What I learned from losing my emergency fund

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What I learned from losing my emergency fund

This post is from staff writer Kristin Wong.

A couple of weeks ago, I sent off my quarterly estimated tax payment. This is never fun, but there’s always a part of me that’s thankful when I drop that envelope in the mail. I’m thankful that I’ve budgeted for this payment. I’m thankful that it’s not coming out of my emergency fund, the way it did a couple of years ago, when I lost all of my savings to one giant tax payment.

I’ve written about it before, but to recap: It was early 2012, I was new to the whole freelancing thing, and because I was making so little, I was floored at how much I had to pay in taxes that year. I had a small emergency fund, and it was emptied. It wasn’t much, but it was more than I’d anticipated, and, more pressingly, it was all I had. Well, not all I had. I had loved ones and a job. Those count for a lot. But it was a bummer. I quite literally paid for my ignorance.

Since then, I’ve learned my lesson. I’ve bounced back, I’ve replenished my emergency fund, and I’ve taken steps to ensure my financial soundness. But that day was a doozy. In fact, I think I went through the five stages of grief in a single weekend:

Denial

I did my taxes on a Saturday. Brian and I were planning to go to dinner that night.

After I realized I’d lost my emergency fund, I plopped myself down on the bed and stared up at the ceiling, into nothing. I remember Brian telling me it would be okay. That if I needed help, he was there. That was so sweet, but the independent part of me was shocked. I hadn’t really financially depended on anyone since I started working as a teenager. I didn’t even want to consider the fact that I might not be able to make it on my own as an adult.

“Let’s just forget about this right now,” I remember saying. “Let’s go to dinner; I don’t want to think about this.”

My mom called on the way to dinner, and I remember telling her what happened.

“Are you okay?” she said, nervous for me.

“Yeah! I’m fine! It’s just money,” I laughed. But it wasn’t just money. It was stability and peace of mind and months of saving.

“I’m fine,” I insisted, as we pulled up to the restaurant. But I wasn’t fine. I was in denial, and I think I realized it when I ordered a second pint.

(Editor’s note from Brian: “Can you let them know I paid for the dinner?”)

Anger

At dinner, I got angry. I got angry that the food was expensive. I got angry with the IRS. I got angry that no one told me about quarterly estimated taxes. “How was I supposed to know?” I vented. I’d always been an employee; all I wanted to do was write as a freelancer. I was finally doing it, but I was making next to nothing, and after that night, I realized I was making even less than that.

I was angry with everyone, really, but finally, I was angry with myself. After all, who transitions into a new career without doing thorough research, like examining tax requirements? “How could I be that stupid?” I asked myself by the time the check came. And yes, I should’ve been mad at myself. But dwelling in the anger and guilt wouldn’t have accomplished anything, either. It was time to move through the next phase of…

Bargaining

Later that night, I scrambled for some semblance of control. If only I would’ve done more research. If only I would have asked my “employer” about taxes when I signed a 1099 and not a W2. “How could I have prevented this from happening?” I wondered. But not in an educational, “what’s the lesson here” kind of way. In a way that lacked hindsight and was only focused on kicking myself and trying to change the present through hypotheticals.

Depression

“I thought you were taking that a little too well,” my mom said, when I called her later that weekend.

“This is just depressing,” I told her.

I had no idea what to do. I had a job that barely let me make ends meet, and now I had to worry about saving up for taxes. On top of that, I had to worry about rebuilding an emergency fund. I knew this meant my lifestyle would have to change, and I already wasn’t living the life I wanted, materialistically speaking.

“I hate this,” I said.

“Time will heal,” my mom said. And I rolled my eyes and got off the phone.

Acceptance

After I stopped feeling sorry for myself, I realized the only thing to do was to begin starting over. By Monday, I’d done a few things to get back on track. By December, not only had I rebuilt my emergency fund, I’d also set aside money for my next two quarterly tax payments.

• I invested in my financial education

I thought I had a decent grasp on my finances. After the tax incident, I considered the fact that there was much, much more to be learned. I did something I should’ve done before switching careers: I read up on tax requirements and other money-related issues for freelancers. I talked to professionals about my situation.

• I adjusted my budget

In other words, I deflated my lifestyle. No more eating out. No more fancy chocolate with deliciously high percentages of cacao. No more cable. Less turning on the heater and more layering with blankets.

My budget, and more importantly, my life, had to be readjusted and reconsidered.

• I got a second job

I realized that, if I was serious about my finances, I would have to find supplemental income. I searched for writing gigs. I considered a weekend job in retail. I asked friends for work. Finally, I landed two additional side jobs, even though I was already working 40+ hours a week.

One gig came from a good friend who gave me a chance without even knowing that my financial situation was bleak. The other gig came from hours of searching and sending out resumes. Eventually, those gigs ended up being more lucrative than I originally imagined, and I was able to really get back on my financial feet. It happened more quickly than I thought, and I was able to save more than I expected. Ironically, I probably would not have searched for these jobs had I not lost my entire savings.

Looking back

Losing my savings was a depressing time in my life, but I think it’s important to look back on it sometimes. After the denial and depression, I knew what needed to be done. When you hit a low point, there’s often a clarity that comes with it. At least for me, remembering that low point helps me maintain the clarity. It also helps me to count my blessings; hence, feeling thankful.

This was an experience that taught me to take care of my finances in all areas. It prompted me to be a little more preventative with stuff, too. But financial lessons aside, the experience also showed me that I have people willing to lift me up if I hit a low point. Money is important, but it’s not nearly as important as the people who are there for you when you don’t have any.