I’m writing this post for two reasons - firstly, because finances are an omnipresent train of thought for me. I’ve always been a bit interested in money, an extension of an interest in numbers. However, it was really the experience of being both poorly advised and flagrantly defrauded by actual licensed financial advisors that really sharpened my desire to be in full informed control of all things money. That experience is fortunately in the 10+ plus past now, and I’ve long left behind the idea that managing money is in any way mystical. There’s a lot of bullshit around in the financial world, but I’ve hard-earned the confidence to call it now.
***This is where I’ll put the disclaimer that I am not a financial advisor, and nothing in this post should be taken as financial advice. I’m sharing my approach to managing writing income for the interest of fellow writers. You should talk to your own accountant to discuss your own situation.
The second reason is the reminder in Peter M Ball’s newsletter today about the subject of writers and money. Writers tend to get lumped together into the artsy-and-no-good-with-money stereotype. And let’s face it, for many, spreadsheets are the enemy. But writing is one of the hardest professions to make a living at, and the money can be sporadic and its easy to get caught out with taxes. So, in the spirit of sharing strategies, I’m putting down here how I do it. I’m a bit ruthless, with good reason.
Keep track. There is fancy accounting software, but I use a simple spreadsheet to track Expenses, Invoices, Car kms, Travel, and BAS calcs (each on a separate tab). The spreadsheet automatically calculates certain things, like how much I can claim from an expense, or how to distribute any income (more on that below).
Record invoices. Each time I issue an invoice, I record it in the invoices tab, and the sheet tracks how long it’s been since I sent any particular invoice. That allows me to easily follow up on tardy payers. And there are many.
Divide each piece of income into set pieces. This is the really practical part. There’s nothing regular about my income, so the only way to do this is to divide each and every payment** that comes in, no matter how big or small: **after removing 10% GST for Australian income - if you’re not registered you don’t have to do this.
15% for super. The current mandatory super payment for employees is, I think, 9.5%. But the word for a long time is that this isn’t sufficient, so I pay myself 15%. I don’t see this as optional. I also use an ultra low-cost fund, because the fees are what robs you in the long term (I use the Barefoot Investor’s approach on that front). Super isn’t sexy, but it’s important. I pay the owed amount into my fund about every quarter.
20% for tax. I hold the tax in a separate account (along with GST, super and operating costs) until I do my BAS each quarter, and any extra until tax return time. Most years, I earn not very much and so I get most of that back as a “refund” (plus I pay installments with my BAS). No one likes being caught out owing money and having none to pay it, though, so I keep the tax aside. For my level of income, 20% has proved to be more than enough.
15% for operating costs. My business has costs - paper, internet bills, advertising, books, conferences, flights. That money should come where possible from the business … if it’s coming from somewhere else, than the business isn’t profitable. Many writers run unprofitable businesses, especially in the early years, but holding 15% of my income for expenses irons out the worries I have about meeting, say, a membership renewal when it falls due.
What’s left (50%) into my pocket. It doesn’t feel great to have each payment cut in half before it lands in my bank, but that’s how I run things. I can’t imagine how I would plan for the future, avoid tax surprises, and have operating money any other way. It’s a hard truth, but I believe that if I can’t live on the 50% that’s left, then my writing isn’t a viable job, it’s a side hustle (and this is me). And that means I’m doing other things, too, like teaching. But my income is still important; even with a working spouse many of us aren’t solvent on that other person’s income. So I treat it importantly. It’s part of maintaining the health of the business.
I further split that 50% in my pocket into different pots in my “normal” accounts, which includes spending, saving, and long-term investing. I’m not going to get into that here … just to say that personal finances are a bit like the sun for many people - painful to look at for long. But having been through the utter grossness of being under heavy debt after the GFC, I find it now better to stare the money reality in the face and make long term plans I can stick to. If you don’t know where to start, I would recommend the Barefoot Investor’s approach. I have found it doable.
Take care with expenses. I’ve found many writers with misconceptions about what you can claim as an expense. For example, to my knowledge, you can’t claim your “business lunch” with writer colleagues, unless you’re actually away from home overnight. You can, however, claim a portion of movie tickets (as narrative education), and there are ways to even out your income over the years … this comes from having an arts-specialist accountant. I strongly encourage you to try and find one.
Record all travel. Travel has particular rules around what you can claim - I need to be working a certain number of hours each day to claim that day. I keep a travel log to keep all that above board. I also periodically keep a log of phone and computer use so I can justify the percentage I claim for my business expenses.
Separate business accounts - one for expenses, one for lay-away. I use linked accounts - one is a transaction account with a debit Visa (income comes in here, and expenses go out), the other a high-interest savings account (that’s where all the super, tax, GST and operating expenses money goes when each invoice gets divided). My account has an auto-top-up feature, so I don’t ever worry that there won’t be money there if, say, I’m running Amazon Ads, or a website renewal comes in.
Avoid credit like the poxy plague it is. Credit cards are awful, and seductive. I run things without one now, and it’s freedom to do so. See above about operating expenses … if I don’t have the money, I don’t have the money. If there’s something I want to do that the business can’t afford (like a conference trip), then I have to be prepared to pay for it from other savings. Writing incomes are so fickle … I won’t add debt into that mix ever again.
So that’s the essentials. There are other things I could talk about, like how I organise expense and invoice filing, but I think that’s enough for now. If anyone’s interested in a blank copy of my tracking spreadsheet, I’m happy to share it. I wish everyone fortitude in dealing with the numbers, especially if it’s not your thing.