Frugaling my way out of debt

I’ve been a student of some sort nearly all my life. I never worried about ponying up extra funds for a tax payment until 2013. And honestly, when I created Frugaling, I had nearly $40,000 in debt from credit cards, a car loan, and student loans. There was no way the taxman would give me anything but a fat return.

Then, a financial miracle occurred. In the summer of 2013, I began to make thousands of dollars in affiliate/ad revenue from Frugaling. The money poured in, and I was giddy. Finally, I could begin paying off all the debt — in record time.

I dropped all of it into student loan debt, and paid off nearly everything (finished the rest in 2014). My nerves calmed, and I could suddenly see freedom and future. Cheesy, I know, but my loans had dampened my spirits. Suddenly, I was renewed.

Ugh, self-employment taxes

As this new influx of funds padded my wallet, I unfortunately realized that by the end of the year, the taxman would be knocking. All of these funds from Frugaling were coming in untaxed — no withholding. These are self-employment taxes. Ultimately, this income must be declared and taxed at a penalty rate to pay for social services (i.e., Medicare, Medicaid, and Social Security).

After calculating all the money made and entering the numbers into TurboTax, the hypothetical refund reversed to a payment. The government wanted about $1,000. I sat there dumbfounded for a moment. All these advertisements and campaigns suggested I would “Get the biggest refund ever.” Those pesky self-employment taxes obliterated my student status.

It was a lesson in the difference between income and net worth. That year I had made over $30,000 between graduate student work and the website. I had barely any savings and negative net worth. Yet, I was being penalized for making money that could pay off financial aid faster. To me, it seemed preposterous that I was being taxed at a higher rate for this side income — with no net worth.

I owe Uncle Sam how much?!

In 2014, I paid off my remaining debt and my net worth has been hovering at a few thousand dollars. My stress over debt is non-existent, and I feel better than ever about my financial situation. But I’m not done with the struggle to make wealth while in graduate school.

I made over $20,000 “on the side” for Frugaling/business-related self-employment (I no longer make that kind of money, as I removed credit card affiliate links for now). After inserting my income and expenses into TurboTax, a shiver went down my spine. The numbers catapulted up over $4,000.

I’m fortunate that I’ve been saving for this moment. My savings account has enough to cover it, but my net worth will be swept away come mid-April. It feels awful to work this hard to save, make, and write. I have no net worth, and yet the funds I made will be disappearing.

But instead of letting this payment dampen my mood, I am more focused than ever on writing for you all, staying frugal and minimal, and building some real savings.