STATUS: Bursting at the seams. Got two bits of exciting news for one of my clients and it’s under gag. We’re not allowed to share yet. So I guess I’ll just tease all my blog readers with it instead.
What’s playing on the iPod right now? LET'S STAY TOGETHER by Al Green
This topic obviously resonated with quite a few people. In all honesty, I probably should have one of my clients do a guest blog about the topic of finances as a published author. Hopefully they’ll all just chime in on the comments section.
Okay, if you are a published author, here are some things that I recommend.
1. Find and then pay for a good tax accountant who can give you sound accounting advice for your writing business. You may start as a sole proprietor but as many of my authors have done, when real money starts coming in, it may pay (as in tax advantageous) to be an LLC or an S-corp instead.
When I say “pay for,” I mean it. It’s worth every dime to pay a CPA for his/her expertise. Be sure to ask around to other writers and get recommendations for a good one. Like all people in service industry, levels of expertise vary.
Gee, that’s true of agents as well.
2. When you have your contract, note the dates in your money management software for when you can expect to get paid. Then pad it by two months at least. I say this because things don’t always happen on time. The contract can take 2 to 3 months to negotiate and then it’s always another 6 weeks after signing for you to get paid. Foreign monies take even longer than that. As the agent, I always expect payment 6 months from when I’ve sent off the contract to my client for signing. It can take that long. For one client, the foreign publisher lost the contract and it took us a year to get paid. And that was even with me bugging them every other week for it.
You as the author might run into draft problems and not deliver the manuscript on time and so that d&a payment you were hoping to trigger might not happen until several months later. Trust me, this happens more often than not so keep that in mind.
So a couple of addendums to this:
--If you are a debut and your career is young, don’t start by living off your writing. I think you’ll find yourself in a world of hurt if you do that. Writing money is gravy money. Not factored in as part of the monthly living expenses but it can pay for a great vacation or a down payment on a car or what have you. Personally, I say put all of it into a good interest CD that you can’t access for a year. That way you’re forced to ignore it for a while. But heck, I know that’s not always feasible. I’m just suggesting it.
--Don’t quit you day job until the back end royalties can pay for your daily living expenses without issue. Back end is the royalty money you earn once your advance has earned out. This does not include the advance you might earn for your next book because that’s an advanced that hasn’t earned out yet. And just an FYI, statistically speaking (and this is by no means exact), only about 10% of books actually earn out their advances. The good majority of them don’t. And here’s another interesting tidbit, if a book does earn out the advance, it can take 2 years or more before that happens. One of my authors just earned out (which is hugely exciting) but it took 4 years. Now you know why I emphasize back end royalties that pay your daily living expenses without an issue.
3. When you get your check, pay your taxes right then and there. Now some folks are really great money managers. If you are, then you can ignore this. However, I think the majority of us are not quite that anal and I’ve heard stories time and time again where authors don’t do this and find themselves in a world of hurt. Work with your tax accountant to find out what is the likely percentage that you’ll owe and don’t wait, just mail the dang thing to the IRS and tell yourself, this was never my money anyway. If you don’t have a tax accountant, a good rule of thumb is 20% of whatever the check was and send that in. If you’ve overpaid, you’ll get it refunded.
If you’re disciplined money manager, okay, stick the monies you owe the IRS into a high-interest bearing account and then only draw from that account to pay your quarterly taxes (April 15, June 15, Sept. 15, Jan. 15). Make some money on the interest at the very least. Now if your honest with yourself and know that you’ll fall into the trap of thinking the next advance will pay those taxes, don’t wait. Mail your check to the IRS the minute you get your check from the publisher or agent. I can’t force you to do this but I’m really encouraging it.
4. When you get your check, pay yourself first. What exactly does this mean? That means you put away money for retirement even before you pay your bills. If you’re under the salary cap, open yourself up a ROTH IRA (one of the best investing tools out there because when you retire you won’t be taxed on monies you withdraw from a ROTH because you will have already paid the taxes on it). Damn straight folks. And even if you are not good with numbers and investing, just go to Vanguard’s website and look at the ROTH IRA here. Sign up for an index fund that follows the S&P 500. Usually those are the safest with the least amount of crazy ups and downs.
Max it out. Pay in the full amount you are allowed to legally in any given year.
And folks, I’ve been investing for years but I’m no expert. My suggestion here is not to replace advice from a professional financial advisor but if you don’t know where to begin, maybe this will help you to get started.
I’ll also try and dig up the money management/investing titles of all the books I’ve read over the years. It might be a good reading list for you.
5. Open up a SEP (Simplified Employee Pension Plan). You’re a writer and you’re self-employed. This is a retirement vehicle for the self-employed and it allows you, percentage wise, to put the most money away for retirement than you can in an IRA.
6. If you are living off of your writing, create a budget with all your expenses and only pay yourself X amount a month and stick to that. That way you won’t suddenly run out of money and be really anxious for your next payment (see above—which might get delayed, or yikes a contract canceled, or a manuscript rejected and you have to pay back the advance). All grim scenarios but can be a reality.
7. Buy yourself something nice to remember your first check by. I know. Totally opposite of everything I’ve said above but your first check from your first book advance is special. Celebrate it.
Then do all of the above.