I’ve been back and forth on writing this post for a long time, 5 months in fact. Baked into this story is a fair bit of embarrassment. But in the end, I know that many people out there have been put in similarly compromising positions and this might be helpful.
This is the story of the worst financial disaster of my life. The story starts with me working with an accountant for the first time in my life. I’ve always done my own taxes, but things have gotten very complicated now with owning multiple businesses, a small army of contractors, etc. I earn very little from this website – it’s my other ventures that bring in most of my income.
I had submitted everything to my accountant way ahead of time and he had informed me that my taxes for the year would be around $3,000. Not great, but as a self-employed person you usually get pretty slammed with taxes. From there, I made a lot of decisions about spending, planning and budgeting for the next year. I was feeling really good.
Then I got the bad news in a phone call…. “Ryan I’m so sorry, we made a mistake with your taxes, you don’t owe $3,000, you actually owe, $30,000 in taxes. We made a decimal mistake.”
I was at a total loss for words. I was sick to my stomach. I felt hopeless.
I eventually calmed down and started to think. This was a problem, a problem that had a solution. It was a budget that needed to tighten the belt in a way that I had never done before. So I broke out my computer and started a spreadsheet that allowed me to fully understand what I owed and when.
Identifying two important facts:
1. I needed to come up with a lot of cash, which I now had a real world number for.
2. I also understood that timing was going to be a huge factor.
The name of the game for me was to earn more income while I timed very precisely spending to meet all my commitments. Certain bills weren’t due for several months and my taxes weren’t due for about two months because I had done them so early. Each time I paid a bill I had to quickly ramp my account back up in a perfect way so that I could be on point for the next bill. This meant that there were times I’d be close to zero, but it would be part of the plan.
The ripple effect… of Death
The real chaos came from the fact that I had some other big bills coming up and having to pay $30k in taxes all of sudden was creating a ripple effect that left unchecked, would spell disaster. A lot of my planning deals with working with cash flow. I don’t get a steady paycheck since I’m self employed. This means I earn money and have to make it last until the next time I get paid. Timing is so critical and a shock to the system of this magnitude was devastating, despite me having a solid emergency fund.
The main considerations to my budgeting:
- Understand my expenses down to the dollar.
- Understand my income, but operate under the worst case scenario
- Develop a strategy to increase income, assumed most would fail
- Remove costs that weren’t critical, go as lean as possible
- Stick to my budget no matter what
The big thing here was understand expenses and income, but operate in the worst case scenario when it came to my income projections. For expenses, I used my real fixed costs and projected variable costs with 6 months past data.
I then needed to come with a strategy to earn more income fast. What this meant was I needed to get two big projects I had been casually working on out the door, I had to hustle a second income from somewhere and I had to make this happen quick. This lead me to my first lesson:
Lesson Number One:
I’ve learned that sometimes it comes down to income, not expenditures. This is a particularly tough pill to swallow at times because when we talk about budgeting, debt and savings its often a discussion of what we can cut out. The truth is we can cut out all the fluff, go very lean and still not have enough; that is what happened here for me. What this means is that we need to work on the other side of the equation: income. I realized that was the case with me, cutting lattes would get me nowhere. I need to earn more to make this equation work.
How I Boosted My Income:
As I mentioned, I was able to get two projects out the door, but I didn’t stop there. I operated under the assumption that most of my efforts would fail. With that mindset, I knew I needed to move on a lot of ways to earn income to find a success. So from there I looked at my skills and sent some emails to connections offering my services. I was able to land a business coaching gig and a marketing strategy coaching session. I did a few other things, but you get the idea.
Lesson Number Two:
One thing I realized at this point was I’m pretty good at a lot of marketable skills . This brings us to the second lesson: be valuable. Whatever this means for you is the correct answer as long as you can do some thing and people are actually willing to pay you for it. For me I realized I have experience in building businesses and marketing. I can do these things and the outcome of that activity is I can earn other people money. Hence, I’m valuable in my own way. Think about how you are valuable, because everyone is. The trick is identifying that talent and who you’ll sell it to.
How My Tiny House Saved Me:
Through out all of this it struck me how different this time in my life would have been if I been in a traditional housing option, namely renting. Right now the average rent in my city is around $1000 a month with utilities. What compounds this fact is that if I had been renting, I would have not be able to pay off my student loans earlier… so in addition to rent and utilities, I’d also have to content with a $250 student loan payment. This all would add up to me needing to come up with additional $5,000 on top of the $30,000!
Beyond money considerations living in a tiny house meant one thing that was extremely comforting: I would always have a place to live. That comfort of knowing that let me take a deep breath and know I was going to be okay. To top it off, my utilities are $15 a month with my tiny house and push comes to shove, I could work any job part-time and make it if I had to.
Lesson Number Three:
Tiny Houses buy you security, peace of mind and a place to lay your head. More importantly, it let me say “I’ll be fine” and move from trying to survive to finding a solution.
Once I realized that I would always have a place to stay, I could focus on executing my plan. The plan gave me confidence, it let me put aside the knot in my stomach and get down to the work at hand.
Lesson Number Four:
With a budget in place, I found that I could move past fear and act with confidence. Simple things like grocery shopping became empowering experiences because I could buy the food I needed AND it was a positive reinforcement because I knew the money was there for me, that it was part of the plan.
After all the worry and hard work, it came time to start paying the bills. I think the daunting thing about the entire process was that I knew the entire plan was going to take 4 months to execute. This essentially meant that I was holding my proverbial breath for that entire time. Even though I had a place to live and a budget to rely on, I found it very difficult to keep pushing.
Part of this journey was trying to keep myself above water emotionally. I knew I was on the edge of slipping into depression, teetering there in a very precarious way. I felt a knot in my stomach, knowing that the stress wouldn’t end for months at which I’d either make it out bare;y or crash horrifically. I carried this with me and it weighed heavily on me.
As I moved through the critical execution phase of my plan, I had to trust the plan. ‘In the budget I trust.’ At one point, the plan called for me to have a whopping $256 in my account for a period of 48 hours; after which a payment would hit and I’d ramp up for the next bill. The whole thing hinged on me hitting things perfectly, paying bills and crushing income strategy to face the next big bill.
In the end, I was able to earn enough and then some. Along the way I got hit with some unexpected bills and needed to up my game, to keep pushing and never stop. At the end of this I have started to rebuild my rainy day fund, which I hope to expand to $30,000 with enough time.
I’m also cognizant that even though I paid those bills, it’s a double edge sword, I now have to pay taxes on the money that I earned to pay them. A lot of this can be offset with business write offs, but not all.
- What tips have you learned from your own tough times?
- How has budgeting saved you?