Getting started, 38, self-employed with PAYE loans and low COL

[dizzy]

Life Situation: "Single" (tax purposes- in a relationship, not married, we aren't sure how we will call our commitment down the line legally or whatevs), 0 kids and don't plan on any.  PA but moving to NJ this month.  38, self-employed.  Living expenses are about to go down- just moved in w/boyfriend, we are planning a life together.   He owns the house and wants it still in his name for now (honestly I don't care at all, he worked for it), I'm just making a very small "rent" payment a month plus splitting utils.

Gross Salary/Wages: 2019 was $34700 pretax/biz expenses.  This year is a crud-shoot- might make more from unemployment, except- haven't actually received most payments yet (owed 12 weeks so far).  Applying for jobs but everything I've applied for (haven't gotten one yet) is only like half day or 1 day a week to start.  Really hard to see what the picture will be but likely I will make more than last year.  Current projection if I receive unemployment and the other funds I already have for this year but don't make any extra nor find a new job= $40-45k.  So easily could be more.

Individual amounts of each Pre-tax deductions 401k, HSA, FSA, IRA, insurance, etc. - I'm self employed and this is some of my question, how much to put in each.  I want to open a solo 401k this year (unless SEP IRA is better?  it doesn't seem like it).  Any recommendations here?  I use Schwab for IRA, I like it.  I opened Fidelity for HSA tho looking into this thing from Starship, it sounds like maybe Postmates makes a contribution?  Anyone know about this?
My health insurance is $38 a month, I qualify for HSA though have not put any $ into it yet.  I didn't have health insurance in 2019.

Other Ordinary Income: I work as an acupuncturist- work has been severely limited during stay at home but about to start a tiny bit
Musician- normally 25-30% of my income.  No idea when I will be able to do this again.  I do play a brass instrument in couple groups that can play acoustic so better chances of at least something
Deliveries- I started doing a little bit although it's been limited since I have not been in the city so much where I do it and was hiking for a couple weeks.  Then last week bc of curfews everyday.  Made about $1k so far this year.  since I just bought a car I will sign up for couple more services.  I also do bank bonuses/certain amount of credit card churning.

Qualified Dividends & Long Term Capital Gains: n/a
Rental Income, Actual Expenses, and Depreciation: n/a

Adjusted Gross Income: $26800 in 2019

Taxes: Federal $4300 state/local $820 in 2019

Current expenses (as of this month):

Rent $200/mo (towards boyfriend's house/etc)
Utilities $135? (internet, gas, electric, water split btwn 2 people).  This seems high and I'm not sure if I misunderstood my bf.  I did help him reduce it by $30/mo).  Our house is 650 sq feet
Phone $5/mo (visible party pay + amex $20/mo credit)
Car insurance (ugh, moved to suburbs had to buy car) $75/mo
CSA box (twice a month produce, tofu, meat) $65
Amazon prime $7/mo
Misc grocery $150? unsure
Gas- unsure, just bought car.  I get 37/44 on it (2014 mitsubishi mirage).  Some will be reimbursed tho from biz expense (deliveries)

TOTAL fixed is $637.  Which is amazing.  I know I have other misc expenses which I am happy to save for but right now have really lost scope of what they are with covid etc.  I have an ok stash of miles/points which offsets vacations (lotta my vacations are hiking trips tho)
Let's say $1000 including fun/misc expenses I forgot?

Assets:
trad-IRA $4300 (was $4500 :/  I'm using Paul Merriman's 10 fund plan for now w/Schwab)
Various taxable investing accounts I opened for bonuses, will take out when bonuses are complete (mostly accounts are just funded, will put in IRA/solo 401k end of year?) $2500
Checking accounts (some of this is at work earning bank bonuses, including EIDL money) $10775
Netspend 5% savings x2 $2000
IDA account that I am not able to use money now to buy a house $2000
Money I should be getting from various banking bonuses: (including above investing bonuses) $2750
Amex MR points that will go into Schwab account: $1375 minimum.  Might app another card soon.
Security deposit from old apartment $650

Total in investment/banking accounts: $ 26350

Money I am owed from PUA: Fed/CARES $5400 PA unemployment $5730 (update! got another payment 6/9).  They switched to checks because of some fraud issue, but I haven't gotten those yet.  I should be getting $1172 per week in total and I'm 12 weeks in, total benefit is $22k which it's looking like is probable, work is just barely starting again for my main job.

Car: 2014 mitsubishi mirage (KBB = $5k.  woohoo bought it for $4.2k w/69k miles on it)


Liabilities:
EIDL loan 30 yr @ 3.75%, start payments in a year ($15000)- took this since still waiting on unemployment, and I can easily earn more than 3.75% with bank bonuses

Student loans $204k (eeeeee).  Right now on PAYE and I'm 5 years in out of 20.  I have paid $0, in good standing.  Last year I finally made my way out of poverty levels, it should recalculate for $100 or so a month starting 11/20.

Specific Question(s): I honestly don't see myself making massively larger amounts of money that are going to affect my tax rate, rather just pay least amount possible with PAYE.  This leads me to want to invest in pretax rather than post-tax amounts, want to get my AGI as low as possible to keep $0 or close to $0 student loan payment.  My expenses are very low.  Rather invest, I'm thinking probably it makes the most sense to throw as much as I can in a solo 401k that I've learned of (this is better than SEP IRA, right?)

Also considering the current economic situation, I feel like liquidity is good though.  Does it make sense to have funds earning bank bonuses during the year (these give great return considered on annual rate) even if this doesn't let me dollar cost average in the meantime, and then just put a lump sum when it's time to do taxes/fund IRA's?

My lifestyle is very frugal.  My fun thing is thru hiking ($500/mo? $1k/mo tops when recovering from stress/living it up) tho my partner isn't into that.  He likes camping, owns an 18' camper.  He supports me in doing that tho, he knows I need it.  Would like to travel internationally.  I have already done this for couple years, avg COL $9-10k a year, and I have way more points now than I did 5 years ago, tho my bf I think needs a little bit more nice place than total hovels I've stayed at (however, we both know people's places to crash worldwide for free).  Also I want to have more flexibility to do tours/other gigs with band tho right now that's a moot point.  I calculated my FIRE amount I need based on avg of $250 a month of side hustle (WAY low, I should easily earn more) and it's probably somewhere between $200k and $250k.  That doesn't take into account final payment on student loans (tax on what's forgiven- tho who knows in 15 years what the situation will be).  I plan to continue gigs as a musician indefinitely, side work as acupuncturist but maybe not working at a place, bank bonuses and churning.  I'm finding deliveries fun also.

I like my lifestyle and really am hesitant to change things to make tons more, even if I could.  Any time I've had anything approaching a 9-5 I get into stress/depression mode really quick.  One thousand billion times more I'd rather keep expenses low and have my freedom.

I didn't know anything about investing, retirement, emergency funds, etc until maybe 9 months ago?  I'm self-employed/lower income, so are 95% of my friends/colleagues.  Just trying to get by but I'm hopeful I'm breaking out finally (part of why I switched careers to acupuncture)

Basically question is about what to do with all this COVID $$ and considering I have PAYE.  My gut/brain says best to dump as much as possible into solo 401k.  But maybe not do it until end of year, maximize what that money can do outside of the IRA first in bank bonuses etc.  Thoughts?

[frugalfoothills]

Lots going on here and I'm going to give it a re-read but I have to ask... how do you have $204K in student loans but work as an acupuncturist/musician? What did you study?

[dizzy]

I have two degrees in music- undergrad was free due to (academic) scholarships, and I actually profited about $750 a month in grad school (this went towards living expenses).  Was debt free until I went to school for acu.

Then I went to acupuncture school which is 12 semesters of graduate study followed by boards.  There are almost no scholarships for this.  I was literally about to be homeless and could not find any job doing anything (about 2000 job apps in 2010-11 for me the fallout of the lil economic crisis then hit later).  These were any type of job including ones I had experience for, not just music- things like waitressing, receptionist/admin, some science jobs (also got a geology degree in undergrad which I've never actually managed to get a job for- too long outside of the field.  Did have some internships back in the day).  I ran out of couches to crash and any savings I had so I decided to go back to school for a medical degree.  I went to a mid-priced school with great reputation (usually 100% pass rate on boards at least back then).  They made it sound of course like you would get to 6 figs pretty soon after graduation but among my colleagues that hasn't been the case for the most part (some outliers in HCOL areas do).  On the other hand after moving back east I've had more job opportunities so there's that.   I also took a year and after acu school to travel overseas (I'd been living in a van to save money during school) and also got some experience to put on my resume volunteering overseas.  Then thruhiked the AT.  Then worked on a cruise ship as an acu (promised the big bucks, it was not that much, hated it and didn't want to stick around for a better placement next time).  I did another thru hike before returning to civilization and getting to more normal work.  So not a normal way of doing stuff, no regrets tho.

It was originally 165k (including boards exams fees) but since I didn't actually have to make any payment over 5 years due to low income it's grown to 204k.  Honestly I don't give AF about the morality of paying the loans off or not; I just want to make the least amount of payment.

[dizzy]

Anyone?

[dadbod]

Hi Dizzy,

Another clarity question - the EIDL loan - do you plan to pay it back when it comes due or do you plan to make payments on it over time?  Is any portion of it a grant?  I believe the govt was talking about up to $10,000 grant through it, but I don't know anyone who got that much.

I think the individual 401k is a better deal than the SEP IRA because of the higher limits on tax-deductible contributions, including on both the employee and employer side.  You've got the right idea of keeping your AGI low so that your student loan payments stay low. 

Please please please keep on track of student loan forgiveness issues.  We've all heard the horror stories of people thinking they were in the right program and then finding out, after applying, that none of their payments counted.  That would suck.  A friend just got PSLF and his advice was to keep all records and involve the ombudsmans' offices of each entity associated with your loans.  I hope that the PAYE program will be easier to qualify for.

Regarding bank bonus issues and COVID $, I don't have much experience with bank bonuses but when I was younger I got involved in credit card churning.  It was a mistake because I thought I could stay on top of it but didn't and ended up getting burned by running up credit card debt to get points.  This experience made me more conservative on taking advantage of these type of promotional programs.  Just be careful because you are already living a little close to the edge (no offense intended - I did the same for a decade) and unexpected difficulties are harder to come back from when living like that.

Super amazing that you hiked the AT!  I hiked the JMT twice when I was younger and my dream is to section hike the PCT with my son when he is old enough. 

[dizzy]

Thanks for your reply!

Yes, I usually check couple times a year that I am in right program (PAYE) and in good standing.  I just checked again in March.  I recertify this Nov.  I was also told I can recertify at any time, so depending on what I can stash in my retirement accounts it may make sense to recertify again in early 2021 to drop payment again.

EIDL- so, it's confusing.  Original info said $10k of total would be forgiven, and you would get that up front.  Then it was changed after the initial period (well after my application) that said, no, it's only $1k per employee.  I only got $1k originally up front (it came over a month later, instead of 3 days like original application stated).  Then I heard some noise about they will actually forgive $10k after all.
I honestly don't count on anything other than the $1k to be forgiven but who even knows.  I look at my situation in a year and see whether it's still worth it to keep using it for bonuses and such (or if I need it myself.  Have gotten 2.5 weeks out of 12 of unemployment so far).

Any other advice for me? 

PS PCT is awesome, I highly recommend a section hike or if you do a thru, to not necessarily do it end to end.  I hiked in 2017 with crazy weather conditions and it also brought out a whole lot of negative people with something to prove.  I ended up flipping a bit to avoid scary Sierra conditions (lotta people died that year- they also didn't post about all the people who did, it was 12 that I knew of in total between section hikers and thrus).  I was so irritated by time I got to Canada with some of these people but then going back to do Sierras in Sep/Oct was a dream.  I had all of that almost to myself, some days I didn't see a single person!
Highly recommend the HST and if you are a glutton for punishment, the SHR (it's largely off trail.  I attempted it but gave up after a couple days after an injury, it was awesome tho).  Doing some of the SEKI loops is great as well, Sierras are so amazing when you get into the less traveled stuff.

[dizzy]

The investment order thing is always a bit confusing/frustrating since most don't account for self-employed people nor forgiveable student loans- this is the best one I've seen tho.  My order I guess would be emergency fund - HSA - solo401k - THEN trad or Roth.  I think this order makes most sense because the solo401k might get me into a low enough bracket that doing roth vs ira is moot.

#2 doesn't apply to me since even tho I have some student loans over 5% they are all federal loans that can be forgiven on the PAYE program.

Utilities- wow then!  I'm not sure, as any time I've lived alone I've always paid way less than that ($20-25 each for electric/gas, and water was included.  I did live in a big house 2 years ago where some people used a lot more (nurse who washed clothes every day; streaming and cable subscriptions) and it was still $100 or less/each for 5 people in a 4 story row home.  Internet gets ya altho I wasn't paying $90/mo like my bf was.  I got him down to $60/mo that was best I could find in our area.

You have to be licensed as a vet to do acupuncture on pets here.  I'm allergic to most animals so it wouldn't be a fit even if I did go back to school (NO WAY at this point in my life.

[dizzy]

So some good news!  I got 6 of the weeks of unemployment I'm missing (minus $15 fee to replace debit card never sent, with UPS shipping/sig confirmation...grrrr...)

So a big +$7017 to meeeee.

Also!  I found out it's not too late to open and fund a SEP IRA for 2019 contribution.  This is awesome and I am doing that.  I am allowed to contribute $5049 for last year and I can roll that into a solo401k which I am also opening.  Very easy process with Schwab tho only weird thing is that I have to either mail in a check or make a paper application to load $$, they can't use the accounts already linked, needs to be in writing.  Whatevs.

This will reduce my taxes as well by about $500.  Just having some difficulty finding how I actually do it on Turbo Tax but whatever.  Still waiting on tax refund from 2 months ago :(


Still owed of unemployment: $4688.  They finally rolled out a way to request backdating so fingers crossed something will happen soon.