NerdWallet’s How Do You Do Money? series asks people from various walks of life to share their attitudes and approach to personal finance, with the goal of bringing transparency to discussions surrounding money. In this installment we speak with Ian Brown, a 24-year-old server technician living in Seattle, Wash. This is how he does money.
What’s your main job and how did you get started in that?
I currently work as a “remote hands”/server technician. Basically, I perform physical maintenance at an in-state data center for a company whose main branch is out-of-state.
I got into my current gig because my brother-in-law pointed out the opening to me and got me in contact with the person who later hired me to replace someone who was letting their contract run out to focus on another job. I’m actually a consultant, technically, and am working on a contract that gets extended in six-month chunks. (I just signed the paperwork for my first six-month extension yesterday. Yay, I still have a job!)
I’d also wanted to work in networking and like doing the physical part of it (plugging in wires is fun), so it seemed like a good fit and a good job to have while I worked on my other personal projects.
Sounds like you enjoy what you’re doing, but would you like to be doing something else instead?
Yes. Eventually I’d like to write and do game design full time. However, since I want to write fiction (novels, short stories) and make tabletop roleplaying games (think Dungeons & Dragons), those are both far off goals, no matter how hard I work. Right now I’m just focusing on writing stories and building my first big game, and hoping to build my portfolio of published work to hopefully parlay into a job, publishing contract, or my own business later down the line.
About how much do you earn before taxes per year?
I earn about $48k-$52k before taxes. However, because I’m a consultant, I pay higher taxes because I have to pay the employer share of things like Social Security in addition to the amount I pay as an “employee.” So my tax rate is around 25% from the federal government. (I don’t think this includes various tax deductions.) I also need to pay an excise tax to the state of Washington because I’m a business, which I believe is around 2.5%. I think they mostly make us do this because there’s no state income tax for freelancers to pay.
Do you feel secure with that amount?
I feel reasonably secure in that amount, although I’m worried I don’t save enough and don’t have a real cushion that can last me for six months or so if I lose my job. I feel like if I could make the amount I make before taxes as my after-tax amount, I’d feel way more secure. (According to my quick calculations, if I’m still paying freelancer taxes at roughly the same rate, I’d want to be making around $66k a year before taxes.)
Do you have any debt?
I’m very, very lucky in that I don’t have any debt. I pay my credit card every month, and my parents were incredibly generous in paying for my college education.
Do you have any savings goals? If so, what are they?
I’d really like to have an emergency fund with six months’ worth of normal expenses and an additional few thousand in case my car’s engine explodes or something like that. I’ve known a lot of people that get stuck out of work for a long time, and I don’t want to be worrying about how I’m going to pay rent next month in addition to the stress of finding another job. This fund would probably be around $15k, all told.
I’d also like to save some money for publishing the game I’m working on once it’s done (hiring artists, layout people, editors, and possibly printing books depending on which publication method I go with). The final far off savings goal is to eventually save up a bunch of money and get a house in a rural area, since I’ve really grown fond of the idea of living in a forested setting in a cabin or something similar. But for that to be feasible, I need to be able to work remotely, which I can’t do right now, and combined with the realities of my income it’s become a very back-burner goal for now.
Are there any resources or tools you’ve used to learn about and manage your personal finances?
As far as tools, I use Mint on and off, though I don’t actually feel it helps me very much. I mostly just use my bank’s online account activity tracker to keep tabs on how much I’m spending and where it’s going. I’ve heard really good things about You Need a Budget, but I haven’t used it much myself yet.
My main source of financial advice is friends and family for specific things, and The Billfold to learn about new ideas and see how other people are doing money. I love that site!
How was the topic of money approached in the home you grew up in? What factors do you think influenced that approach?
It was fairly openly discussed. My parents taught me about responsible spending and basic things like bank accounts from a young age. I didn’t (and still don’t) know a lot about exactly how much was being spent on what, although I’m sure I could have asked and gotten an answer. It was one of those situations where we weren’t likely to go into specifics unless prompted, but if someone asks it’s usually fair game.
I think my parents were financially secure enough that they felt they could tell me about these sorts of things and not worry that I was going to think we were ultra rich or about to slide over the edge into poverty or anything like that. I believe they also knew that their financial stability happened in large part because they made such an effort to be responsible with their money, and that they felt it was important that we learn about that kind of responsibility, which led to most of the money discussions in the house.
How do you think that affected your attitude towards money and your personal finances?
While I may not have been super-responsible about money when I was younger, it still made me aware of the ‘right’ way to act about money matters. And by this point it’s helped me a lot. I feel a lot of personal responsibility towards my monetary situation and that I really need to stay vigilant and do as much as I can to do things right. (Trying to save, making sure everything’s paid on time, not accumulating credit card debt, etc.) This can be really stressful sometimes, but I do let myself be loose on occasion and in the end I think it’s really been worth it, as I feel like I’m in a decently secure place and that I’ll be able to manage what comes up.
Sounds like having an open discussion with your parents has helped a lot with your method of managing personal finances! Has your approach towards personal finance changed from the time you left home?
I’ve been much more careful with my money, because I really don’t like to ask for extra help. (My parents gave me an allowance for living expenses while I was in college, and I felt awful if I ever exceeded that except for pre-planned larger expenses that I discussed with them.) Back in high school everything was much more ad-hoc and I’d ask for extra cash if I needed it, but now that I’m out on my own I’ve internalized that asking for extra cash like that should be an absolute last resort. I think a lot of this has to do with the fact that I feel like I’ve messed up really badly if I have to ask them for help, because if I have to do that have I really been responsible enough with my money? That might just be anxiety/guilt talking, though, to have it be a binary like that.
That’s a very mature way to look at it. What is the best monetary investment you’ve made?
Though my parents helped me with it, investing in keeping my computing equipment up to date. The kind of work I do (and want to do) is all very computer-heavy, and having a computer that can keep up with whatever I throw at it has been invaluable. It means when I want to learn a new program or something like that, I don’t need to worry about if I can run it. And not having to wait for my computer to chug along and finish something when I’m already in the middle of a jam-packed day is a great for eliminating a source of stress. Given that I spend hours and hours a day at my personal computer, too, it seems like the right area to invest money in.
That makes sense, especially if it is related to your work! What monetary investment do you regret the most and why?
I can’t think of anything specific, but a few of the bigger ticket items that I’ve bought on a whim (certain games or consoles) and haven’t used much are somewhat regrettable, mostly because I feel I could have gotten a lot more utility out of that money (even if just entertainment utility).
What does financial stability mean to you?
Having enough money that I don’t need to worry about day-to-day expenses, and having enough savings to weather emergencies and otherwise take care of the monetary side of what life throws my way. I also believe that if I were truly stable, I would have enough money to help others significantly, whether it be donating to charities and the community/society I live in or helping other people in the fields I engage in (writing, publishing, game design) realize their dreams.
That’s very generous of you to think about donating to help others, if you can afford it. What financial accomplishment are you most proud of?
Finishing saving up for my upcoming move early. I’d been getting worried that I wasn’t saving enough and could be doing better, and seeing that I’d hit my savings goal for my move well ahead of when my move is going to actually happen in a few months was really satisfying, and a nice reminder that even if I’m not doing the absolute best I could, I’m doing OK.
Its important to remind yourself that improving your financial situation is great, even if you stumble a bit along the way. Are there any questions you’ve ever wanted to ask a financial advisor?
Mostly if I’m missing anything on the freelancer taxes front. I didn’t know you had to register as a business when I started doing consultant work in Washington, for example! So I get really worried that there’s some other government thing I owe money to and don’t know about, or that I’m going to miss a deadline or something.
Related to that, how to do taxes for multiple income streams. If I ever manage to start selling my game or my writing, that’s going to be two income streams and then everything gets crazy, it looks like.
Those might be account questions, though. As far as something I’d ask a straight up financial planner, I’d ask about starting a retirement fund. How much should I put into it? Is there a particularly good variety for freelancers to use? I haven’t the foggiest what to do when it comes to retirement, as I always sort of assumed I’d be working a job with a 401k or something similar, and so I’m completely adrift in this area.
As to multiple income streams, ideally they would each have a separate corporate structure (LLC, C-Corp, S-Corp, etc.). These all have different responsibilities for tax reporting. However, some may have “pass through” income where the corporate income is simply reported (passed through) on your personal tax forms (LLC most commonly).
As to freelancing, my suggestion would be to put some corporate structure around the freelance activity, such as an LLC. Once that is established, the opportunities for retirement planning are increased. For a sole proprietor, there are two good options:
SEP-IRA: Takes employer contributions only, up to $51,000 contribution per year. Immediate vesting, very little reporting. Generally lower fees.
Solo 401(k) – Employee and employer contributions, slightly higher combined contribution limits. Can accept spouses as well (in the case of husband-wife business). Annual Form 5500 filings and other notices would be required. Requires some outside administration, costs generally higher. Roth option can be made available.
There are other options that are more conducive to businesses with employees; as well as more complex options (defined benefit plans) that come with a great deal more setup, management and scrutiny. A sole proprietor might also be able to contribute to individual retirement accounts, depending on income and annual limits.
Do you need help getting your money in order? Tell us why you need a financial makeover and you could win a customized financial plan from a Certified Financial Planner! Details here.