Oh right, I was going to talk about taxes

This is just a followup to my short post from the other day. I’d originally meant to include some info on my first tax season as a freelancer in a while, and then totally forgot.

So, back in my early 20s I was primarily a 1099 employee for a while. I did pay quarterly taxes for about a year, IIRC, although when I transitioned into a union version of freelancing, my taxes were mostly withheld–they were still kind of a nightmare because I’d have ten or so employers over the course of the year with a corresponding number of W2s, but at least I didn’t have to manage calculating and paying quarterlies. Anyway, I kind of knew the drill. So when I started freelancing seriously again last year, I also started setting aside 25% of what I made. For most of the year it was in an account connected to Mint, and therefore part of my net worth, but I realized that was gonna suck when I actually had to use it to pay taxes, so I moved it off Mint entirely–it’s now in an account at a completely separate bank and the only thing I use that account for is tax payments.

My 2018 taxes were mostly finished a couple of months ago. Since I’d had a fair amount withheld from my regular paychecks in 2018, even though I made almost $14K in freelance income and hadn’t paid quarterly taxes on it, I still only ended up owing the federal government about $1500 and Indiana a bit under $300. And I got a decent refund from California, since I’d had taxes withheld there as if I was going to be employed there all year, which in the end I wasn’t. So I was able to move nearly $2000 from my tax account back into my normal accounts, as if I’d gotten a refund–very handy! I used about half of it on travel and about half went into my cash savings, which I’m still trying to build up to $50K this year; I’ve been stuck around $43K for a while now, moving money in and out of savings in good/bad months, but I’m hoping to permanently get up to $45K at the end of April when some checks come in. Cross your fingers for me.

Meanwhile, I also calculated and paid first-quarter taxes last week. I’m not really sure how my income is going to shake out this year, but during the first three months I received just under $10K (Jan and Feb were really good, March was not good since I traveled for half of it and didn’t work much, and the work I did do, I am mostly going to get paid for in April or even May.) So I decided to estimate $40K for the year, figuring that if things change appreciably I can always recalculate for the next three quarters. I also decided not to account for any deductions or anything like that; I would rather overpay all year and get a refund next year, really. I like refunds, it’s a psychology thing, don’t @ me.

(Also, if I really do make $40K, I’ll need that extra money to offset the extra health insurance money I’ll owe. I only estimated $30K when I signed up for an Obamacare plan and so right now I’m paying insurance every month like that’s true. But I could end up having to pay up to an extra $1200 next year if I make too much money, so it’s just as well to intentionally overpay quarterly taxes, in case.)

The upshot of all this calculation is that for the first quarter, I paid the feds about $2K and Indiana about $450. This was almost exactly the amount I had in my special taxes account from moving over 30% of my earnings (I upped it to 30% for the new year) so, go me! It is a massive improvement to simply have the cash set aside from each paycheck and be able to transfer it every quarter, vs having to make this big deduction from my checking account or whatever. (And of course it’s a massive improvement over the alternative of not paying quarterly taxes and getting hideously behind, too.) It feels tidy. And it’s easier to deal with now than it was in my 20s because you can make the payments via an online bank transfer instead of having to fill out a coupon and send in a check, etc etc.

So, that’s my tax system! 30% of everything to the special tax account, pay quarterly, hopefully get a refund next year based on business deductions, rinse, repeat.

Well, it’s been a while!

Changes are in the works around here. I’m still poking around about a few possible “real jobs” for next year, but even if I get/end up taking one of them (I’ve already turned one down because I didn’t want it enough to move for it) I plan to keep this freelancing business going, just on a pared back basis. It turns out people really need good editors (I am excellent at it, having both an eye for big picture matters and for tiny little formatting issues, which is a fairly rare combination) and will pay for it. Who knew?! The income from this is still running around 2/3 of where I’d like it to be (I’m on track for grossing $40K in 2019), but there’s a lot of room for hustle/growth left — many hours in the week when I could be working and am currently not. Basically, if I do increase my income beyond this level, it can mostly go into retirement, since what I’m making right now is sufficient for living well (vacations! dinner out!) and some cash savings. I’m certainly not saving a *ton* of cash — my savings accounts are up about $3000 over where I was at the end of last August when I got my last paycheck — but I feel OK about where I am, all things considered, especially because my plan was to spend down my savings accounts during this academic year, not pay into them!

My work has been a combination of things, like freelancing always is. I’m still doing some blog ghostwriting, though not much, about $400/month right now. I have a regular/irregular gig working with PhD students through an organization, which is highly variable month to month but also will last forever, so it gives me some continuity. I’ve commented on several people’s book drafts, to help them with organization mostly. I completely rewrote one manuscript (special circumstances, long story I can’t really tell here.) I indexed a book a month or so ago. And I’ve also done some very basic copyediting (checking and reformatting notes and bibliographies) for several people, which is not the most exciting work in the world but is kind of soothing. (I didn’t know that learning Chicago style would be the most lucrative thing I did in grad school, but there we have it.) I also picked up my first copyedit for a university press–I haven’t started working on it yet, but I do have the files downloaded and plan to get going on it next week. That’s less lucrative by the hour, but it’s a lot more reliable than the word-of-mouth network of individual scholars that’s brought me the first-draft book manuscripts.

Overall, it’s a decent mix. I like some of it more than others, of course, but none of it is terrible and all of it together adds up to a reasonable variety. My next step is to bring some stability to my work hours, I think, and really figure out a schedule that will allow me to do other things. I’m still doing about two full days a week for my main volunteer gig, and I’m committed to that through June. However, after that I may pull back to one day (or more realistically, two half-days), and use the remaining time either to pick up another volunteer gig, or to go back to doing my own scholarly writing.

I also want to think more about how to grow the business, besides getting on the freelance lists for more university presses. I’m leaning pretty hard towards transitioning my twitter account to my real name (which would mean finally shutting this blog down) so I can do more online networking–that seems to be the way a lot of people get business, not too surprisingly. Right now I’m relying totally on word of mouth from people I personally know, and while I do know a lot of people and they’ve been really helpful at alerting me to possibilities, I’d like to expand that network. For one thing, some of the work I’ve liked best has been fixing prose for ESL scholars, and my personal network isn’t so great for that; I’d like to do more of that, which means I need to seek out those communities more.

A few financial goals for 2019

End of 2018 net worth report: $93,448, as of a few minutes ago (STOCK MARKET BLUES). I also have $3500 chilling in an unrelated account, waiting for tax season; I have no clue whether I held enough out of my freelance earnings or not, but I guess we’ll find out! My freelance earnings, by the way, totaled $13376, or $18876 if you count the adjunct summer class I taught via my day job. Not bad at all, considering I’m building up from scratch and also volunteering approximately half time. I would be pretty happy to repeat that number (doubled to represent a full year) in 2019.

I decided to make a few pretty lightweight financial goals for 2019, just to give some shape to my decisions moving forward. None of these involve an actual plan, and they are all subject to change — for example, if I get a full-time job again sometime this year (a possibility I am still debating) I will revise the savings numbers upwards. But here are my thoughts right now:

  1. Develop freelance income to an average of $3000/month over the course of the year. This is below where I want to be longer term — that would be closer to $5000/month — but considering that I am still building contacts and business, and will be continuing to work part time and volunteer part time through June, I think aiming for this average is pretty reasonable.

2. Increase my cash on hand to $50,000. Currently I have about $40,000 in cash savings, with a couple thousand extra in my checking account. So I’m aiming to add something in the vicinity of $8000-$10000. That would represent about 25% of my hoped for freelance income so this goal might be overly ambitious, but it’s something to aim for, anyway. If the market massively crashes I’ll invest some of this but if it’s just going to keep screwing around in the Dow 22,000-26,000 range I’ll keep it in cash.

3. Fully fund my Roth IRA. I contributed about $10K to retirement in 2018 (nearly all of it before I left my job at the end of August.) In 2019, I’d be satisfied with $5500 into my Roth IRA. If I do get a full-time job this is the goal that’s most likely to significantly change — I’d put more into retirement if that happened.

4. “Give” half my after-tax income. For a few years now, I’ve been aiming to save half my after tax income, and gotten pretty close, either going just over that or just under it. But in 2019 I want my mindset to be less about saving and more about giving, to my future self and to others. When I add my numbers up at the end of the year, I’d like to have spent about half on my living expenses, and about half on giving my future self care and options, and giving others gifts in the present. My bare-bones budget includes some charitable giving, but it’s pretty minimal — around $50 a month. Freelance income allowing, I’d like to increase that to $100/month. When I stop doing half-time service work after June 2019, I also want to increase the $$ giving line accordingly. I’m also starting a budget line for gifts for my godchildren and niece, who all constantly need clothing and books.

And that’s it! I am moderately optimistic about 2019, for the first time in a while, and I hope you are all out there enjoying the last day of 2018. Thanks for continuing to come along for my ride.

My absolutely gigantic emergency fund and why I love it

The stock market’s drop has me back well below $100K — though that’s also partly because I moved the money I’m saving for freelance taxes into its own account at a separate bank that Mint and Personal Capital don’t track. For most of the last six months I’ve had it in one of my regular savings accounts and showing up as part of my net worth, but I realized sometime this fall that it didn’t make sense; instead I should hold it separately as if I was having taxes withheld. In 2019 I’ll start paying quarterly taxes again (I’m glad I’m at least somewhat familiar with this process from back in the day when I freelanced in my early 20s) so it’ll be good to have a holding bank account that I just use for that money.

ANYWAY. That’s not really the main point here. The main point is that because freelancing has gone so well, even though I haven’t added to my savings since I quit my job I still have $40K in cash between what I technically call my “emergency fund” and what I call my “life fund,” enough for two solid years of not really thinking too hard about money or three years of bare-bones expenses (or probably like ten years if I move into a volunteer community and don’t pay rent or for food!) And even though freelancing is going well, I have zero intention of letting that fund drop.

The reason is that my work life is just too fragile. I don’t have a business like plumbing (everyone always needs their pipes fixed.) I do high-quality editing work, but at the end of the day, in order for me to make money people have to decide that they care about their writing enough to pay to improve it. When there’s another recession or if universities start closing their humanities departments right and left (or both) my current preferred income stream could be in trouble, and just at the time when other work could be harder to come by.

So, absolutely ludicrously gigantic emergency fund it is. Every morning I open my bank page and look at it and take some deep breaths. It feels good to have backup.

Freelancing, part 2

The last time I wrote about my freelance business, back in August, I was just getting started. I’m going to start this post by copying the numbers from that post, though to better accord with how I categorized the money in YNAB I’m going to change the headings to “income for month” — which reflects money actually received, rather than money billed.

Income for July 2018 (work completed in June)
Editing: $600.00
Blog ghostwriting: $150.00
Book review: $500.00 (note: this is very unusual and probably not repeatable.)
Total: $1250.00

Income for August 2018 (work completed in June and July)
Editing: $1428.00
Blog ghostwriting: $300.00
Total: $1728.00

Income for September 2018 (work completed in July and August)
Editing: $337.00
Blog ghostwriting: $1300.00
Total: $1637.00

And here’s how things have gone since then:

Income for October 2018
Blog ghostwriting: $1100.00
Editing: $2223.00
Total: $3323.00

Income for November 2018
Blog ghostwriting: $800.00
Editing: $302.50
Lecture honorarium: $600.00
Total: $1702.00

Income for December 2018
Editing: $401.00
Blog ghostwriting: $400.00
Bank Account opening bonus: $500.00
Pollworker compensation: $110.00
Total: $1411.00

Income for January 2019 (already received)
Blog ghostwriting: $800.00
Editing: $1825.00
Total: $2625.00

(I left out some pretty minor miscellaneous income from things like Ebates, selling some books on Amazon, cashing in credit card points, etc.)

Overall, I feel like things have gone well. Since I received my last real paycheck back in August, I’ve only had to transfer $1000 from my savings, and that wasn’t really a “had to” — I used that money to take a trip in November to see friends/godchildren, and to buy Christmas presents. And I’ve been putting aside money for taxes every month, not treating all this income like income I could spend. The really thin month there (“income for December,” ie, mostly money received during November) is partly accounted for by my election volunteering; I mostly stopped searching for work during the runup to the election and while I did do some after it was over, there was about six weeks in October and November when I did very little work for pay. I only made about $900 in November, and was able to add a bank account opening bonus to just barely cover my normal expenses for the month.

It’s maybe not obvious to the casual viewer, but I also see a pattern in the types of income that reflects some decisions I made earlier in the fall. The “blog ghostwriting” income was well over $1000/month for work I did in August and September, and I was grateful for the work and the money alike. But I felt it was taking up too much time I wanted for other things; I was getting stressed out about fitting it in. I’m happier with it settled at around $800 a month, which (except for an election-related dip) it has been for a couple of months running now. I can accomplish that much work in a reasonable amount of time, it provides some steadiness to my income, and it overall seems like about the right amount to be doing for now.

Meanwhile, the editing work, which is much more what I really *want* to do, has been increasing. This month I’ve been paid for one full book project and a couple of shorter articles; for the first time, my editing income will cover my entire basic January budget (the blog income will cover a conference trip I’m taking early in the month, so I still don’t think I’ll save anything much.) But more exciting to me is that in addition to that completed work, I’m deep into another full book project I’ll get paid for in January; I’m contracted with a historian to edit her book beginning in January; and I’ve also started a regular part-time gig as an academic editor working with dissertation student in (roughly) my field. I’m very excited about this, though it’s not going to make me rich. But I do think it’ll be a steady $500 or so a month (it’s by the hour, so it’s variable) over the long term, plus it’s work that I find very exciting. If I end up going back to a full-time job, I intend to keep this as a side hustle.

The reason I’m happy about all of this, in addition to the intrinsic satisfaction of the work, is that my calendar is starting to fill up more than a week out. I already know what I’ll be spending most of January doing for paid work (while keeping up my volunteering.) I even had to let the blog I’m ghostwriting for know that I needed a month’s hiatus because I have so much editing work lined up! It’s not a steady, well-paid career yet, but it’s beginning to seem like something that could be that way if I kept at this. A full calendar, even for a month or so, is a good sign.

[note: my net worth is a tire fire, we shall not speak of it until the stock market goes back up again or until I accept this is the new normal, whichever comes first]

Turns Out Stuff Costs Money

Hello! A new post! I’ve spent much of the fall either deeply immersed in volunteering, traveling, or sick. It’s been a good season (apart from the two week-long colds) and although I’ve barely logged into mint and have no interest in looking at my investment account balances, I’ve mostly managed to pay my way with freelancing rather than savings, although that’s been precarious for the last month or so.

I’m still not logging into mint for a while 🙂 So instead of a net worth update, have this list of how money has recently been flying out of, as well as into, my accounts.

I’ve been thinking a fair amount lately about the balance between my expectation of spending little/no money and the reality of keeping my life running. This meditation didn’t actually start with the big unexpected car repair yesterday (more below) but rather with an L.L. Bean purchase a month or so ago.

Nice Clothing Costs Money

I am, to say the least, not a fashionable person. I don’t like shopping, always carry too much weight for my own tastes, and frequently wear the things I buy for years on end. I have a few one-week rotations (teaching clothes, summer tshirts/shorts/skirts, winter jeans/shirts), do a load of laundry every weekend, and then have a selection of dresses, suit jackets, and the like that I can pull out when needed.

Because of this I think I felt, a few years ago when I started to budget, that I shouldn’t really budget much for clothing. I basically bought no clothes while I was paying off debt, so I knew I would have to fill in some holes when that was done, but I thought after that maybe I wouldn’t need to buy anything for a long time.

But it turns out that I consistently and reliably spend around $1000 or more every year on clothing, even though I wear everything I buy for multiple years. It turns out, though, that things just wear out on cycle — this year I haven’t had to buy summer tshirts, but I did have to buy a new set of winter long-sleeved pullover shirts, the last set (from several years ago) having gone to their eternal reward. I haven’t bought sandals in several years, but both pairs I regularly used wore completely out this summer so I’ll have to replace them next year. And so forth. And buying the quality construction I enjoy wearing and that will stand up to 100+ trips through the washer or 1000s of miles walked isn’t cheap. So I just have to keep it in my budget unless I want to change my lifestyle dramatically.

Cars, sigh.

Yesterday my car demanded its annual blood sacrifice. The thing is, the car in question was free to me, and is 20 years old. Stuff happens, in this case, stuff like taking it in for an oil change and finding out the radiator is cracked and we really need to replace the original radiator hoses too. Cue unexpected $700 bill.

I mean, it’s ok. I have the money in savings, and voila, my parents hadn’t figured out what to give me for Christmas so they’re going to help me out too — I don’t “need” it but it’ll be nice to refill my emergency fund with that to some extent. But it’s just a really good example of the fact that keeping life running reliably does not have a zero cost. If I was poor, I’d be in worse shape — I wouldn’t have paid the bill, and would have just driven the car until the radiator gave out completely, then switched to the bus or something. I don’t know. Instead, I can pay the bill and keep going on my relatively merry way.

Health Insurance

Also yesterday, while I was spending money like a drunken car-repair sailor, I signed up for a 2019 Obamacare plan. I had to estimate my freelance income, and have no idea how this is really going to work out in the end (I won’t know for sure until I file my 2019 taxes) but at least for now I think I will get a subsidy and have purchased a plan that, including a separate dental plan, comes to $190 a month (after subsidy.) I haven’t had to go to a regular doctor in a couple of years; I just do a dental visit twice a year. So the insurance may end up not really mattering. But now that I’m nearly 40 and not broke, I do feel like it’s something I need to pay up for, since it’s accessible to me.

Christmas Presents

I am, for somewhat mysterious reasons, really feeling the present-shopping spirit this year. There have been many years where I’ve spent nearly nothing on presents, giving mostly homemade items. This year, though, I just kind of want to. My godchildren are old enough that they are interested in books; I have a baby niece that needs clothing; and I wanted to give some things to several friends, as well as to the kids and to my parents and brother/sister-in-law. Honestly, I didn’t really make a budget for this stuff. I’m just buying what I want, and will figure it out later, probably with money from savings. Not very fiscally responsible! Going forward I think I need an actual Christmas budget. I’ve never had one before, but I’ve also never had four or five kids in my life that I intend to consistently gift. I’ll add a “Christmas” line to my 2019 YNAB budget so I can save up throughout the year.

Conclusion

Things I like include maintenance/prevention and high-quality clothing, food, etc. I am not extravagant in any of those areas, but they really do cost money and are not expenses I can ignore in my financial planning.

$100,000 Net Worth: The Yearly Breakdown

I’m sick right now — just a bad cold — and haven’t been able to focus all day. Which strikes me as a perfect opportunity to write up my progress to a $100K net worth.

Here’s the big picture:

After a year-long false start, my tracking in Mint picked up in May 2014, the month before I crossed into positive net worth territory. Fortunate! Counting from summer to summer also tracks with my academic-year salary shifts — not completely since each contract didn’t begin and end at the same time, but fairly close. (Oh, you have to ignore the weird spike in March of this year. There was a technical error and one of my retirement accounts got counted twice, making it look like I had something like $17K more than in fact I did, just for that month. It can’t be corrected now without wiping out the whole account’s history. It’s a little aesthetically annoying but hey, it’s a free service.)

Year 1: June 2014 to June 2015

At the end of June 2014 I had a net worth of $2398, and at the end of June 2015 I had a net worth of $25,035. In Year 1, then, my net worth grew $22637. For most of that year I was bringing home (after taxes, but including 401k contributions) $3339 a month, so I made roughly $40000 in that time and spent about $17500 of it.

Year 2: June 2015 to June 2016

At the end of June 2016 I had a net worth of $49,000In Year 2, my net worth grew $23965. My base income during that academic year was the same as in the previous year, but I got a substantial freelance project too. Even though that project came with increased living expenses for a time, I still saved a big chunk of the cash.

Year 3: June 2016 to June 2017

At the end of June 2017 I had a net worth of $64,682. I had to check Mint for that number since I wasn’t doing net worth updates that summer…. Anyway, in Year 3 my net worth grew $15682. It wasn’t a great financial year. My base income dropped substantially as I went to 3/4 time at work, and I didn’t cut spending to adjust to that.

Year 4: June 2017 to June 2018

At the end of June 2018 I was back on track with a net worth of $92,000In Year 4 my net worth grew $27318. This number really surprised me. My base income did go up with a new job during the academic year, but I also spent two months unemployed (you can see the dip in the chart above where my net worth declined for two months) and my monthly expenses were quite high compared to my baseline of the previous years since I was living in a new, very expensive city. For quite a bit of this year my net worth didn’t grow that much per month. However, at the end it started to pick up, since I cut expenses and got the first of my freelance income.

The final push: June 2018 to August 2018

In the last two months of the push to $100K my net worth grew $10,424. That is crazy! It’s 2/3 of the entire year’s growth in 2016-17! In the Mint chart above you can see how the rise in net worth poked along, slowly and steadily, and then the line really slants up sharply at the end. During this time I had my base pay; extra pay from an adjunct course; AND freelance income. So, no wonder I had a sharp increase. I’m so thankful that I not only was offered the extra work, but had the good sense to take it.

So, all in all from $0K to $100,000 took 50 months: 4 years/48 months plus two months extra.

Funnily enough, my rough goal all along has been $2000 in net worth growth per month. Many, many months I didn’t make it. I had a whole dismal year in there. And yet there were exactly enough good months along the way, months with big stock gains or big freelance payouts or unexpectedly low expenses, that it all balanced out and I averaged just about $2000 over the course of the entire project.

I can’t claim any special insight here, nor do I know how to lay out a how-to guide. I had variable income and never really had a clear plan where I could project how much I would make — let alone what the stock market would do. I suppose what I can say is that there was a lot of value for me in having the goal in the first place. It helped me set that $2000/month target, which in turn gave some shape to the budgeting I did during the first couple of years. I put more in savings than I might have otherwise. That in turn gave a foundation so that even during a low year I was still increasing things, and during this last 14 months, when I pushed hard to get to the goal, I was able to make some specific moves (=taking on extra work) to ensure I got there even when I gave up conventional employment 2/3 of the way through the year. I felt motivated to put away as much as I could, simply because I had this goal.

This suggests that I should probably have another goal. I’m feeling a bit intimidated by the logical one, though — will it take another four years to get to $200K? Eesh. That may be something I have to think about for a little while.

Net Worth Update, August 2018: The One With $100K!

Look, I spoiled it right in the header, and I’ve been spoiling it for a couple of weeks on twitter. But it’s still exciting! I’m finally here — and after nearly giving up on making it before my 40th birthday, earlier this year, instead I’m celebrating it five months early.

Continue reading “Net Worth Update, August 2018: The One With $100K!”

Net Worth Update: July 2018

It’s that time again! My final paychecks from my old employer are being paid out on a different schedule than I expected, so I didn’t quite make it over the $100,000 mark — but I got pretty close, and am hopeful about next month’s results. Let’s go straight to the numbers:

Continue reading “Net Worth Update: July 2018”