For better or for worse, when it came to paying off debt, I was all in. Once I started this blog and publicly declared that I was going to get out of debt, I did everything in my power to make that a reality.
I started side hustling like crazy. I began to freelance, which later turned into my career. Once I doubled my income, I started throwing crazy amounts of money toward debt — $3,000 to $4,000 each month.
I saved a little, but not a lot. Just enough. I forgot about retirement. Didn’t invest. And now I’m 31-years-old and am effectively starting at square one.
It’s been five months since I paid off my debt and I should, in theory, have a lot of money to show for it. If I was putting that kind of money toward debt, wouldn’t I have close to $15,000 saved and invested now that my debt is out of the way?
I should, but I don’t.
I wish I could tell you that everything was balanced and I was able to stash cash like it was going out of style since becoming debt-free. But in my typical all-or-nothing personality, I decided to move to LA and go to Italy with my mom and write a book, all roughly at the same time. Not only that, but I got hit big time by Uncle Sam this tax season.
All of this money I thought I would have suddenly was tied up.
I had gone years without spending money on Big Life Changes and neglected every other area of my financial life in a single pursuit of becoming debt-free.
I know many of you were concerned with my strategy, and in my stubbornness, I ignored it…because I was going to be debt-free as soon as possible, no matter what.
And then, once my debt was paid off I changed everything. This has come at a cost that I’m realizing now, as I have barely anything to show for all of my hard work.
You may be wondering, how did this happen? Well, let’s review:
In January, a month after becoming debt-free, I technically “owed myself” because I had dipped into my tax savings account as well as emergency fund to pay off all my debt. On top of that, I owed a little more than I thought for quarterly taxes (because I’m self-employed), which set me back a little further. In short, I didn’t save much that month, because I had to replenish funds and pay the tax man.
February was a big month. I was actually able to save and invest $5,500 — $2,500 for investing, $1,000 in an emergency fund, $1,000 in an Italy fund and $1,000 for my moving fund. I felt proud. I felt rich, even.
Then March came, and it was hectic. Trying to move out-of-state is not cheap and definitely not fun. Towards the end of the month, when we were packing, our food bill got out of hand. At some point, you just sort of give up on cooking when you’re preparing to move and all of your stuff is in boxes.
The move itself wasn’t cheap either with a rental van, hotel stays, and gas. Once again, I was able to save a little, but the move cost more than I saved, which hindered my progress. Also, I owed the IRS about $3,000. Apparently, I made good money last year and didn’t save enough.
April came and was the worst month yet. A financial apocalypse, even. My accountant and I were going through my income and expenses to prepare for my quarterly taxes. I had just gotten off the heels of paying federal taxes, but this was another bomb.
I had a five-figure tax bill. Once again, I didn’t have enough saved and it wiped me out completely. Emergency fund? Gone. Tax fund? Depleted. Everything I had worked for was taken by the tax man. I have very few expenses that I can write off and apparently this year, I’ve been rocking the income and the IRS wanted their fair share. When I heard the news, I felt so defeated. It felt like a big setback.
Now my accountant is encouraging me to save not 30, not 40, but 50 percent of my income for taxes. WTF?! We’re overestimating here as falling short has obviously been a pattern of mine. I don’t want to owe the IRS, so I’ve continued to tap my savings. But now, as discussed, I’m literally saving half of my income for taxes.
To shake off this big blow, luckily I had Italy to look forward to. Italy was amazing, but spending two weeks there was expensive. Priceless, totally-worth-every-penny, but expensive. To make matters worse, I invoiced for half of what I usually make at the end of April. It was at that moment that I felt so low and frustrated with freelance life.
I work my butt off and have practically nothing to show for it. I pay 50 percent to taxes and can barely afford to take a vacation, because if I don’t work, I don’t get paid.
But then I started getting mad at myself…wondering how did all of this happen? How was I making so much money, but had nothing to show for it? I now realize that in my all-or-nothing debt payoff strategy, that I was screwing myself in other areas. I borrowed from savings and taxes. I also just assumed I could save the same amount for taxes and didn’t realize the extent that my income had grown.
In some ways, I feel like a failure. A (now) high-income earning freelancer with hardly anything in the bank. I realized that even though I was able to pay off debt ahead of schedule, starting at square one set me back in many ways. Deciding to move and travel all at once perhaps wasn’t such a good idea.
Also, taxes are a b!$%* if you’re self-employed. So, I haven’t made the progress I thought I would on my finances. I’m just recovering from the financial wipeout during tax season. I’ve replenished my emergency fund to $3,500. I have $3,000 invested. And am now saving a helluva lot more for taxes.
It’s not great and I’m not proud, but I’m taking baby steps to get where I need to go. I realize now how my all-or-nothing strategy got me in trouble, so am trying to save and invest in a sustainable way.
I wish I could share with you how awesome debt-free life is and how I’m rolling in the dough, living a life of luxury. But it’s been tough. It’s been a hard breakup. Debt is still showing me who is boss and I’m trying to reclaim my finances as I effectively start over and move on.
Being debt-free is great, but it’s not the end goal. It’s a goal. And life continues. If you’re working to get out of debt, don’t forget other areas of your financial life. Perhaps don’t make so many sweeping changes within months of paying off your debt. And if you’re self-employed or freelancing, save your money! More than you think you need!
I’m hoping that this is just a rough patch in my financial life and that I can learn how to lower my tax bill, earn more, and still save and invest most of my income. This has been a huge lesson for me and one that I wanted to share with you.
Has an all-or-nothing strategy ever got you in trouble with your finances? Stay tuned to find out how I plan on overcoming this and get my finances back on track.