One of the things nobody ever mentioned to me when I was getting started as a writer was that if I ever got to be a full-time professional, I was going to be, in essence, a self-employed businessperson, with all the troubles and responsibilities (assorted taxes, health insurance, FICA, record-keeping) that go along with running a business, and with all the irregularities in income that come along with being self-employed in a volatile and ever-changing market.
Fortunately for me, I grew up in a family of entrepreneurs (when she was six, my younger sister came home from Sunday school and said to my mother with a puzzled frown, “Mom, they talked about prophets in class today, but I always thought a profit meant whether or not you were making money, and it wasn’t like that at all!”). Nevertheless, it took a while for me to figure out some of the special features of the writing business. The key rules I came up with are as follows:
1) Wrede’s Uncertainty Principle (after Heisenberg): You either know when the check is supposed to arrive, but not how much it’s going to be (royalties), or else you know how much it’s going to be, but not when it will arrive (advances)
2) You should therefore never, ever, ever depend on using writing money to pay for anything crucial (like food or rent) until you actually have it in your hands (or bank account). This isn’t always easy to do (or even possible, sometimes), but one is much less likely to get ulcers if one can manage somehow to do it.
Corollary: You need a fat savings account to tide you over times when the advances are late or the royalties are smaller than expected. “Fat” means at least three times what the personal financial planners recommend.
When I finally quit my day job, I had an emergency fund for things like car repairs and a “living expenses” fund that I could live on for two years of no income. And I promised myself that if the living-expenses fund ever got below a year of living expenses in the bank, I would start job-hunting.
Not everyone can pull this off — my day job was as a corporate accountant and financial analyst, which paid quite well, and I don’t have terribly high living expenses except for taxes and health insurance. It is also not necessary for everyone to have quite such a large cash cushion — some people are more temperamentally suited to financial risk, or are more productive if they have a bit more financial pressure than I’m comfortable with.
But there are way too many people who don’t even think about the business-and-budgeting side of being a full-time writer, and get themselves into trouble or even blow up their careers as a result. Don’t be one of them.
I had ten years’ income in the bank. I weathered 9/11, the dot.com crash, and was still above water even with massive medical bills.
Then the sub-prime boys sank the piggy bank called Wall Street.
So much for early retirement. I’ll be happy if I ever get to “retire”.
Do you do your own taxes or do you take them to an agency/accountant friend? And do you have things like travel arrangements for a lecture or conference factored in?
Kathi – “Retirement” for full-time writers is a whole ‘nother thing, but when I say “in the bank,” I mean “in the bank,” not “invested in the stock market. Not that I’d go up to 10 years of income in cash-on-hand, but the cash cushion needs to be easily accessible and not subject to swings in the market. The whole point of having one is so that when everything goes pear-shaped for a couple of years, you can still get by. (Which I know you know.) My retirement fund is looking pretty lousy at the moment, but I have a long time before I’m going to need or want to tap it, so I’m not particularly worried.
accio-aqualung – I have an accountant do my taxes. Keeping up with changes in the tax laws for the self-employed is a full-time job, and I already have more than enough job to do. I don’t use tax preparation services, because they usually aren’t as familiar with the forms you need to use when you’re self-employed as they are with the forms people with normal jobs have.
I’m not sure what you mean about travel arrangements – when I have a paid speaking engagement or when I’m going to an SF convention as Guest of Honor, travel and lodging are usually taken care of by the people or convention that’s having me out to talk. Since I’m not paying for them, I can’t deduct them as business expenses. When I’m simply attending a convention as a panelist, I pay for my own gas/plane tickets and hotel room and save all the receipts to go over with my accountant. Business travel is one of those areas where they change the rules a lot.
Great post! The business side is not something most creative people count on when they launch into selling their art (in whatever form).
Fortunately I’ve been running my own business for six years now as a Professional Organizer and Coach, so I have the writing-as-a-business part solid (although the idea of savings in the bank feels like a wonderful dream!).
For me it’s the art and recognition parts that I’m working on – improving my writing enough to get it noticed by the right people.