the IRS cleaned out my savings

but i'm still going to bet on myself

Happy Tax Day! Or if you’re like me and navigating taxes while self-employed: condolences. I thought that being in a lower tax bracket meant that I would pay a lower percentage of my income in taxes (because that would make sense, right?), but it turns out this is just further evidence that I am terrible with money and finances.

How could that be, Cece? You may be asking. Your school and career decisions were calculated for high earnings!

Photo by Olga DeLawrence on Unsplash

Ahh, yes—a popular misconception. Making a lot of money does not mean you are good with money. High-earners of the salaried variety come in two flavors: (1) those who are really good with money management and personal finances and (2) those who are so scared of money, of thinking about it, of facing its finitude, that they would do anything to not think about it—including studying for years and years, gunning only for extremely high-paid jobs, and welcoming the detachment and delirium that come with working through the wee hours of the night while sleep-deprived. (I’d urge you to try it sometime, but it’s actually not that fun—it just makes fear and pain and anxiety more distant, briefly transforming the horror-but-boring of your life from your run-of-the-mill slasher into It Follows.)

When I made a lot of money, I could pass for the first camp; now that I’m self-employed and screwing up left and right with tasks like calculating how much to put away for taxes, it is very clear that I am in fact in the second.

Womp womp.

So before you put in your notice and/or jump deliriously into the land of 1099s or law firm partnership,¹ imagining yourself to be young, wild, and free: Put away 50% of your self-employment earnings (more if you’re a Biglaw partner) to cover (a) your normal taxes (the ones you’re used to paying as a W-2 employee) and (b) the self-employment tax (an additional 15.3%!!!!).² Otherwise, you will feel young dumb & broke instead come tax season.

But it’s okay. I am not complaining here—consider this a PSA. I will be fine. I will recover. I am doing much better than the majority of Americans who do not have cash to cover a surprise $400 bill. I have investments I can liquidate, legal work I can drum up, retirement accounts I can draw from to cover the months between my advance payments—and before you lecture me about how unwise it is to withdraw from your 401(k) early, I know.

But I also know that I have more in my 401(k) than a typical person of my age, and if my book doesn’t lead to more financial opportunities and Studio Legal totally implodes, then I will interview for W-2 jobs again next year and max out my 401(k) contributions per usual. Even Halo Top (started by two corporate lawyers, weirdly enough) launched with entirely borrowed money, including £150,000 in credit card debt (!!! way beyond my risk comfort zone). The point is: I am giving myself permission to borrow from myself at this tenuous juncture in my life. I am betting on myself instead of the stock market. I think it’s the right bet to make, and even if there are people who don’t agree, that’s okay—it’s not their money.

Don’t worry: I’ve been making calculated bets in poker since high school. This is me at the Borgata Poker Room after I turned 21 and could legally gamble. Peep that side part!!

My friend

Alex Su

writes a lot about the safe path versus your own path, and it made me realize how safe I’ve been playing life. I majored in a “safe” major (economics); I attended schools from which high-paid jobs disproportionately recruited; I’ve always paid off my credit card statements in full. Even the riskiest financial decision I’ve made—student loans for law school—isn’t that risky in light of the job prospects coming out of a high-ranked law school.

Alex evokes the concept of asymmetric bets—when the potential payout is outsize relative to the buy-in (like the lottery)—to understand when to take a risk, and I want to elaborate on that idea. Asymmetric bets certainly do have a potential multiplier effect, which makes participating attractive. But just because a bet is asymmetric doesn’t mean you should make it. Asymmetric bets are a form of gambling, as the name implies, and gambling only makes sense when (a) you are risking “play money” (i.e., excess money that is not necessary for your survival) or (b) you have asymmetric information (e.g., counting cards in Blackjack, studying odds in Texas Hold ‘Em). If neither (a) nor (b) are true—for example, if you are staring down your last $50 and contemplating buying a lottery ticket—you should not make the bet, no matter the potential windfall.

My willingness to borrow from myself at this time indicates either (a) or (b)—and because I’ve just told you that it’s not (a) (I don’t consider my investments or 401(k) to be play money), it must be (b). I believe I have asymmetric information about my book and career prospects after my book. I believe I can leverage this asymmetric information in an asymmetric bet. This is rather a duh statement—of course I would know more about myself and my book than someone who isn’t me—but it’s also worth explicating.

There are many times in life when others—parents, friends, people with more experience than you in an industry—will try to dissuade you from taking a risk. And oftentimes, they will be right; they will introduce considerations you hadn’t thought of before. But other times, they will be wrong—because they are not you and do not have the information about yourself that you have. They may know you, but they will never fully know you. You will always have more information about yourself than they do. Self-knowledge is always asymmetric.

Asymmetric information amplifies asymmetric bets, too. If you have better asymmetric information, your payoff multiplier could be 50x rather than the 10x for someone with public domain knowledge. On the other hand, if you have inaccurate asymmetric information, your payoff multiplier might only be 2x. This is unfortunately the situation that Seong Gi-hun, the protagonist of Squid Game, finds himself in at the beginning of the series: betting on horses with what he believes to be asymmetric information (“How could you lose with an animal like that?”), along with his friend who also relies on asymmetric information (“You told me that I was gonna win this.”).

This is the tricky thing about asymmetric information and asymmetric bets—you could be wrong, you could lose. Your confidence in yourself and your knowledge could be overstated, or even delusional. That’s the most painful part of failing—not that you failed, but that your self-evaluation might be wrong, you’re actually Willy Loman.

Because of this inescapable uncertainty (is my asymmetric information valuable or delusional?), it’s hard to pinpoint exactly why and when to make a calculated bet. You have to run the numbers but also talk to yourself—really talk to the you underneath the layers of armor and artifice. I can come up with plenty of reasonable-sounding explanations—I’ve sufficiently paid my dues in the corporate workplace; I’m scared that once I have kids, I will become even more risk-averse and will never attempt this; I saw a gap in the nonfiction market and seek to exploit that gap—but the truest answer I can give is also the lamest: I just felt like it. Let’s go all-in, baby. ◆

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1. Yes, law firm partners are self-employed! I used to roll my eyes when they complained about health insurance or taxes, but honestly, now I get it. Taxes are a universal hurt, even if one should be more aware of to whom you complain about them.

2. This is for if you live in a high-income-tax state like New York or California. If you’re in a low-income-tax state (e.g., Texas, Florida), folks have told me they put away 30%. This isn’t investment or financial advice—do you really want to take that from a girl who just admitted that she sucks with money?—just relaying what I’ve discovered by asking around about taxes when self-employed after my godawful faux pas.