finance board, I read some comments from an unemployed member who was struggling to make ends meet. He was complaining about his situation, but he refused to take $10/hour jobs that were “beneath” him (someone suggested barista) because he had a college degree, and he was making a decent amount before he lost his job.

It sounds harsh, but if no one else is willing to pay you what you think you deserve, then what you think you deserve doesn’t matter. At least not right now. If you’ve been jobless for a while and your bills are piling up — you take what you can get, and you keep looking until you find what you deserve.

I feel like this is especially true for freelancers. Some freelancers get used to working for a certain amount, and then they don’t accept anything less. We all have our limits, and if you can get the work and/or you’re not hurting financially, then by all means — that’s what you’re worth. But I’ve taken lower-paying jobs because, frankly, they’re still paying. Rates vary greatly, anyway.

Preparing for the Future: My Abandoned 401(k)

Here’s where the overwhelmed part comes in. The topic of investing for retirement gave me a migraine, and to be honest, I put it off until I started writing this article (hence the application).

I’ve been doing intermittent research on traditional vs. Roth IRAs, and this GRS post was especially helpful. This calculator was also pretty handy.

In an article for USA Today, Matt Krantz explained the difference in pretty simple terms:

“It’s when you take the money out that there’s a difference between the IRAs. As long as you meet the requirements for a qualified distribution, when you withdraw anything from a traditional deductible IRA, your withdrawal is taxed at your ordinary income rate. With the Roth, you pay no tax.”

In the long run, Roth is prudent, I know. But with Roth, the amount you roll over will be subject to taxing. At this point in the year, I’m not prepared to pay the tax that I would incur by rolling my money into a Roth. So traditional it is, for now. Perhaps I’ll switch to a Roth later, when I’m more prepared to deal with the tax implications.

Whew. Am I 30 yet?

Health Insurance and Health Savings Accounts

Recently, I picked out a health insurance plan. Considering the horror stories of others (although that one has a happy ending), I found the plan to be quite reasonable, at $135 a month with a $4,500 deductible.

Then the question of health savings accounts (HSA) came up. I emailed my dad to ask what the heck that was. Basically, he said, it’s like opening an IRA for health expenses. You save, tax-free, in your HSA. You can then apply those savings toward the deductible of your HSA-compatible insurance plan.

I’m torn. A health savings account seems prudent for the future. Also, not only is the accrued interest tax-free, the HSA itself is tax-deductible. But at this point in my life, I’m not sure I’m ready to commit to another savings account, and the premiums for HSA-compatible plans were a bit higher. As my income stabilizes, perhaps I’ll revisit this.

What are your thoughts? Do you have a health savings account? When and under what circumstances would you recommend opening one?

The Bottom Line: Expanding My Definition of Frugality

Maybe I’m oversimplifying things, but again, I’m not an expert or an adviser; I’m just sharing what I’ve learned since delving into my financial options. Please feel free to offer your insight.

I’m still mad about that tax penalty I mentioned earlier. But it was my own fault. I was overwhelmed with having to be in control of every aspect of my finances when, just a couple of years ago, my tax payments were made for me.

Earlier this year, allowing myself to become intimidated with the ins and outs of finance nearly led to my financial demise. Like any item on your to-do list, the longer you put it off, the uglier it gets.

Frugality is great. I know a lot about it, and I actually enjoy it. But I’ve recently realized that my definition of frugality has been limited. It’s not just about saving money; it’s about being careful with money. For me, that meant doing research, taking control of my own finances and preparing for my financial future.

Sigh. There are just so many pit stops along the GRS journey.

Now if you’ll excuse me, I have an application to fill out.

This article is about Budgeting, Insurance, Retirement, Taxes