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DO YOU THINK differently about money today compared to a year ago?
Cast your mind back 12 months. Interest rates were near record lows, cryptocurrencies were surging and stocks were hitting new highs day after day. Checking your investment account balance was an instant dopamine hit. Ditto for homeowners, who could get a sense for their home’s skyrocketing value by perusing the local listings.
Last year was also a time when many Americans called it quits from the nine-to-five grind. In fact, so many folks retired during the pandemic that it was dubbed the “Great Resignation,” with 2.6 million more people retiring than expected. Meanwhile, the Census Bureau reports that some 5.4 million new business applications were filed in 2021, up from the previous year’s record of 4.4 million.
The upshot: Entering 2022, many folks didn’t have the safety net offered by traditional fulltime employment, with its predictable salary and array of employee benefits. And I was among them.
I parted ways with my employer in early 2021, instead turning my focus to freelance investment writing. One reason I could take that risk: At age 33, I’d amassed enough money to be what many personal finance gurus would deem financially independent.
Through 2021, I hunted for the right fulltime job, and I even had a couple of decent offers. But the numbers didn’t match what I wanted, so I continued to build my freelance writing business. All the while, my portfolio crept higher, though perhaps not at the pace of other investors because my stock portfolio was globally diversified, plus I held some bonds and cash.
Then came 2022. Nonstop market volatility, coupled with four-decade-high inflation, has made for a nerve-racking year. My portfolio’s value has slumped, but my freelance income has continued to grow, allowing me to save a healthy sum. The good news: My net worth today is pretty much where it stood a year ago—if I ignore inflation.
Overall, it’s been a year that’s reaffirmed some of my prudent financial habits, while also highlighting some of my mistakes. Here are my five takeaways from 2022:
1. Keep buying. It’s easy to be a saver and investor if you have a fulltime job that offers a 401(k) or 403(b) plan. Your regular savings get silently subtracted from your paycheck and dumped into the funds you choose.
But now that I’m self-employed, I need to be more conscientious, stashing dollars in my solo 401(k) plan. Still, it’s been a great time to be a stock market buyer. Global stock valuations are attractive, with a price-earnings multiple of 15 based on forecasted corporate profits, and yields on Treasurys are comfortably above expected inflation rates.
2. Have a plan for my cash. Today, letting money sit in a short-term government bond fund seems like a decent deal, with yields on offer above 4%. That’s good news for someone like me, who needs to carry a fair amount of cash, given my unpredictable income.
By contrast, last year, when bond and cash yields were tiny, I got a little too wild. I invested modest amounts in a few speculative areas, including stablecoins, a form of cryptocurrency. Luckily, I withdrew my stablecoins before this year’s cryptocurrency storm hit. But I still hold some of my other speculative investments, including fractional ownership of high-end wine and art. I suspect these modest bets will prove to be more of a nuisance than a big help to my portfolio’s performance.
3. Simplify, consolidate, protect. By dipping my toes into somewhat opaque investments, I set myself up for time hassles—not just tracking these investments, but also reporting gains and losses for tax purposes. To be sure, buying new investments and opening new accounts is fun, because they offer the chance to daydream about the gains we might score. But whenever we buy, we should also think about the ongoing headaches and about what will be involved in selling.
Eventually, I should consolidate my various accounts, so my estate is as simple as possible and I have fewer tax complications. My goal: Have investment accounts at only the most established firms. That way, I’ll reduce the risk that some niche company gets into financial trouble and freezes my account.
4. Set work boundaries. My biggest regret this year isn’t my asset allocation. Instead, what needs correcting are my work boundaries. Maintaining a roster of a dozen clients, while also keeping my finger on the pulse of the financial markets, takes its toll. Whenever I check out from work—let alone take a vacation—I forgo income, which is hard to stomach. That reality has prompted me to look around occasionally for a fulltime job with benefits and regular hours. The bottom line: Work-life balance is a lesson I’m still trying to learn, and I need regular reminders that it’s okay to step away from my desk to clear my head.
5. Get my own taxman. My inclination is always to do things myself, rather than pay someone else. That’s potentially dangerous and costly when it comes to taxes. A few early missteps, coupled with my higher income in 2022, has me pondering whether to hire a CPA to help me manage my taxes.
While the stock and bond markets have been crazy this year, that hasn’t been the biggest source of financial stress for me. Sometimes, I miss the good old days, when I felt my employer was taking care of me. While the numbers say I’m financially independent, I now feel more anxiety about money—because of all that’s involved in managing my own business.
Mike Zaccardi is a freelance writer for financial advisors and investment firms. He’s a CFA® charterholder and Chartered Market Technician®, and has passed the coursework for the Certified Financial Planner program. Follow Mike on Twitter @MikeZaccardi, connect with him via LinkedIn, email him at MikeCZaccardi@gmail.com and check out his earlier articles.
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Hiring a CPA is an annual decision, not either/or. Consider hiring one and doing yourself and see if the results are the same. Did she add value? If you can replaicate the CPA’s results, and nothing significantly changers next year, do it yourself. Contunue until circumstances change (your situation and/or tax law). That said, I generally come down on the side of hiring a CPA. But some folks are very good at doing it themselves and should use that knowledge to their advantage by skipping a few tax years.
It sounds like you´re doing very well, but as a former business editor who spent 40 years as a journalist, I would have been very hesitant to give up a staff job with benefits at the young age of 33. I know many, many journalists who became freelancers, often not through choice, and it´s a very uncertain life. I think freelance journalism is best suited to those who are making the best of a layoff, or don´t want a full-time job while raising kids or pursuing another interest, or are transitioning into retirement. But that´s just me.
And now you are paying double SS taxes too as self-employed?
Leave It To Beaver said it best:
Beaver: Gee, there’s something wrong with just about everything, isn’t there Dad?
Ward: Just about, Beav.
Unless you’re doing your fancy footwork inside a tax deferred account, your comment “Eventually, I should consolidate my various accounts, so my estate is as simple as possible and I have fewer tax complications.” makes me wonder about the tax implications of making those changes “later on”.
Also, I tried to keep things simple along the way in case I got hit by the proverbial Mack truck and my wife was left to figure things out. Besides life insurance, I think that was the best way to leave things.
Mike, the following line gave me pause:
”Whenever I check out from work—let alone take a vacation—I forgo income, which is hard to stomach. “
In this article and many previous articles, you’ve written about your financial independence, yet here you say that forgoing income is hard to stomach. So I’m curious to know what “financial independence” means to you, because I would have thought that FI would have relieved you of this discomfort of not having income for a period and would have given you the freedom and luxury to find income producing work if/when you want.
Good article Mike. My views are different from a year ago, but in a different way. I’m 71 and retired; I was a CPA for 40 years, the last 27 years in my own firm after working in corporate and larger CPA firms. I got to see how people handled their finances, and I classify people as spenders or savers; I have always been a saver. Like you, my income was not guaranteed, although it grew the longer I was in practice. I’ve always kept a lot of cash and paid down debt. Two years ago I moved excess cash from checking to an online savings account paying 10 times the interest my local bank paid. With our Social Security, income from the sale of my practice and rental income, our cash keeps climbing;I was thankful when the date for RMDs was changed because that was further deferred. Given the drop in the market, inflation and all of the other craziness in the world to, I am satisfied with the amount of our cash, and I don’t need to invest for our future because we are there. We have been debt-free for probably 20 years.
Separating work from the rest of your life is difficult when you provide a personal service. I did not give my cell phone number to clients, but I did have my work email on my phone; I could choose to ignore it until Monday. I had a couple of employees who could handle clients when I took more than a weekend off. Sometimes I dealt with a client issue when on vacation, and also read emails, just to keep up with them. That is always a judgement call.
Although I am prejudiced, I think getting a CPA to help you is a great idea. Keeping good records of revenues and expenses is vital to knowing how you are doing and preparing to prepare and file tax returns. A CPA can help you with allowable expenses and documentation (some clients I reined in on deductions, and there were others I told “you can deduct that.) If you use Quickbooks, please have a CPA set-up, train you and review it quarterly. You don’t want to dump that on your CPA during tax season.
Good luck!
Mike, thanks for the thoughtful and interesting article. I appreciate the daily blast of financial data you provide. You often challenge me to learn things I was not familiar with – that’s a good thing. Best of luck with your growing business, and Happy Holidays.