So, checking in on a certain blog post from January 2023. That one where I rambled on about short-term investments for freelancers & small businesses. It's been a full year to simmer on and experiment with this nonsense and wanted to share where I landed.
First off, it's worth mentioning that financially, 2023 was a hot mess. Those interest rate hikes intended to cool inflation seem to be making for the soft landing the Fed was hoping for, but the process still felt like riding an unfinished roller coaster in the dark. Higher interest rates made borrowing more expensive, and that certainly meant it was harder to finance production budgets. That squeeze showed up in my stock footage sales which were down about 48% from 2022 and down 51% from a five year average. Then came the entertainment industry strikes. Serious kudos to both the Writers Guild and SAG-AFTRA for holding out and getting good deals, but the process and industry fall out wasn't pretty, especially for those working in production. Thankfully I wasn't directly impacted by the strikes and personally can't blame it for a slower year – my labor income was actually up 6% from 2022 and up 12% from a five year average. That said, I have plenty of friends in film production who are seeing their revenues be well below normal.
I'm not here to whine about a genuinely rough year, but did want to share one of my wins. Last time I'd mentioned it, U.S. Treasury bills (T-Bills) were sitting at just north of 4%. Around the end of May 2023, the 4-Week T-Bill peaked at a 5.9% coupon equivalent. These nearly risk-free short-term investments weren't a bad place to park your short-term money, especially considering the alternative of just leaving it in a basic savings account which as of Dec. 18, 2023 is 0.46%. I'll not go into the details about T-Bills here, but if you're interested, go back to that previous blog post where I dig into that glorious bond nonsense as well as high yield savings account options.
Part of the way I track my financial nonsense is based on the gross profit of each project. From that gross profit, I set aside 20% to cover end of year taxes and tax prep fees. For example:
\[Project\ Revenue\ - Project\ Expenses\ = Gross\ Profit \]
\[$1,000 - $100 = $900 \]
\[Gross\ Profit * 20\% = Set\ Aside\ for\ Tax\ Purposes\]
\[$900 * 20\% = $180\]
Instead of just parking that cash in a savings account like I'd normally do, this year I bought U.S. Treasury Bills directly from the U.S. government at treasurydirect.gov. You can only buy T-Bills in $100 increments, so my individual purchases ranged from $100 to $7,500 throughout the year.
This is where I'm supposed to talk about how I did everything according to plan. Instead, for the first few months of the year I used a good deal of that tax money set aside to pay down business related debt from 2022. The return I'd have made in those short-term T-Bills making 4-5% wasn't worth the interest I would've been paying on that debt with its 15+% interest rate. Once I got that debt paid off I returned to my short-term investment plan, refilled those cash reserves spent to pay down debt, and kept at it throughout the rest of the year. I also planned it out so that those purchased T-Bills would all mature by around mid- to late-December, allowing me to cover my business taxes and tax prep fees.
I experimented with buying different lengths of T-Bills throughout the year, but for the most part just stuck with buying the 4-week option which is the shortest period available. There's a difference in the interest rates for each of the other options and the longer term ones generally earned a higher return, but I calculated everything out and with the amounts I was dealing with, it didn't make a considerable difference. At first I was buying the T-Bills in one-period increments, but then started setting them up to where at maturity they'd automatically reinvest for another period at the current rate.
I'm a big fan of financial transparency. As a household, statistically we're in the top 20% of income earners in the U.S. according the U.S. Census Bureau. St. Anne the Wife is a public school teacher with two masters degrees here in Oklahoma, which according to USAFacts ranks 35th in the nation in terms of teacher pay. I'm a self-employed creative with a bachelor's degree and will finish my masters degree in business (MBA) this March. Currently my take home pay is less than half of the the average MBA salary here in Oklahoma and I'd honestly prefer to keep doing my own thing after graduation, so take that however you will.
Could I be earning more than I am? Yes, I believe so.
Am I primarily motivated by how much money I can make and having more things? No.
Do I enjoy the work I get to do? Most of the time.
Am I doing the right thing and providing for my family? I sure hope so.
I feel like if we were more open about our finances it'd help others in figuring out their own financial nonsense. It's one of those "rising tide lifts all boats" kind of thing. There's a Planet Money podcast with comedian Maria Bamford and financial transparency that I'd recommend if you're interested. With that in mind, by the end of November 2023 I'd done about $111,000 in actual revenue had a gross profit of $82,000. That left about $13,000 set aside for end of year taxes purposes. That number is a bit off from an actual 20% due to one of my larger clients this year requiring me to be hired and paid for my labor fees as a W-2 contractor instead of a typical 1099 S-Corporation and they withheld those taxes on their end.
Below is a line chart of what my actual cumulative U.S. Treasury Bill earnings looked like compared to what that same amount of cash would've done had it just sat in my savings account throughout the year. Here's a line chart of what my actual cumulative U.S. Treasury Bill earnings looked like compared to what that same amount of cash would've done had it just sat in my savings account throughout the year. You can tell I had some small successes and got more confident during the summer, then got serious about this hot mess starting in the fall. It's worth noting that the returns are directly related to the amount invested, hence that bar chart above. Like I said, I stopped jacking around and got serious in the fall. My cashflows are typically very low in August, but ramp up considerably right after that.
Let's be honest: $150 extra isn't all that much, especially considering the infrastructure and spreadsheet work I put in to track all this nonsense. That said, no question I'll take that return over that $13 I'd have made otherwise had I just left that cash sitting in a basic savings account. Let's not get into the fact that I'd have had a $335 return had I stuck with my plan through the entire year instead of paying off that business related debt those first few months. Will I continue doing this in 2024? Yep, and I've already started. As of the end of December 2023, those four week T-Bill rates are still up in the 5.4% range.
Maybe the biggest takeaway was the fact I wasn't freaking out the last few months of the year. Normally I'll end up digging into that financial cushion more than I should to cover other expenses, leaving me scrambling for cash at the end of the year. This short-term investment nonsense put just enough room in-between me and that cash reserve to keep my hands off it.
Another takeaway is the fact that I saw positive gains with little to no risk and without putting myself in a bind. Again, an additional $150 return isn't much considering I spend about that on coffee each month. Previously I've justified digging into my cash reserves to buy gear I'd assumed would pay for itself, but it doesn't always work out.
I'm also avoiding the fact that the small stock market portfolio I'm actively managing – not our retirement accounts – is up 40% year to date compared to the S&P 500 being up 24% this year. Me being greedy is thinking about how I could've put that short-term cash into the stock market and made a much heftier return, even after paying the short-term capital gain taxes. But then there's the scars from last year and the S&P 500 having been down 18% in 2022. I'm considering putting a small amount of my profits into the stock market via my S-Corp and actively managing that portfolio as well, but haven't started just yet. For sure that'd be a long-term investment decision and one outside my regular SEP IRA retirement contributions.