Reader Case Study: Self-Employed Single Mom

107 Comments

1. Jess is doing a great job and should give herself a pat on the back. I hesitate to offer any advice but based on my experience I would say to Jess not to hesitate in ruthlessly cutting back and explaining to her children the reasons, to learn how to be frugal and be the boss of you money is an invaluable lesson to teach children and will set them up for life. I recently watched ‘smart with money’ on Netflix (I hope this is allowed and apologies if not) and it was vey interesting, especially the part on passive income, Jess is clearly a skilled writer and maybe could explore this aspect. I also started to watch a man called Dave Ramsey (I am in the UK so this is also an eye opener to me) and was struck by how being frugal and saving can lead to serious wealth in later years. All the best to Jess and her family.

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   1. Thank you for your kind words and input!

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2. I think Jess is doing really, really well, but obviously wants to do better. I get that, so do I! One thing to note is that her mortgage is really new. I have found that when one first buys a property, especially if it was at a high price generally, that first 1-2 years you absolutely haemorrhage money. You just do. It’s insane. Interest rates go down, options to remortgage come along (and I would strongly suggest you do this at the first opportunity. Getting a much better deal could largely eliminate many of your financial shortfall worries in one fell swoop).

   Essentially, you’re in a lean period. As Mrs F notes, there are un-fun things to cut, or at least cut down on, which will address at least some of these worries, but ultimately, over time, if you keep your priorities top of mind, things are likely to shake out okay. I agree with suggestions re not contributing to college funds at this point – you absolutely can resume this later, of course – and to greatly reducing ”travel” and other areas of discretionary spending. Is there a way to get your out-of-the-house exercise time less expensively than at the gym, for example? Also, the extra-curriculars will need close examination: it may be that unless grandparents would be prepared to give those as birthday or Christmas gifts, that the girls need to decide what they really love most, and stick with that. I have 3 kids and the general rule is that they can choose 1 thing that is what I’d think of as ”expensive” vs the free-or-very-inexpensive types of activities.

   If it were me, I’d be very reluctant to give up the hours / work-life Jess has. Her girls are young, she’s fairly recently divorced and being available and present for them in a consistent way for at least another year or so would be ideal. As they get a bit older, then absolutely, go back to work full-time for a good salary. It would make a lot of sense to do that, but not quite now. If you’re able to increase your hours to around 35 a week on a regular basis, that might help meanwhile.

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   1. I wholeheartedly second all of your points, especially looking at this as a “lean” period – it is temporary.

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      1. Definitely nice to think of it this way, thank you!

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3. Another option available for retirement to Jess is a SE-401K, which also has a Roth option. May make more sense if her taxes are likely to be higher in retirement than now.

   If her ex is making a lot more money than her there may be scope to reassess how much of the kids’ expenses each are paying. Legally and ethically 50-50 is not always a fair split.

   Moving to being an employee rather than self-employed could help her feel less anxiety about money, since her income each month is steady instead of dependent on clients.

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4. Jess, you’re doing so great! If it were me I would def keep the house cleaning expense for sanity reasons as you mentioned. One small idea — BofA is giving you a HORRIBLE interest rate on your savings. You might want to consider moving this to a higher yield account — I personally love Alliant credit union which has a well over 2% interest rate currently. A seemingly small difference but, esp as your savings grow, it could mean having some extra pedicure money. Check out Suze Orman’s special with them bc they will give you extra funds if you set up an account via her arrangement with them.

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   1. I just want to echo the recommendation that you move your savings out of BoA as fast as possible. Another option, if you don’t mind a completely online bank would be Wealthfront – their high yield savings account is currently at 4.3%. They’re better known for being a robo-advisor, but their cash account is the highest interest one that I’ve found so far.

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      1. Thanks for the advice on BofA! I always figured it’s a hassle to move accounts but I hear you!

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         1. I just recently left BOA for a high yield account (local bank @3.5%). i put it off for so long because i feared it would be a hassle – and it was so simple! wish i did this sooner.

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   2. Yes, I also recommend finding a better savings account. We use a local credit union for our checking and keep at least $2000 in there at all times in case of an urgent emergency that we need cash for right away. Also, the convenience of a local branch, plenty of ATMs around is nice. The rest of our emergency fund is in an online only high yield savings account (Ally Bank) that we can easily transfer to our checking within a couple days.

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5. Is there a better benchmark than the fidelity rule of thumb for estimating where you should be with retirement savings? My salary is a tad bit higher than Jess’s but I’m spending significantly less and saving significantly more than Jess. I would think monthly living expenses would be a better tool for assessing how ready you are for retirement… Not your salary… But maybe I’m missing something.

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   1. This is a great question! I recommend that you use a couple different online calculators to estimate what you’ll need. The best–and most comprehensive–is Engaging Data’s Rich, Broke, or Dead calculator, which enables you to input a number of variables to model out how much you’ll need in retirement. You can also do the back-of-the-envelope 4% rule as I outlined above in Jess’s study. By this I mean: how much would you need in assets in order to be able to live on a 4% annual drawdown?

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6. Jess is doing amazing for her future and her girl’s. I just wanted to sugest – as a self employed person, too – ask your accountant to run figures for you on your retirement account contributions. We max our SEP.accounts every year and our accountant gives us the breakdown for what we saved in taxes by doing the full contribution. I would love to do roth contributions, too, but don’t have the financial flexibility at this point and need the tax reduction from the sep accounts.

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   1. Good point. I’ll look into that!

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   2. As a CPA, I completely agree with this! Contributing to the SEP would reduce taxes and it would reduce her income for ACA subsidy purposes. Since Jess gets her insurance through Covered California, she might pay less for insurance by contributing to a SEP.

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7. Hi Jess!
   I was a Case Study a few years ago (it feels like lifetimes!!) and I just wanted to say hurrah for doing this with Liz, I found it scary but so rewarding!
   I also wanted to say that, regarding what you’ve said about your life … perspective is EVERYTHING. My projected five-to-ten-year plan did NOT work out remotely like I imagined it would when I mapped it out with Liz. Not even a bit!

   But this helped me learn what I feel to be the most important thing — it’s not about achieving a certain level of concrete financial security that will give you a feeling of finally getting to the point where you can relax and enjoy life. It’s about learning to embrace uncertainty. I spent a long time building financial security so that I could do the things I love instead of prioritizing doing the things I love and achieving financial security second. And there are people who would read my case study and laugh their heads off at my saying this–compared to a lot of people, I absolutely didn’t sacrifice the things I love for money. But I currently feel like I did, hah. But it’s all a matter of perspective 😉

   And since you’re a recently divorced person (my husband and I are currently kind of unofficially separated but still getting along and working things out, and I’m 37 and I have a baby girl so I say this from a place of utter solidarity) you know how hard but rewarding uncertainty can be, and how trying desperately to create a solid foundation can be both truly truly necessary and also use up a looooooot of time that could probably be better spent otherwise!

   I (absolutely) agree with Liz that a certain level of financial security is necessary for peace of mind, but (I feel like a bad Yoda here haha) peace of mind is necessary before you’ll ever feel reassured by money. I say work on that. You sound like you really love your community, and to me, that’s the most true and rewarding security you can build for your future.

   You’re doing awesome! Really, you are! I’m so impressed!

   I know we have totally different lives and interests and backgrounds, but to give you an idea of another person’s experience of a similar situation (*cough perspective) I currently make 850€ a month, have about 2K in savings, and alllllll the rest of my darling Benjamins are tied up in a shared mortgage. And YES I’ve been trawling the real estate ads and can’t wait to set myself and my girl up more securely and have a place of my own…but! I can’t tell you how beautiful it was, when my husband and I first split up, to see all of these people around me offering help and support and love. Being financially insecure bright me closer to my family and my community and while it’s totally nerve-wracking, it’s lovely.
   I also am still aiming for FI, but I also think that getting out of a growth mindset and realizing that there are cycles in life–that we don’t spend our whole lives at maximum productivity and sometimes we earn less than we could because we are busy enjoying ourselves more–is more important than being able to never have to financially rely on someone else (a boss, a family member, a friend) ever again.

   Anyhow!! I always mean to just pop over to the comment section and say something concise hahaha and it never ever works out that way. Sorry for the long windedness.

   Again, you’re doing fabulously well, and now that you’ve consulted Liz, you’ll be doing even better soon! 🙂 Best of luck to you and your family!

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   1. Hi Georgia,
      would be super interesting to read a follow up on your Case Study.
      What habits/suggestions were you able to incorporate?
      What did you prioritize? What’s next?

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      1. Hi Danielle!

         I feel the same about other case studies!

         I incorporated all kinds of habits, like paying more attention to small expenditures and trying to make more money. I also did not go back to the States, did not finish my PhD, and wound up lucking into a super job at an art museum in my small town. But the position got eliminated during COVID, and I haven’t found anything I’m ready to trade my free time for just yet!

         My husband and I paid off our house a year or so ago (which was super satisfying and our priority!) and invested in some land. I had more savings but some unexpected health concerns for a family member in the US kind of wiped it out.

         I actually feel like my comment above was from a very emotional place haha and yet I think if I’ve learned anything about finances it’s that FI is awesome and financial peace of mind is like having great health. Takes work and can be kind of a pain, but so relaxing in the end!

         What’s next is buying my own house, figuring out a new job situation, going back into maximum budgeting mode to pay off the house asap, and trying my best to embrace the transition!

         I have also taken a fresh look at money and ways to need less of it as an act of ecological solidarity, and I’m really into the concept of degrowth. I have gotten to the point where I’m less interested in not working and more interested in doing work that treats the climate transition as an opportunity to reevaluate how we spend our time.

         That said, FI (like degrowth and frugality and moneyless économies etc) makes it way easier for people to become more politically active, which is awesome! So basically I’d like to do a mix of it all.

         Anyhow, my best to you!

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   2. Thank you. Best of luck to you as well! I know it’s a hard spot to be but you’ve got an awesome outlook!

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      1. Thanks, Jess! I actually spent the hours of 2 to 6 am last night feeling absolutely furious and rotten and out of (financial) control and wishing that I’d gotten to FI before having the brilliant idea to get divorced 😂 but then I woke up and … everything was ok.
         Best of luck to you, too.

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         1. Thanks for your insights & all the best for your future endeavours. I agree working for a good cause can be very rewarding.

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   3. I agree with Danielle C, every time I read a case study I wish that former case studies would pop in and tell us what they did and how it went!

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      1. Me, too!

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8. Does the house have three bedrooms? If so, could you rent one out to a college student or a young adult who might like being around a family? When I bought my first house, before I married, I had to have roommates to make ends meet. It’s not ideal, long-term, but might be a way to ease the pressure for a few years.

   The renter possibly could also be a source for babysitting or housekeeping help, in exchange for a decrease in rent.

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   1. ^This. Maybe even another single parent with 1-2 kids? Not ideal but given that the mortgage is the largest and most troubling expense, this would be an effective way to tackle it directly and allow her to keep some/most/all of the other expenses in place.

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      1. Beth and Laura — I honestly never even considered this as an option but it’s really creative proposition. Thank you!

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         1. Hi Jess! Popping in from Northern CA, so hey neighbor!

            Following up on a potential room rent…one thing we have explored is providing furnished housing to traveling nurses. Furnishedfinder.com is where many travel nurses and other healthcare professionals go to rent rooms. Most are on 3 month contracts, so it’s a good way to dip your toes into having someone in a shared space, without the full commitment of a year long lease.

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9. I’m impressed at how well Jess is doing! One thought I had was if she does wind up eliminating the cost of a housekeeper, could her girls take an active role in helping to clean the house?

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   1. I was thinking the same thing. I remember age 10 being a good time for children to take on household chores in addition the personal ones you have taught them to take care of. An allowance is much cheaper than a housecleaner! Good Job BTW.

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      1. Hi I second seriously considering insourcing some housework to your eldest, in exchange for funding their activities. My eldest (boy aged 11) vacuums for me and is so keen to take on extra housework for payment. It’s a great life lesson and he does a pretty solid job.

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   2. Yes, great idea. They are keen little helpers!

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10. Hello, I am not sure if you are missing out on other self employed deductions but make sure you are not. I switched to doing my own taxes as a self employed mom and it helps with the big picture. You can deduct a home office, health insurance, office expenses, and any vehicle mileage for work. The sep Ira/hsa is an amazing option as well which might reduce taxes as well. Remember sep ira is 20 percent of net income as well.

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    1. I had also noted that Mrs. F’s use of 25% of revenues is not accurate for a self-employed situation. It sounds like Jess is self-employed so she can invest and deduct 20% of her net income from her business activities into her SEP. Maximizing legitimate deductions will reduce her tax burden but will also reduce what can be contributed to the SEP.

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    2. Yes, I was going to chime in that the SEP-IRA maximum contribution is 20% of NET self-employment income:

       “If you’re self-employed, your contributions are generally limited to 20% of your net income. (Net compensation for self-employed individuals is generally the net profit from IRS Schedule C reduced by the deductible self-employment tax. The eligible compensation limit, indexed for inflation by IRS is $305,000 for 2022 or $330,000 for 2023).”

       https://investor.vanguard.com/accounts-plans/small-business-retirement-plans/sep-ira

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11. Would renting out a bedroom be a possibility? There would be lots to consider ( proper vetting of tenant etc.) but it might help make the house contribute to its own cost.

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12. Jess is doing great! I wondered about the option to increase her income, which Mrs FW didn’t talk a lot about. If Jess is already regularly making six figures before tax as a freelancer, she must have a well-established reputation. Can she hustle for more clients? Can she raise her rates for new clients? When was the last time she raised her rates – how much more experience does she have now? Is she sure she’s not underselling herself for her skill set/level of experience? Is there a related field she could branch into and start to build a client base there?

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    1. Yes, I hear you! I definitely am trying to hustle to build up a higher income right now. The economy is the tricky part but I’m trying to outsmart it 🙂

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13. You might consider refreshing your tax withholding amounts. If you always get a $5-9k tax refund then you’ve given the government an interest fee loan until you can that refund check.

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    1. Wondering about the $275 every month for gas, especially since Jess works at home. Where is she going? I realize her vehicle is paid for and that it would be impractical to replace it, but surely this expense can be cut.

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       1. I had a similar thought. I guess CA gas prices must truly be sky-high, because we have two cars and don’t drive much, and we spend maybe $125/month on gas. But we’re in a MCOL area. I also wonder if it’d be practical to trade in the Highlander for a smaller hybrid car? Just a thought.

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14. Jess is working 30 hrs a week and spending quality time with the kiddos. I’d happily cut down on discretionary to keep this amazing time up! If cleaning is worth sanity I say stick with it. areas where I’d be kinda ruthless to keep living an amazing life: food, eating out/coffee, kids activities, gifts, xmas, and beauty/household.

    But the food and coffee can still be quality on the cheap, cheap. going out to eat with kids is an excuse to dip into the indulgent- why not buy some frozen apps at the grocery store like mozz sticks, frozen pizza ( or pre made pizza dough and a block of mozz!) , chicken tenders and make popcorn for an at home movie night. 3 tummies full for $15-30 beats any place to eat for 3, even off the kids menu.

    Audible can be replaced for free with Libby, the app from your library. Or go to the library 🙂 But I get audiobooks on the run. Libby is great though and free.

    The activities with the kids: grandparents paying for experiences over gifts (maybe with a weekly pic and thank you during swim or dance lessons so they can see the happiness of their gift vs the actual act of gift giving), getting out and about for free esp since fitness and being out of the house is important for you, asking the ex to chip in for activities as bday/xmas gifts instead. That could be 3 birds, xmas, bday, and activities, with one frugal stone! Maybe even asking Great Auntie who blows $40 per kid per gift for the gift of Hulu or disney +. sending a pic of happy feet watching a movie would be better than dealing with another toy i’m sure.

    Decreasing food- make 2 double batch meals once a month from scratch. grill up xtra chicken breast and freeze them and twice a month have a pasta night with chopped chicken or pasta and chicken parm. We LOVE ground turkey enchiladas that are half black beans. and homemade enchilada sauce is heaven and takes about 10 minutes. buying the beans dried and crock potting them, then putting them in containers to freeze (usually 1 c portions so we aren’t wasting) is an easy peasy way to get healthy, cheap protein and you add it to fill up meals. Nacho night? bet your rump cheeks there is a splendid dose of black beans on them. Need a side? Rice and beans – flavor goes a long way and maybe you can bond with your girls by cooking more at home? You seem so family motivated and the happiest memories are made at home.

    Showing your girls the value of what can be bought in stores. Do they know the difference between brand and generics? Can you give them a $10 home dinner night challenge and use it as a learning experience?

    For friend dates/dates- just be honest and the house is a huge expense and your prioritizing time with your girls . “I’m cutting back. Want to come over for drinks or coffee instead of going out?” It is a statement more than a question.

    Plus it sounds like you have a house you love, curate it more with the things you have already and the people you have already in life. I work from home too and trust me, I understand you can be sick of your 4 walls. But an outside space is an oasis and a hell of a workout maintaining. Just my two pennies.

    So great that you can spend time with your family on your terms vs being sucked into the vortex of “the companies needs at this time.” Wanted to see your kids at a soccer game? Sorry, gotta work late to meet xyz deadline for Major PIA client. Eh, hard pass.

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    1. I second Libby for audio books and e-books! It’s awesome. Using the library has also helped me with patience…I get on the list for a bestseller and practice patience until it’s my turn!

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    2. Thank you for your thoughtful suggestions! I really appreciate it!

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15. Jess you are doing really well being able to free lance and buy a home as a single parent (especially in California). Looking at your pictures I believe we live in the same area. I am super impressed that your utilities and gas are so low. I wish I could reduce ours to those numbers. With that said, we live in an area where everyone seems to have housekeepers, get pedicures, and belong to expensive gyms. You can easily cut some expenses cleaning your own house and exercising at home – walk, do Yoga in the Park in the summer, and yoga on Utube in the winter. We also have a number of gyms that are less than $50 a month that you could switch to. I would cut spending and stay freelancing if at all possible. Your children will only be young for a few years and freelancing allows you to spend more time with them than a full time job working for someone else.

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    1. Thank you! Yes, you’re right — the “norm” around here isn’t necessarily the right path financially. I’m about to ax my pricey gym membership today! 🙂

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       1. I’d highly recommend the peloton app for a cheap gym alternative- I love their yoga, strength and outdoor running classes. Free 60 day trial available too!

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          1. Meghan – do you use the app if you dont have a peloton? is that mandatory? what if you have a luddite type stationary bike? thank you!

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             1. You don’t need the Peleton equipment if you just get the app – I have a Schwinn spin bike, and use my tablet to do cycling classes and it works great. You just need to do a little searching for potential resistance conversions (as the Peleton resistance can be a bit off from other bikes).

16. I actually think that Jess’s mortgage is very typical for many families in the US right now and not particularly high. Housing costs are extremely high, whether you rent or own, and interest rates are also high. If you bought a house before 2021, lucky you. If you bought in the last few years, especially in an urban-adjacent area (where, let’s be honest, most of the higher-paying employment opportunities are), chances are you are spending about what Jess is, if not more. I think that what appears to be Frugalwoods’ surprise at Jess’s high housing costs reveals a disconnect with the reality for most people’s lived experience. The average percentage of income that is going towards housing has been rising for the past 20 years and is now typically around 30%, which is about what Jess is paying. Let’s normalize high housing costs as it is the unavoidable reality for most. Thank you for sharing your financial snapshot, Jess, and thank you to Frugalwoods for her analysis.

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    1. This is incorrect. Jess is paying about 50% of her take home pay on her mortgage and HOA. ($3650 for housing and $7500 take home per month) While I agree that high housing costs are becoming the norm, this is significantly higher than average.

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17. It’s all about priorities. It doesn’t sound like early retirement is a plan since she likes her job. I don’t think she needs to change much right now except reduce some of the discretionary expenses. She has a great set up that many would love to have with the working from home on a flexible schedule while still make $100K+. One issue to be a little concerned about is emergency savings. She has a large mortgage and kids with a single income so she should have more in savings than most people. I would not focus on retirement savings too much right now. She can save more in retirement after the kids are out of the house and then either reduce workload or increase retirement savings once the house is paid off. She has a job she likes and should be able to do into her older years if needed/wanted. One things that could throw a wrench in and isn’t mentioned is whether the boyfriend and possible future husband has an income that at least covers his own costs. That makes a big difference.

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    1. My emergency savings is honestly such a priority for me! Thanks for sharing your thoughts!

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18. You are doing great in a very expensive state! The health insurance cost seems low to me (my Massachusetts costs are very high). Is this a plan for just you and the kids covered by their father? Is it a high deductible plan hence the 3k in expenses last year? Look into HSA options or have a separate savings account for deductible and copays. Keep the house cleaning- for us it is the best money we spend to keep up with the chaos and good for mental health. The gym membership – does your health insurance give any reimbursements or incentives for things like that? Charitable giving is also important to me but that money right now needs to go towards emergency fund. Is there a way to give your time or talent and not your needed cash? In expenses, I don’t see clothing, shoes for growing kids or yourself.
    Get the kids involved in spending, saving, choices. I have a 9 year old and we practice grocery math – prices per ounce, per roll, sales, percents, etc.

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    1. Yep, that’s a bronze plan in CA just for me. Kids are on their dad’s!

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19. Your kids are good ages to chip in with chores like housecleaning. I got a video from the library, now there is YouTube, and watched it with my kids. We started to do chores together. It made the close fun. Same with making pizza from scratch, or even semi homemade. They loved contributing and by the time they left for college they could cook and clean.
    Your library has an app called Ali by that will save you loads of money with ebooks. Our library has a Kanopy where you can check out movies. There is a monthly limit but again it is a huge free benefit. Our library has all kinds of tools and such you can check out. It is worth exploring.
    I gave the kids their age in allowance and divided it into money for savings and gifts and fun money. I set up bank accounts in order for them to learn savings habits. Once they had enough in their savings accounts I transferred it to Vsnguard. It added up. It helped with college and again taught them small savings add up and you have to plan ahead.
    Could you work parttime at your gym in exchange for a membership or trade your services with them?

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    1. Fun suggestions! Honestly my girls are so ready to start helping and they’re starting to do more and more every day. Love the idea of helping the kids learn money management, too.

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20. You’ve done a great job. I don’t have children and am 20 years older, but I freelance. It’s rewarding and scary at the same time. Perhaps you can consider a 12-month austerity program to save more and realign your budget? After a year, you can add in a few non-essentials. Make it a family project. Get your kids to help around the house so you can omit the cleaning help and reduce your overall stress. With more cash reserves, you will feel more secure. Good luck.

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    1. Love love love this idea! I think a short-term focus/prioritization could be fun and rewarding.

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21. Re the housing expense, I live in a community where there is zero ownership housing affordable for families making less than 120% AMI (area median income), so it is very common to rent out a room on your home, and if it long term and for the local workforce (not Airbnb) it is much appreciated by the community (there is no rental housing available under 80% AMI).

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22. My advice as a retired CPA: get a new accountant. It is bad advice to try to get a refund of 5k-9k every year when you don’t have enough money month to month. (Bad advice even if you did have enough). You are essentially giving the IRS free use of your money. Your goal should be to get as close to $0 owed, $0 refunded each year. I also did not see an expense for tax services so maybe you are not paying for bad advice.

    I wish you the best. Mrs. Frugalwoods has given you great advice. Good luck. 🍀

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    1. Yeah…I’ve struggled with that fact, too…probably the right call. Thank you!

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23. Congratulations for deciding to look at your finances and future planning. It takes some courage to bare your soul and share your finances like this. The house certainly creates a challenge for you. I agree that prioritization is key. I do believe the the information on the maximum allowable contribution to the SEP-IRA is not totally correct. For a self employed person, there is some calculation in determining the maximum amount you can contribute. Bottom line, the maximum 25% contribution actually works out to about 20% or a bit less – check the IRS publications to confirm. I’d also add one more category of persons to the list for whom an emergency fund is extremely important – and that is self-employed or variable income persons – so another compelling reason to beef up the emergency fund as soon as you can. And finally, I would note that in my experience my mortgage payments (while not as large as yours) were much more difficult for the first couple of years and then somehow became progressively easier to deal with. Best wishes to you.

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    1. Thank you! Honestly just doing this exercise has been eye opening and really helpful to getting a reality check but also figuring out my actions and priorities.

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24. I think your expenses are very high but you are in a high COL state. That being said. I would not eliminate things completely because life needs to be worth living IMO. But you can reduce things like eating out, vacation, date nights, etc. Obviously you will need to talk to your ex about reducing kid expenses but he might be looking to do the same so it’s worth a shot. But kids just get more expensive as they get older. My biggest recommendation is to not start down the club sport path – it adds up so quickly. If you can increase your income some that gives you breathing room. Maybe create 2 budgets. The first bare bones for times like right now when you are in the red each month. That’s when you cut everything. When you have a month with a higher income have a second budget that allows more for discretionary stuff.

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    1. Oh my gosh, I totally agree on the club sports. And good thoughts on the 2 budgets, I like that!

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25. What happens to the large tax refund every year? Does that just get absorbed? You could boost your savings with it pretty quickly. Then I’d cut back how much I was paying in (taxes) per month by $500. That still leaves you with a refund but not $5K to $9K. With the new mortgage write off …you should not need to be paying in as much as you were when you were renting. I’m guessing you were taking a standard deduction as HOH and now you can itemize.

    With the way you have set up your life, I don’t think you will want to cut all discretionary spending so drastically. And definitely not for years. I’d cut each discretionary line back some but not cut anything out completely. Then I’d cut the tax payments and you should be fine.

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    1. Lo and behold, that refund went “poof” this year! But last year it went entirely to retirement and emergency fund.

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    2. I was wondering the same thing about the tax refund – when you get such a large refund back, that means you are loaning the money to the IRS for free (you don’t earn interest on it). I would ask your accountant about this number and play around with it.

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26. Jess – What a great life you’ve created for yourself. I love how you are valuing time and flexibility and can relate as a self-employed individual. One note of encouragement about increasing income – it doesn’t need to be with a W2 job. Increase your rates. Inflation is a beast, and prices are increasing…so should your rates.

    Also – wanted to correct something about the SEP IRA math (the 25% does not account for the self-employed tax; it should be 20%, but of course, always consult your accountant).

    If you’re self-employed, your contributions are generally limited to 20% of your net income. (Net compensation for self-employed individuals is generally the net profit from IRS Schedule C reduced by the deductible self-employment tax. The eligible compensation limit, indexed for inflation by IRS is $305,000 for 2022 or $330,000 for 2023).

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    1. Thank you for this — helpful input!

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    2. Thank you! Excellent points and good info on the SEP

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27. Jess is doing fab. ditto on the “a few lean years will pay off” camp of getting through it and you will look back knowing it was a squeeze you survived. i have been reading all of the case studies for years now and am curious why future inheritance is never discussed. generous parents are already pitching in for college and possibly girls activities but how do we not factor in future inheritance to the equation. as a 51 year old i have tons of peers who have impending inheritances that are handled skillfully and sometimes not. i am not advocating being irresponsible and not taking care of one’s own business but to ignore this future financial reality is poor planning.

    another MASSIVE variable is the boyfriend/future husband not being discussed in the equation. she even said this whole conversation changes if they marry which sounds somewhat imminent.

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    1. Good point! Future inheritance is, to me, something I am nervous to count on. Although it’s highly likely, something bizarre could happen and that money could disappear for some odd reason. So while it’s in the back of my mind, it’s also prudent to plan without it IMO. Ditto with the relationship until I’m wearing a ring 🙂

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       1. I agree with Jess. It is incredibly dangerous to count on a future inheritance, and it could easily disappear for a non-odd reason. A parent might live to 102 years old, and spend down the money on living expenses. A parent might become widowed and remarry a lovely new spouse, and decide to leave that person the bulk of their estate. A parent might develop dementia and get scammed out of a lot of the money. A parent might have a massive stroke and live for many more years, but only be able to be cared for in a nursing home, which costs well over $300 per day here in Vermont (and Medicare does not pay for custodial care). A parent might become very involved with a deserving charity and decide to leave the bulk of their estate to the charity. A parent might decide to leave the money to a not-yet-born grandchild who is disabled. A parent might decide to help one of your siblings who becomes disabled. You have no way of knowing what the future will bring, and I think that a future inheritance is far, far form a “future financial reality.”

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    2. Also puzzled at your CPA’s advice to overpay your estimated taxes. I realize that your situation has changed over the past couple of years and may not be settled, but the goal is generally to owe zero on April 15 and have the state and feds owe you zero too.

       That $9-12K would make a big difference during the year and I’m surprised it’s not mentioned in Liz’s calculations.

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    3. I appreciate your comment, Eric. I have been very hesitant to post this thought, but I would be grateful for posts or case studies that land on the other side of financial independence, or post-inheritance. I am someone who spent a good chunk of her twenties, thirties, and forties counting pennies and embracing the Uber-frugal life – I own a very well-thumbed copy of “The Tightwad Gazette.” A few years ago, in my early fifties, my life substantially changed. The story is complicated (as they often are), but my husband and I inherited a large chunk of money. We were already on a path to be FI by early fifties, but this money was a total game changer. My husband and I have set aside a significant chunk in a donor-advised fund (thanks for that post Mrs. F), and gave a number of family members cash gifts, some large – helping others was, and has been, life giving. But talking about sustaining an intentional lifestyle after a significant windfall of cash doesn’t often happen.

       I appreciate that the money piece is a good problem to have, but it’s also very difficult to talk about. As well, the inheritance wasn’t “good fortune” and I have great difficultly seeing, or framing it that way. The inheritance was the result of losing someone very, very important to me at a painfully young age. Navigating the emotional and financial path after receiving the money has been complicated and I would be very grateful for a conversation if someone is willing to tackle it.

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       1. …and I have no idea why this posted twice (here and below)…..

          Apologies.

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28. +1 to Faith’s comment, from another self-employed woman in Northern California. It is better to keep more of your money each month (especially in a higher-interest, short-term/liquid savings account) and owe a little come tax time, than it is to get a substantial refund. When you get a new tax accountant, have them do a review and ensure you are maximizing deductions, especially that fully deductible, monthly health insurance premium.

    In addition, if Jess is in the Nor Cal area it seems (Sonoma-ish), there may be opportunities to increase income by renting the house temporarily. Different communities and counties have different restrictions on this, but if Jess has family nearby, and she and the girls could stay with them for a few days or weeks at a time, renting the house out (even just through friend networks) for a few weeks or so each year could add to income without adding consistent working hours.

    I, too, am periodically tempted back toward the steady-paycheck stability of traditional employment but, every time, I return to the facts, which is that no full-time job (even with health insurance benefits) makes up for the loss in flexibility, freedom, and comparable hourly rate. Like you, I know work fewer hours for a lot more money than most jobs pay me, with abundant vacation and family time. I think it can be easy to dismiss what more free time buys us: more time to cook and save money not eating out; more time to shop for deals (like doing all the Craigslist and Freecycle logistics during the day); money not spent on childcare because of a demanding employer; brain space to think about our next endeavor or skill building that may result in more income.

    Jess, you are doing GREAT. Good luck!

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    1. Thank you for your kind and thoughtful feedback! I really appreciate it!

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29. If you want to eliminate PMI sooner rather than later, you’re going to have to cut some things out. Liz outlined quite a few. I know it’s fun to have treats and coffee and gym and audible, but they aren’t things I would spend money on , with or without a mortgage (and I’m not just saying that, I’m debt free and don’t spend on things like that. Youtube has workout videos, outdoors is available for running/walking, library loans us digital audiobooks, and I gave up coffee years ago). You were very clear that you didn’t want to sell your house, but if that’s what you want to keep, then I think you’d be wise to consider what you are willing to drop. And yes, kids can do chores. Some parents pay for chores, some don’t. We do a mixture but kids are capable of helping clean.

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    1. yep, for sure! I hear you! I’m ready to get ruthless. And also, my kids love helping so there’s no reason for me to hold back on that.

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    2. I totally understand the desire to eliminate the PMI but honestly if you beef up your savings a bit and get a savings account earning more than 3% (very easy to find now!) you will be earning close to that each month in interest. And for many mortgages eliminating PMI requires you to get another appraisal which isn’t free.
       Good luck, I really enjoyed reading this Case Study.

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30. Thanks for sharing Jessica. Kudos to all the ways you have taken control of your financial situation.

    You’ve got a lot of great advice from others, so I won’t add my two cents. I just wanted to pop in and say that I remember the lean years very well. My situation is a bit different. We had a child get seriously ill and I left my job to manage their care, significantly impacting our household income. I borrowed The Tightwad Gazette from the library, and slashed expenses like nobody’s business to keep things working. At the time my priority was to maintain extracurriculars for my other kids – mostly inexpensive activities such as Scouts, choir, and so on. I felt strongly that they needed to have opportunities and places where they could be kids away from the medical crises that had crashed into our lives. But after those costs, most of the frills went – cleaning lady, eating out, Starbucks lattes, gym membership, costly holidays (we camped for years), it all vanished. Our furniture/clothes/cars/etc were all hand-me-down and second hand. And you know what, my adults kids tell me they loved their childhood. They didn’t care about the TV stand held together with duct tape, and they loved the camping, and the Scouts, and the inexpensive family fun – picnics, potlucks, family hikes. They don’t feel they missed out, and I don’t think they’re just being nice =).

    My point in all of this is that even though those years can be overwhelming, those lean austerity years eventually end. And those years (reduced income combined with a very ill child) really forced me to think long and hard about my financial and personal priorities, and be very intentional about how I spend my money and my time/energy. While they were tough times for a stretch, I’m actually grateful for all the learning looking back. I’m almost twenty years ahead of you, and financially things are very different. These days we take nice holidays (experiences matter more to me than stuff), have paid off our mortgage, put our kids through college, and are FI and will soon be RE – I’m retiring this Spring in my mid-fifties.

    Hang in there. It gets easier.

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    1. Thank you so much. These are indeed character-building years but you’re absolutely right, the kids can still have a wonderful childhood even if we’re working with less. I think I needed to get my mindset out of “comfy” and into “frugal” because before I bought this house, we were quite comfy! So it’s been an adjustment

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31. As someone who had kids to do chores and then a housekeeper, I would evaluate carefully letting go of the housekeeper. With kids you have to tell them what to clean and semi-supervise them. A housekeeper comes in and just does it. Getting someone to come in and do the big stuff has been the single best thing I ever did just for me. Better than manicures, pedicures, professional haircuts, a new pair of shoes…anything. If you have someone you trust and who does a good job, you have gold. I worked my way through undergrad by being a maid and it was only when I was an adult that I realized how much I helped a few of the women.

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    1. There’s definitely truth there!

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32. It’s been interesting to read the comments and see all the different ways we frugal minds prioritize expenses. Personally, remembering my young kiddo days, I would prioritize the housekeeper above almost everything else! I like cooking at home, and frozen “fun foods” to me are just as fun as going out. Making my own coffee at home saves me thousands of dollars a year. I love using the library for books, e-books, and audio books (Libby app). I think gyms are kind of a racket…If I lived in N. California I’d exercise outdoors every single day! (I’m from Ohio, so many days it’s me and Youtube in the basement!) I’m good with low expenses on clothes and shoes. But I will admit, I spend a lot on my hair. Ah, vanity! We’re all different and yet the same.

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33. The item I find glaringly missing is disability insurance – term life is secondary to disability. She’s self-employed so disability cost is on her (but I believe is deductible or it used to be for a sole proprietor). IF she chooses to look for a corporate/W-2 job, disability as a benefit should be considered.
    Living in a state that is closer in line with car insurance rates, I don’t think $104 is unreasonable. And HO insurance is a tough market in CA so while she might save on auto, her HO might go up more than what she saves.

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    1. I completely agree about the disability insurance. It is more likely that she will become disabled than die, and then everything will come crashing down without her income. Disability insurance can help. https://www.lifeinsure.com/disability-facts-and-statistics/#:~:text=If%20you're%20under%20age,Women%20have%20a%2054%25%20chance.

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34. One option to save on utilities in California is using OhmConnect. They pay you to save electricity at certain peak times to prevent the power grid from going down.

    I earned hundreds of dollars from it when they had it here in Toronto (unfortunately they don’t have it here anymore). It’s also available in New York and Texas I believe for other readers.

    They make it fun by gamifying it too. You get points and try to beat scores and can join teams or whatever. We often just flipped the breaker for an hour and got paid for it, but sometimes we needed to use electricity so just turned off what we didn’t need or sometimes used our laptop on battery mode and kept the power to the internet but turned everything else off. Could be worth looking into if it’s available in your area!

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35. Hi Liz! I was wondering if you have any plans for celebrating the 10 year anniversary of Frugalwoods next year? Maybe a wrap-up of your favorite posts or media appearances? Love your blog!

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    1. I honestly hadn’t thought about it–thank you for reminding me! Your ideas are fabulous–many thanks :)!!

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36. Jess, as Ms. FW said, you are doing an amazing job dealing with many life changes and are smart to be considering options to mitigate the financial impact of those changes. I have lots of disconnected comments:

    Firstly, just some thoughts on what expenses might be easiest to reduce. These are relatively small, but every bit adds up!
    -Subscriptions: Could you rotate which TV services you subscribe to? Subscribe to different ones different months? This way, you still get access to different shows, but don’t have to pay the full price each month.
    -Haircuts: Could you cut down the frequency on this? I get my hair cut 2-3 times per year. Could you cut your own hair and/or your kids hair? I cut my partner’s hair with a hair clipper kit that cost less than one haircut, and after a couple rounds of practice it is very easy, quicker and more flexible than going out to get it cut.
    -Gym: Fitness is important, but this gym seems expensive! Is there a Planet Fitness, YMCA, or other cheaper gym in your area?
    -Giving: Across categories, it seems that you’re spending $3600 on giving. Is there somewhere that you would feel comfortable reducing, either the charitable or gift giving? Perhaps in speaking with family, you would find out that others would also be happy to reduce or eliminate most family gift-giving? And I agree that asking grandparents for classes/memberships/etc is a great idea for reducing kid expenses (and perhaps clutter!) if they’re amenable.
    -Groceries/household supplies: You probably have done this, but just paying attention to cost/unit at the grocery store (buy store brand, bigger sizes of things that won’t go bad, etc) can add up. Is there any household supply that you could significantly reduce? I hardly use paper towels anymore because I swapped to dish/wash rags for cleaning and hand towels for everything else.
    -Restaurants: You should definitely keep what makes you happy here, but are there any easy ways to get the equivalent for much cheaper? E.g. frozen pizza or a make-your-own-pizza night family tradition.
    -I 100% vote for keeping the house cleaner if it’s a sanity saver for you! Only suggestion is to consider whether you would be fine with a slight reduction in frequency (e.g. if you do every 4 weeks, could you do every 6 weeks without it making a big difference?)

    College funds: It’s awesome to want to help the kids with college, but in addition to Ms. FW’s point about putting-your-own-oxygen-mask-on-first, there are logistical/mathematical reasons to put money in retirement instead of 529 plans. College financial aid considers the amount that is in 529 plans, but not in retirement accounts. So if you have more money in 529 plans, you will likely pay more out of pocket for college. Additionally, 529 plans have hefty penalties if they are not used for qualifying expenses. If your kids end up getting good scholarships or not going to college, you may regret it if you have too much money in the 529! The grandparents are wonderful and you should definitely keep accepting their contributions, but for your personal income, the 529 is probably not the best way to allocate your savings/investments. Could you save more for retirement now to give those investments time to grow, then cut back some on saving to help cash-flow the college expenses later?

    Employment:
    -You seem to make good money and enjoy your lifestyle as a self-employed person. If I were you, I would stay self-employed, and focus on ways to reduce expenses / increase income while remaining self-employed. You’re a freelance writer; could you consider slowly building up income-producing writing assets such as blogs / mini e-books / etc? Or combine your writing & PR skills to sell a digital online course? Or could you work a bit more during months that your kids are in school (say 35 hours/week), then go back down to your normal hours when your kids are out for the summer? Is there any wiggle room to increase your rates? I’m sure there are more ideas to consider, but given your excellent combination of income, job satisfaction, and work/life balance, I would not want to recommend a major change!
    -The only caveat that I have here, is that if your financial fears are driven by a sense of insecurity in how much money you have coming in each month, maybe that would make it worth it to at least get a part-time job to supplement the self-employment income. Only you can decide how important the consistency of your income stream is to you. But I do think that you can assuage your financial fears by slowly increasing your emergency fund to be 6 months of expenses. Also, although Ms. FW noted many reasons that you should want a good emergency fund and I agree with all of them, perhaps it helps to remind yourself that it sounds like you do have a safety net if you really need one (from the sound of it – the generous grandparents seem like they could likely help in a pinch, and perhaps the potential of moving in with the long-term partner would reduce expenses).

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    1. Really nice points. thank you for your thoughtful input! Some fantastic ideas here!

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    2. Just a quick correction but if her kids get scholarships she can withdraw without penalty the amount of the scholarships from 529s. They can also get rolled into IRAs when the children are of age.

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37. It seems like your self-employed lifestyle is really important and maybe not reproducible in an employment situation. Is there a lower-cost gym option? We have worked hard to scale back our restaurant eating and found that a can of cinnamon rolls on a saturday morning is a great substitute for $25 at a coffee shop; same for buying pizza dough at the grocery store vs going out. That seems like a fairly easy area to cut.

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38. Hi Jess! Thanks for the case study. You’ve curated a wonderful life.

    You’ve received lots of advice on what to cut back- one great kickstart could be a frugal month challenge. Cancel all subscriptions, put the gym membership and house cleaner on hold, don’t eat out, no pedicures or other little luxuries, etc. Then, after one month, gradually add back only the things you really miss. You may find that the extra money in your bank account is more thrilling! Best of luck!

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39. I haven’t read through all the comments, so apologies if this is redundant. With kids, the experiences don’t need to be expensive to be fun. Instead of pizza night out, have a homemade pizza bar at home. Instead of a trip to Hawaii, find something closer to home. Jess enjoys being active, so bike your booty to the grocery store and for errands vs defaulting to the car to save on gas/wear and tear. Instead of all those TV subscriptions, check out books and movies from your local library for free, play board games together, do puzzles, find non-screen time activities. Essentially, get creative with ways to save. Hope some of those thoughts help! I’m dying to know whereabouts this small town is at… we’re slightly considering where to retire to and want something that’s not crazy crowded like much of CA and where we’re at in CO. Small towns are my jam! 🙂

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40. Jess, you are a rockstar! You’ve had huge life changes in a short time span and still are sane, productive and raising great humans. Many have recommended checking items such as seeing the best expense rates on retirement savings, etc. It’s hard to limit costs on school related activities even when split with a ex-spouse. So – I’m leaving that off the board here. Here’s a few things that can have a cumulative impact. You can easily get rid of Spotify & Audible. Do you have Amazon Prime? if yes – they have free streaming music & audibles available as a Prime Member. Also the library (through the Libby app) has gobs of ebooks and audibles available for download. The library has a HUGE catalog of movies on dvd to rent for free. Even recent release movies. *Also the library often has discounted or free tickets to area museums & attractions. Plus most offer a “free” day of the month. – have you heard of the Seymour Marine Aquarium in Santa Cruz (its a mini -crazy-cool version of the Monterey Bay Aquarium) tickets are $12 for Adults & $9 for kids (way less that MBA – shoutout to my old haunts in Santa Cruz!-Pivot slightly: activities such as picnics at a local park or beach (low to no cost). Substitute restaurant outings with stuff at home as some have already suggested: pizza night at home, movie night – popcorn, favorite treats etc. Do all of you have bikes? We did a lot of bike riding growing up. At first it will seem hard but as you make progress with your focus and goals – a whole new world awaits! As for the housecleaner & manicure/pedicures – what about giving it a 3 month test run without – and then decide if it rates to be high on the list of must haves? —as probably mentioned by others: focus on building emergency fund then start building up the retirement funds- time moves faster than you think. Last but not least – Remember to enjoy being in the moment – early mornings in spring in No. California are beautiful. Grab a hot cup of coffee and enjoy the spring sunshine. Then hit the ground running with your kids!

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41. I would consider doing one day of paid work per week for a local company / organisation. Not being overly familiar with the US health insurance set up – could this be a way to also access insurance ? I think the vacation funds need to be lower with a focus on increasing savings. If you did work one day per week you would also get out of the house, as your kids grow up it could be a good opportunity to make new connections for you too and possibly pay a big chunk of the mortgage bill every month. I think spending money on yourself is important but not at the expense of housing security. Can you use public library dvds, books and board games instead of streaming? I’m personally taking a different view of retirement, calculating the minimum income I need to pay my bills and working way less. But I have farm that will supply most of my needs.

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42. Hi Jess
    I wanted to respond in relation to your streaming services. I currently have Hulu (which I get for free through Spotify), Peacock (which I get for free through my internet provider) and only pay for Spotify, Amazon prime (which I get other benefits through) and Britbox (which I pay for using the digital credits I earn by delaying Amazon deliveries). Once a year I take a months subscription to Netflix and binge watch everything before cancelling again and waiting to next year. So all in all, I don’t pay for most of my streaming services, and am wondering whether there might be some savings here for you without completely disconnecting.

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43. I appreciate the comment above re: inheritance. I have been very hesitant to post this thought, but I would be grateful for posts or case studies that land on the other side of financial independence, or post-inheritance. I am someone who spent a good chunk of her twenties, thirties, and forties counting pennies and embracing the Uber-frugal life – I own a very well-thumbed copy of “The Tightwad Gazette.” A few years ago, in my early fifties, my life substantially changed. The story is complicated (as they often are), but my husband and I inherited a large chunk of money. We were already on a path to be FI by early fifties, but this money was a total game changer. My husband and I have set aside a significant chunk in a donor-advised fund (thanks for that post Mrs. F), and gave a number of family members cash gifts, some large – helping others was, and has been, life giving. But talking about sustaining an intentional lifestyle after a significant windfall of cash doesn’t often happen.

    I appreciate that the money piece is a good problem to have, but it’s also very difficult to talk about. As well, the inheritance wasn’t “good fortune” and I have great difficultly seeing, or framing it that way. The inheritance was the result of losing someone very, very important to me at a painfully young age. Navigating the emotional and financial path after receiving the money has been complicated and I would be very grateful for a conversation if someone is willing to tackle it.

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    1. That’s a fascinating question, Daisy. Thank you for bringing it up. If you’re willing to be a Reader Case Study, I think it would be very helpful for a lot of folks who find themselves in a similar situation. If you’re interested, you can sign-up here.

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44. Greetings from a fellow NorCal resident! Two areas for feedback:

    1. Have you confirmed that you’re maximizing your tax deductions? Mileage, square footage for your office, etc. I have a full list I can send you so please ask Mrs. FW for my contact information if you’d like. Here’s a good list to get you started.

    2. Do you have a business credit card? If not, you can do the Chase Business Ink + Chase Sapphire & Chase Freedom Unlimited for personal spend. You can then combine the points from all three and apply that towards flights or hotel, which can offset your travel budget.

    Hope those help, best of luck!

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45. Yes, I also recommend finding a better savings account. We use a local credit union for our checking and keep at least $2000 in there at all times in case of an urgent emergency that we need cash for right away. Also, the convenience of a local branch, plenty of ATMs around is nice. The rest of our emergency fund is in an online only high yield savings account (Ally Bank) that we can easily transfer to our checking within a couple days.

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46. As a single mum living in Sydney, Australia, this story and case study really resonates with me and there are many similarities between Jess’s story and my own, I also bought an apartment on my own and while technically I could afford it, money was tight and there wasn’t much left over, especially now with rising interest rates, things are even more tough. I cut costs in many areas and I have lived frugally. I have also taught my 13 year old son many money lessons and I am starting to teach him about investing. Congrats on getting to where you are now and prioritizing your financial future!
    Liz.

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