Redefining Frugality: Mistakes and Money Lessons Learned as a Freelancer

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.

More about...Budgeting, Insurance, Retirement, Taxes

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Monica
Monica
8 years ago

I have a Health Savings Account and I would definitely recommend getting one if you have a high deductible plan. The money for the deductible is much easier to part with on a monthly basis than one lump sum (especially since it’s tax free!).

It worked out well for me when I had a very unexpected emergency surgery in March. Having that money in the account during that rough time was great. It was one less thing to worry about. It would have been much harder giving up the $2400 from my emergency fund.

Greg Miliates
Greg Miliates
8 years ago
Reply to  Monica

Great case study! A few comments, from a fellow freelancer/consultant: TAXES: Yep, we hate to pay them, but it’s required. Paying quarterly taxes is an absolute MUST. I’ve seen lots of freelancers/consultants get hammered at year-end with a huge tax bill, then scramble to figure out how they’ll pay the thousands they owe. Another option is forming an s-corp or LLC, making yourself an employee, then paying yourself a monthly salary; the net effect is that you’ll end up paying less in taxes (if your annual salary is less than your net income). I’ve dome this for the past 5… Read more »

Jane
Jane
8 years ago
Reply to  Greg Miliates

Thank you for this, Greg. I am still early on in the process of freelancing, but I have found the pay rate astonishingly low on sites like Odesk. My guess is a lot of their writers are overseas? I have had some luck finding writing gigs on Craigslist, but more often than not, someone wants you to work for very little. Just recently a local law firm wanted someone to write copy for their website. They obfuscated about pay, but essentially they wanted me to work for $10 an hour. I didn’t even respond, because I figured there was no… Read more »

William @ Drop Dead Money
William @ Drop Dead Money
8 years ago

If you want to write about parenting with any authority, what’s the starting point? Having a baby, of course. Right? Until you have a child there will always be a certain amount of credibility lacking as a parenting writer. In personal finance, everyone is either a debtor or an investor, there’s no middle ground. Whether we state it out loud or not, we all have the transition from a debtor to an investor as the most basic of all our personal financial goals. Getting out of debt is not the end, it’s only the halfway point. You can talk about… Read more »

Nicole
Nicole
8 years ago

For starting slow and easy, I recommend looking into either index funds or ETFs. In fact, if you believe Brokamp, that’s as far as you need to go.

Vanguard also has Target Date Funds that are cheap and do the balancing and rebalancing for you.

Tracy (the other one)
Tracy (the other one)
8 years ago
Reply to  Nicole

I agree. Research shows that very few investors consistently beat the market average. Even professional investors and highly committed/educated amateurs rarely beat it by more than a couple percentage points. Unless you really LOVE investing and want to learn about it, low fee index funds should be fine for the average person, IMO.

Mom of five
Mom of five
8 years ago

I’ve often heard this advice. I can hear Dave Ramsey telling me to invest my money in “good growth stock mutual funds.” But it just hasn’t resonated with me. I go by Peter Lynch’s “invest in what you know” philosophy.” We’ve done well by it. Most of our stocks are up, but all of our stocks are paying tidy dividends so our money is making more than if we had just left it in the bank. Right now we’re in the midst of a strong bull market. I have a feeling it’s going to crash so we haven’t been putting… Read more »

William @ Drop Dead Money
William @ Drop Dead Money
8 years ago
Reply to  Nicole

That’s good advice, but don’t ignore non-stock investments. An acquaintance of mine is a bit of a handyman and he has made a lot more money than I have by buying rental houses when prices are depressed and using the cash flow to buy more. He doesn’t mind getting and interacting with tenants, doing repairs, and so forth. He says it’s like children – after the third one it gets easier. 🙂 Another key point: there is no such thing as purely passive income. No matter what investment avenue you choose to pursue, it requires work. It will always involve… Read more »

MB @ 12 Year Career
MB @ 12 Year Career
8 years ago

Completely agree with this. You just have to start somewhere. For example, let’s say your target retirement date is closest to 2050. So, in my opinion, the most straightforward thing to do is put your 401(k) in a 2050 retirement fund. You can determine whether or not the risk/reward profile is something you’re comfortable with and then just trust that the fund managers know what they’re doing and let it coast. Eventually, you’ve mastered that idea, so you get curious about what’s in that particular target date fund. Using VFIFX as an example, you’re looking at about 60% total stock… Read more »

GayleRN
GayleRN
8 years ago

Amen to this succinct summary of getting started, which is the most important thing. If it is very scary break it up into much smaller chunks such as filling out one page or question at a time of the form. Reading one website a day of investing information.I promise you it gets easier, but time is indeed money in the case of retirement funds.

Dan
Dan
8 years ago

William,

One can actually be a debtor and an investor at the same time, so I don’t think that’s the dichotomy you are looking for.

A better distinction: You either live paycheck to paycheck, or you don’t. I remember the time when I started making more than I was owing/spending every month, and it was really, really weird.

Sam
Sam
8 years ago

There can be very good reasons for leaving a 401k with a prior employer’s plan. While you can’t add money to it, you can sell and buy with the money already invested in that 401k. While a self directed IRA provides great flexibility, an institutional 401k will often times have lower fees. And if you are rolling a 401k from one employer to another, if you leave funds with an old employer’s plan you may have access to funds that you won’t with a new employer. http://money.usnews.com/money/retirement/articles/2012/06/04/smart-strategies-for-401k-rollovers-to-iras We don’t have a HSA but we do make use of a health… Read more »

Babs
Babs
8 years ago
Reply to  Sam

Good point and nice link. I think there is another thing to take into account if you are considering leaving your 401(k) account with your former employer and that is the quality of their HR department. If there is not much continuity records can get lost. That kind of thing is not supposed to happen but apparently it does all the time.

Nicole
Nicole
8 years ago

Great post! I look forward to reading about you figuring things out. I’d also love a post from you that updates that post on how to save irregular income but for your circumstances.

Nicole
Nicole
8 years ago
Reply to  Nicole

Oh! I also look forward to you earning enough that you start exploring the other options for saving for retirement beyond the IRA. That could be very useful.

El Nerdo
8 years ago

Hi Kristin! The HSA is supposed to tie you over until you reach your deductible– fund it tax-free! Think of it as a component of your emergency money. In theory anyway you don’t have to fund it every time, only top it off up to the level where your insurance kicks in, especially if you have 0 coninsurance (if you have 20% coinsurance or something like that then you might want to keep funding it until your maximum out of pocket is also covered). Also, please let me recommend this review + book. Random freelancer note: I’m meeting my bookkeeper… Read more »

Tracy (the other one)
Tracy (the other one)
8 years ago

“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.” That is a great idea! Because I am not the main breadwinner and my income varies so widely ($0 to $6000/month), my own method is slightly different. First, I tracked my income until I had an idea of my average quarterly income. Then I set up a budget for that income, with specific quarterly goals… Read more »

Rosa
Rosa
8 years ago

These kind of budgeting methods are good for people who are employed but make a lot of their income in commission, bonuses, or tips, too.

Emily @ evolvingPF
Emily @ evolvingPF
8 years ago

I had to file estimated taxes with my last employer, and I incurred fines for not filing one quarter. I couldn’t use ignorance as an excuse, though – I had filed the previous three quarters, I just got busy and lazy!

cc
cc
8 years ago

freelancer hugs!! (billed by the half hour of course) i am 29 now and a freelancer like yourself (graphics and web), the first year or two out i slipped up on taxes and came home with an 11k tax bill (when was like 25ish). i’ve been paying it off for the past four years (couldn’t do a lump sum) and have been frugal by necessity since. i hope to be out of debt by next year, but i’m also trying to max out my retirement contributions before because i am a big dork so things are a little slow. i… Read more »

AMW
AMW
8 years ago

Regarding HSA, this is definitely a tax saver. You can not take a deduction on your medical payments until it reaches 7.5% and even then you can only deduct over and above that amount. In contrast, the HSA allows you to use pretax money to pay your bills. The HSA also allows you to budget your unknown medical expenses on a monthly basis, try to find one that allows you to roll over your balance year to year.

You may also want to check into an SEP account and see if that might work for you as well.

Jim
Jim
8 years ago

I have a HSA through my employer and my deductable is $7,000 because of my family. There is a limit on what can be contributed each year but my employer puts in $2,500 a year. I believe you can’t put in as much as my deducatble is BUT it have been great for unexpected issues, especially having kids. I am about to begin looking in to other plans to see if I can get the family deductable lowered, (not sure if that is possible) but having the ability to maintain my HSA is going to be a factor in which… Read more »

Budget & the Beach
Budget & the Beach
8 years ago

I know a lot of what you’re going through as a freelance myself. I don’t have a health savings account but just an emergency fund, which has been depleting lately because work has been slow the last couple of months. I have worked for less than I think I’m “worth,” and have even recently taken on two side jobs for min wage. A retail job and a personal assisting job. You gotta do what you gotta do. Needless to say, I’m over the freelancing roller coaster and want to find a full time job!

Matt at Healthy N' Wealthy
Matt at Healthy N' Wealthy
8 years ago

First off, I really enjoy Ms. Wong’s posts, so thank you. As for rolling over your traditional IRA to a Roth: even though taking the taxes now may be painful, you should do it before you find yourself in a higher tax bracket. If you wait, and you end up earning a higher income, you’ll in all likelihood pay higher taxes. Furthermore, with the tax cuts expiring at the end of 2012, you’ll end up paying even more, unless the law changes (Obama v Romney could make a difference). Lastly, when you retire, I’ll assume you’d like to withdraw as… Read more »

KT
KT
8 years ago

Now THIS is a great post. A welcome change from the philosophy and nonsense!

I really enjoyed a substantial, informational post, so thank you!

Nicole
Nicole
8 years ago
Reply to  KT

I feel like I should say something horribly controversial to get the comment count up. That’s the problem with good solid posts– they don’t bring in the arguments. But posts like this are what make the site worthwhile!

Michelle
Michelle
8 years ago
Reply to  Nicole

The comments that have shown up so far have been tremendously valuable as well. All the comments about budgeting and investing on a freelancer’s irregular income also work well for odd jobs and other types of self-employment.

Sue
Sue
8 years ago

An HSA is not a good option if you have chronic illness or pre-existing condition, oir a family member with either of those. It can cost thousands more per year vs. an insurnace plan. This however is the way the industry is going (more employers will be offering this in the future), because it leads to more premium for industry and less payout for customers. If you’re healthy, it possibly makes sense. As for rolling over a 401(K), employers generally provide lousy investment options. They don’t want to offer anything other than very middle-of-the-road choices (index this and that, “international”… Read more »

Laura
Laura
8 years ago

My husband is a freelancer in the PR world. He’s a sole proprietory (Schedule C). What we do to be sure we’re not getting hit with unexpected tax bills that we have trouble paying, is that everytime he writes himself a “paycheck” from his business account, half of it goes into a savings account earmarked for taxes. We keep his company account and personal accounts entirely separate, so the only checks he writes that are not business expenses from the company account are his “paychecks”. 50% probably sounds high, but as a sole proprietor, if you leave any money in… Read more »

Honey Smith
Honey Smith
8 years ago
Reply to  Laura

Solid plan! I’m setting aside 1/3 of my freelance income for taxes despite having withholding through my regular job.

Megan E.
Megan E.
8 years ago

Great post – I read these with interest since DH’s education is almost over and he may be going full time into SE once he graduates. And we are already dealing with some of this part time. My suggestions based on our experiences so far: 1. get a good CPA, don’t try and do SE stuff yourself, it’s complicated 2. Learn about SIMPLE IRA and SEP IRA options for retirement, they are made to benefit SE people. 3. Find a good spreadsheet on google and enter all your income. That’ll give you the estimate of the SE taxes to pay… Read more »

Ash (in US)
Ash (in US)
8 years ago

I just absolutely like this post. THIS is what I like about GRS. A personal story that explains where the author is, gives a bit of financial info, makes decisions, and then asks about comments. Sure, there are some stylistic things I would change (and maybe some grammar I skipped over, I dunno), but this is a solid post. Thanks, Kristin!

Alexandria
Alexandria
8 years ago

I’ll disagree with some of the “do it do it do it” posts. ROTH conversions are great, but I’d wait until a time where I had extra cash stashed up. Take advantage at the next stock market dip. The lower the value that you convert, the less tax you pay. I am personally recently rolled $50k into an IRA – all the rest of our retirement is in ROTHs. We are in a low tax bracket and it is a good time to convert (though will have to do over multiple years to keep low tax rate on conversion). I… Read more »

CincyCat
CincyCat
8 years ago
Reply to  Alexandria

HSA’s designed for the “wealthy”…? That’s a new one for me. We’re hardly wealthy, but we absolutely love our HSA! To us, it makes much more sense from a monthly cash flow perspective to sock that money away “off the top” in a highly liquid account (& get the associated income tax benefit) than to put that money someplace where we can’t easily get to it if/when we need it.

Kevin M
Kevin M
8 years ago

We have a HSA, which was primarily funded from the 50% monthly savings when we switched from our expensive employer group health plan to a high deductible plan about 3 years ago.

The crazy thing is the deductibles were the same on each plan – $5,000, so we didn’t take on any additional risk. In about a year’s time, the savings fully funded our HSA and thankfully we haven’t had to use it much since. I’d definitely open one if you have the funds.

CincyCat
CincyCat
8 years ago

We LOVE our HSA! Not only is it tax free (as you mention), but it is not a use-it-or-lose-it account. We let it pile up recently, and used some of it to take care of our co-pay for our daughter’s braces. Easy-breezy! My DH’s employer handles the administrative side, and he contributes XYZ amount each month, off the top. (His employer also kicks in a little bit of a match.) After having it for so many years now, we don’t even factor this amount as income, so it doesn’t seem as painful as physically parting with the money each month.… Read more »

superbien
superbien
8 years ago

Cool post – maybe you can do a newbie’s guide to standard money management books like Bogleheads. We have lots of expert reviews of them, but I think it could be helpful from a newbie’s viewpoint.

Erica
Erica
8 years ago

As a fellow freelance writer, I highly recommend the HSA. I recently herniated a disc and couldn’t work for two weeks – sitting in any position to type was excruciating. As I was re-negotiating deadlines and turning down new jobs, it was nice to know I at least had a nice cushion of pre-tax income to pay for my care. I’d previously only needed the HSA for preventive care, but that still adds up, especially since I chose a plan without dental or vision coverage. Also, remember that you can roll unused funds over to the next year, unlike with… Read more »

Jane
Jane
8 years ago

I am a minimal freelancer in the sense that I do side writing jobs to bring in some extra income. I think I only made around $1,000 in the last three months of 2011. We just paid taxes on that for the year. This year I am set to make about $3,000. Still very little. My question is – do the quarterly taxes apply to me or is there a certain income threshold that requires it? We were planning on just adding my income to our yearly tax return. Right now I am working on a contract writing job. This… Read more »

Nicole
Nicole
8 years ago
Reply to  Jane

Ugh yes. I have something I did months ago for ~$300 and I think they just forgot to pay! (I’m not badgering them because it’s something I would have done for free, and they’ve given me a lot more money for something else, but still…) And the little $100 checks that come 6 months after the work is done. I can’t imagine quitting my day job and relying on other people to pay up in a reasonable time-frame. I just hate badgering irresponsible people. And yes, you should do quarterly taxes unless you generally get a refund … for a… Read more »

Megan
Megan
8 years ago
Reply to  Jane

Freelance writer here – my CPA said not to worry about quarterly taxes if you’re only bringing in about $4,000/year. But if it looks like you might make $7 or $8k /year, then you should really do quarterly taxes. If for no other reason, at least you won’t owe a ton of money at tax time!

YMMV, and if you’re really concerned, I’d speak with a CPA instead of going along with what some random chick on the Internet said.

Valerie
Valerie
8 years ago
Reply to  Jane

The rule is if you will owe $1000 or more in taxes for the year, you should make estimated payments. You can use other people’s rule of thumb to figure your taxes owed. If you overpay, you can get a refund or apply it to the next years taxes, then adjust your rule of thumb so you get closer next time! I have not paid estimated taxes since I wasn’t sure what to pay and then ended up paying a penalty. Then I underpaid the estimated and had a huge bill in April. Then I way overpaid and was actually… Read more »

Dan
Dan
8 years ago

Kristin, You touch on a point that is rather near and dear to my heart, and it’s something I wish most Americans could understand a bit better: Taxes. Yup, taxes. For most of us, they aren’t some big scary that is impossible to grasp. We all ought to have some basic understand of the tax structures and how marginal tax rates work. (Hint: being in the 35% bracket does not mean you pay 35% of your total income in taxes.) I think this is especially important when it comes to retirement planning. Today, the first $18,700 or so of earned… Read more »

BD
BD
8 years ago
Reply to  Dan

Dan, Your comment is only valid for people who are actual employees of another entity and are taxed as such. The company pays half of the SSI/FICAtaxes, and the other half is automatically deducted from the employee’s check. So, they can make a few thousand dollars and not have any INCOME tax owed. However, for someone who is self-employed, like the writer of this article, they are taxed FICA/SSI self-employment taxes on the first cent they make. It roughly equals out to around 13-15% of ANY income (the percentage depends on what tax breaks the government decides to give that… Read more »

Dan
Dan
8 years ago
Reply to  BD

Hence my comment about people should have a 101-level understanding of taxes…

But even as a freelancer, you have the choice between a Roth vehicle or a pre-tax vehicle, right? That makes my comment valid for anybody.

Honey Smith
Honey Smith
8 years ago

Jake also refused to believe me that you’re REQUIRED to file taxes quarterly if you’re not having them deducted from your paycheck. His actual words were, “quarterly payments is a service the IRS provides, not a requirement.” Um. I don’t believe the IRS is in the business of providing unrequired services 😉 Here’s the link that finally got him to ask his bookkeeper and 2 CPAs about the issue: http://www.irs.gov/taxtopics/tc306.html Money quote (ha! I said money): “The United States income tax is a pay-as-you-go tax, which means that tax must be paid as you earn or receive your income during… Read more »

KT
KT
8 years ago
Reply to  Honey Smith

This proves my theory.

Here is an excellent, non-controversial article. While it’s read, and appreciated, it doesn’t have the same comment count, so here comes Honey to say something about her incompetent husband to stir the pot.

Dan
Dan
8 years ago
Reply to  KT

If Honey is a troll, you just fed it 😉

Jacq
Jacq
8 years ago
Reply to  KT

Give the guy and girl a break, they’re both learning and sometimes you have to learn the hard way. I’m an accountant by profession and even I’ve had a tax penalty in my past.

Sara
Sara
8 years ago

I’ve been a freelance photographer for about 10 years now, and I just a couple years ago feel like I’m on calmer water. IRA vs. Roth? I need the tax deductions now, so I do regular IRA. HSA, just 20-40 dollars a month helps (and is the same tax deduction as that IRA), plus on good years, it means I have a few thousand extra that I can put toward my retirement, because that HSA basically turns into a retirement account later. My local bank had a no fee HSA that doesn’t make a lot of interest, (they had it… Read more »

Edward
Edward
8 years ago

Some really good things in this post, Kristin! I especially like the part where you highlight an individual who is broke, whiny, but won’t take jobs he thinks are beneath him. We have this mindet a lot in Canada. People won’t a) Move to where there are jobs or b) Take any job that’s not in their “chosen field” (They also refer to this as “not giving up on their dream”). So, instead they complain. …Way too loudly in my opinion. I don’t care–if they kicked me out of my decent IT job, I’d take something scrubbing toilets the next… Read more »

cajh
cajh
8 years ago

Before I read any of the comments, I just wanted to let you know I really enjoyed this article. Hearing you identify and own up to the mistakes you made followed by the steps you’re taking to correct them is very inspirational. I’m starring this entry so I can reference your helpful links in the future.

Kristin
Kristin
8 years ago

Hello all! I’m sick and in a NyQuil haze, but I wanted to say I’m really enjoying reading everyone’s comments. It’s a lot to take in, but the tips/advice/opinions are very helpful and I’m glad the article sparked some discussion about these topics. William’s parenting metaphor was also great…”In parenting terms, you’re at nine months with the first one.”
Let’s just hope I don’t need an epidural for dealing with all this stuff–ha!
Thanks, everyone. I’ll be switching between work and resting up, but your comments are being read and appreciated.

Jenna, Adaptu Community Manager
Jenna, Adaptu Community Manager
8 years ago

Nope. But I’m planning on opening one the next time my company does open enrollment, which I think is next month.

spiralingsnails
spiralingsnails
8 years ago

HSA’s can be great! Run the numbers to make sure that it’ll be a better deal for your individual situation, but I personally was very sad when we had to go back to a regular health insurance plan. Frugal hack: You can deposit money in your HSA as a “previous-year contribution” from January up until tax-day in April. So if you weren’t able to deposit the full HSA allowed amount during the past year, you might be able to toss in a little extra just before you file in order to make your tax return sweeter. For example: if we… Read more »

Ben @ AffordingReality
Ben @ AffordingReality
8 years ago

It’s so refreshing to hear someone say, “I’ve learned from my mistakes (and the mistakes of others) and am trying to adjust.” That’s all you CAN do! If you just give up (like your anti-barrista example), then there is no sympathy from this corner. Your way of planning your finances by holding back a year is really impressive, and an example I will file away, as my wife and I are on straight salaries, making budgeting a bit easier. We come up short on ideas for folks who ask us about variable income budgeting. As far as an HSA, the… Read more »

Jonathan
Jonathan
8 years ago

Hopefully I can soon make enough income from my writing that I actually have a tax liability.

My employer offers a HSA with a high deductible health plan. I should probably look into it.

AC
AC
8 years ago

This is the first time I’ve seen HSA’s mentioned on GRS. Though I am not a regular reader I am surprised it is not mentioned more often. I have had an HSA for several years now and I max it out. I treat it like another deposit account for retirement, because when you reach 65 I believe you can take that money out for non-health related expenses without 20% penalty, you just pay the tax on that distribution.

Babs
Babs
8 years ago

Another frugal hack. You can ask the IRS to waive penalties. They won’t waive interest but they sometimes will waive penalties. I have had penalties waived at least twice. I ask nicely and usually with a little humor thrown in, a mea culpa, and a promise to try to do better in the future. Obviously you can’t do this over and over, but everyone has problems every once in a while with compliance.

Sarah
Sarah
8 years ago

I feel compelled to also extol the benefits of the HSA. I have found the HSA was a great way to save money if you know you will be incurring medical expenses. My husband and I planned to have a baby this year, and had saved some money(8K)for that expense over 5 years, just in case, figuring if we didn’t need it for medical, we could use it for the future college and childcare costs. At work we were able to use a cost comparison calculator of how much we would pay for the low deductible plan over time versus… Read more »

Jason Clayton | frugal habits
Jason Clayton | frugal habits
8 years ago

Kristin, I think it is awesome you pursued your dreams of being a freelance writer. Making such a huge step is bound to effect your finances, but from reading your article – it sounds like you are well on your way. I do have an HSA. I chose to set one up because the high deductible plan at my company was the most cost effective for me. Essentially I pay all my medical bills out of this HSA until I hit the deductible. Its great, and very easy to set up. Took me a whole 20 mins at my local… Read more »

Bucksprout
Bucksprout
8 years ago

Creating a budget for yourself using your lowest monthly income is a great strategy. We all live and learn, finances is no different. Keep it up!

Andrew @ She Thinks I'm Cheap
Andrew @ She Thinks I'm Cheap
8 years ago

Forgetting about having to pay the tax man is a big issue for self employed people. It’s best to set aside money each month in a separate account to cover your future tax bill so that when the time comes the cash is available.

Also don’t forget about paying capital gains tax on profits made for investments. It’s easy to forget that you sold some shares for a profit at the beginning of the year. Then you get a big surprise come tax time!

Jim
Jim
8 years ago

GREAT ARTICLE! The main thing here is as someone else pointed out about realizing mistakes and procrastinations, and learning from those and others’ mistakes. I highly recommend an HSA it doesn’t have to be funded completely to the max allowed for tax free purposes, but does roll over the unused amount each year hence Health Savings Account. I also like the suggestion in an earlier comment of incorporating and paying yourself a salary. It does cost to incorporate, but in the long run affords you many benefits that can be taken advantage of. One thing is you are afforded the… Read more »

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