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Writer Finances Versus The Paycheck World

23 February 2017

From Kristine Kathryn Rusch:

 Here’s a piece of advice you don’t hear very often:

Pay off your house.

Seriously, my writer friends. If you get a lump sum of money, pay off your house.

Or your car.

Definitely pay off your credit cards, and take them out of your wallet. Use them only when you travel to a conference or plan to make a big purchase.

If the indie writers who made a lot of money in 2012-2014 had followed that advice, they’d still be writing and publishing. Sure, their incomes would still be down, along with their sales, but their careers would continue.

How do I know they didn’t do that?

Because they’re gone. Mark Coker commented on it in his year-end blog. Writers in the comment section on this blog have mentioned that they’re leaving the business. The Kindle Boards discuss all the writers no one hears from any more.

And if you go to writer website after writer website, many of them for successful indies, you’ll see sites that haven’t been updated for a year or two, or you won’t find any site at all.

What happened?

Well, those writers will say that their sales went down to unsustainable levels. Those writers will say there’s no point in continuing now that they can’t make the same kind of money they made in 2013. Those writers will say that writing, as a profession, is impossible.

And it is, if you don’t understand money management.

. . . .

I’ve never had a traditional job (for long) or a traditional attitude (ever).

And therein lies the heart of this blog post.

Because if I had had a traditional attitude toward money, you would not be reading this blog. You would never have heard about me. My career would be over now.

Money management is a crucial part of running your own business, and in the Survival stage, it’s all about cash flow.

Cash flow, for those of you who don’t know (and in the U.S., I’m assuming that’s two-thirds of you reading this blog) is about the way money flows into a business and flows out of it. In a business, cash doesn’t arrive at predictable intervals or in predictable amounts—such as $2,000 every two weeks. Sometimes a business is lucky enough to have a predictable payment cycle (for example, Amazon KDP pays at the end of each month), but not a predictable amount.

Even when a young business has a predictable amount of money headed their way—say, a client who agrees to pay $1,000 every month until a bill is paid off—that client might pay $1,000 one month, and then pay the entire amount the next.

The problem is that the business might have planned for the $1,000 per month, but not the entire payment. That entire payment (let’s call it $4,000) might seem like a windfall, but it isn’t. Instead, it’s money that was expected and should have been used in the succeeding months.

How many writers would parse out that “extra” $3,000 at intervals of $1,000 per month? Not many.

Link to the rest at Kristine Kathryn Rusch and thanks to Anthea and others for the tip.

Here’s a link to Kris Rusch’s books. If you like the thoughts Kris shares, you can show your appreciation by checking out her books.

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Kristine Kathryn Rusch, The Business of Writing

52 Comments to “Writer Finances Versus The Paycheck World”

  1. I’d quibble with only the part about credit cards. Use your card if you use it for the things you’d normally purchase and you pay it off every month. Carrying money is something I stopped doing decades ago. I like keeping track of purchases (the card company does that for me), and the ease of checking my charges online is easy-peasy (much better than piling up receipts). Earning points on the card results in money back or other benefits. I know there’s a theory that folks using cards will spend more than those carrying cash, but that didn’t prove true for me when I briefly gave cash a try. The only difference was that carrying the card was more convenient and speedier at checkout. Also, since most of my purchases come from Amazon, cash is useless. I’d just change the advice to writers to be “pay it off every month.”

    • Debit cards. For me, at least, its too easy to not pay it off the credit card every month, because, there’s this other thing I want to buy. However you do it, it boils down to the same thing. Discipline. What do you have to do to facilitate doing the stuff you need to do.

      • For me, debit cards are not an option. I get (I think) a maximum of 15 free debit transactions per month, and have to pay $1 per transaction after that. I could get a bank account that allowed more debit transactions, but I would be paying double or triple the fee.

        Whereas I have never met a credit card that had a per-transaction fee charged to the account holder.

    • Your quibble is mine, Patricia. The first years I had income from my books I paid off all debt, but I continue to use a credit card for everything I can – and continue to keep it paid up every month.

      Unless you know yourself and know you’d fudge on that paying the card off entirely each month, I can’t see any reason not to keep and use one.

    • I prefer to follow Dave Ramsey’s advice of never having a credit card at all, period. You have to know yourself and how you deal with them. For me, I discovered many times that if I have a credit card, I buy stuff I can’t afford. If I don’t, I don’t. So ‘no debt ever for any reason’ is the advice I try to follow. I wouldn’t agree that it’s a good idea to advise people to pay it off every month, since that’s a good way to lead people into making a bad decision. If you tell people that some people can get away with something, a whole lot of people will think they’re one of the special ones who can get away with it when they’re absolutely not. Better to advise caution, and a certain number of people will always be sure they can get away with it and do it anyway (whether they can or not).

    • Dexter von Dexterdorf

      Absolutely agree. We generally get 2-3% cash back on purchases with the credit card, and it’s great from a liability standpoint. If you lose your wallet, cash is up for grabs.

    • Dave Ramsey (Total Money Makeover) advocates using a credit card tied to your bank account. You can put a daily max on the use, and still track purchases through your account. The card is protected like a credit card (fraud, etc.) but you have the incentive NOT to overspend your balance. I use the EveryDollar app for my personal finances to track what I’m spending money on, and set aside a bit additional every month (wherever I can save) for the 6-12 months’ living expenses.

      Not carrying debt means your investments grow and become another income stream that could keep you afloat when the sales tank. Diversifying your income (writing, teaching, side business) also helps insulate you from the cyclical nature of the market.

      • Dave Ramsey never advocates using credit cards under any circumstances. He advocates using debit cards, which you can usually use as credit cards (signature instead of pin, and same protection as with credit cards that way), but you’re using money you have rather than credit. That seems to be what you’re describing, but that’s a debit card ran as credit, not a credit card.

  2. Last July I made an all-time high of around $2,000 from my books. For this April I’m looking at around $300.

    I’ve picked up 3 part-time jobs over the past 6 months. The goal is to put off getting a real, full-time job for as long as possible.

    This year’s tax return helps with that, but that’ll only last so long. I don’t see sales ticking up, either.

    At least I still write each day, so I have that. And I’m happy I’m making some money.

    These are the times when you have to ask yourself, ‘how much do I really need?’

    • “These are the times when you have to ask yourself, ‘how much do I really need?’”

      To be fair, that doesn’t just apply to writers. With the global economy turning to crap, everyone should be figuring out how much they really need and how they can keep earning that.

      Fortunately, our house and cars are almost paid off, so the amount we need to earn after that is probably 1/10 of what we currently earn.

      But, back more on topic, I have noticed a number of writers I used to see post online a lot, some of whom were making enough money back in 2012/2013 to quit their day jobs to write full-time, seem to have completely disappeared. I’m assuming their income fell too much as the market changed over the last few years and they had to go back to work.

  3. I watched a video about compound interest. I don’t own a house. If I did, I would do all I could to make larger than asked for payment as often as possible. It was so shocking to see how much of a difference that makes.

    • Yes. I put most of my overtime into the mortgage as additional payments in the first few years, and that made a big difference to the amount we paid in interest over the course of the mortgage. It was supposed to be 25 years, but we’ll have paid it off in ten… at a minimum, that’s 15 years of interest gone, which I make about enough money to pay for one of our cars.

      That said, we can’t write off interest against taxes here, so that may make a difference in America.

    • Veronica: I don’t know if it’s still allowed, but many years ago there were mortgages that actually cost you more if you paid them off early.

      When I was quite young, I wrote advertising for Master Card. One of my assignments was to write a consumer pamphlet about using credit wisely, and the dangers (financially) of running a balance. At that point I had a 2K balance on my card. The input material I was given spooked me to the point where I cut up that card and paid it off. Years passed and I decided I was ready to get another card (no longer so young and impulsive). Many decades later, I still have not paid a penny in interest.

      Anthony: Debit cards don’t appeal to me at all. Why use your own money when you could delay using it till your credit card bill comes due?

      • “I don’t know if it’s still allowed, but many years ago there were mortgages that actually cost you more if you paid them off early.”

        Ours lets us pay off a certain amount extra (10%?) per year. There are penalties if we pay off more than that.

        The other reason debit cards don’t appeal to me is because, if someone steals my card details, I’d rather it’s a credit card, so it’s the credit card company’s problem, than a debit card, where it’s my problem.

        • I’m with you on that! I don’t even have a debit card. I like to charge everything (getting miles or Amazon points) and pay it off each month. Much easier for me. Plus now I have enough miles for a first class round trip to London!

        • Dexter von Dexterdorf

          When I bought my first house a few years ago, I probably asked the mortgage banker 4-5 times to make sure I could pay as much off as I wanted to. My loan was also a fixed rate mortgage.

          Prepayment penalties have their function for mortgage-backed securities. When they pool your mortgage with thousands of others with like characteristics, they can sell it on the secondary market at a higher premium than if there was no PPP. This limits the early payoffs that factor into higher PPLs and CPR rates. Good for the bankers and secondary market investors, not for the consumers.

          So make sure that you request that your loan have no prepayment penalties and read through your loan docs to confirm.

        • Have never taken a loan that couldn’t be paid off IN FULL at our convenience whenever we wanted to. I didn’t realize this is unusual.

          We’ve been lucky to have two incomes until I got sick, and paid our mortagage off early – debt makes us itchy, but credit is just a convenience IF you can afford it AND treat it right.

          Not everyone is as lucky, I know.

          But I don’t understand having to buy, buy, buy – to be happy. I have seen how that accummulates both unnecessary stuff which you then have to get rid of AND debt. Different folks, I guess.

        • Debit cards with a MC or V logo are still protected above a certain amount, and banks do have legal responsibilities to protect consumers from stolen cards regardless. I’ve worked for a bank for 28 years, and there are entire debit card fraud areas to deal with these things.

      • There are some places (and the country of Iceland) where cash is not accepted, or at least very hard to come by, so you almost have to use credit or debit card to pay. That’s the only reason I’d use a debit card. The lack of security (can be almost impossible to get cash back if someone uses a debit card to drain your account), the holds some businesses automatically place on debit cards after a transaction . . . not my first or second choice.

  4. There’s so much concern about interest rates on credit cards and loans, yet the compound interest thing is blowing all of that out of the water. The video I watched indicated that you pay DOUBLE the price of your house (or thereabouts) if you make the standard payment only.

    I live in California. A normal house in my town is $700,000+

    It makes being concerned about 7.99% on $3,000 of cc debt seem very silly in comparision.

    • At the moment, it’s probably not that bad, because interest rates are crazy low (I think ours is about 2%).

      But it only takes the rates to go up a couple of percent and a lot of people on variable-rate mortgages will really be hurting… 2% to 4% means you just doubled your monthly interest payments, and many people buy the most expensive house they can afford, so they can’t afford to find another ten thousand dollars a year to give to the bank.

    • I’ve been blessed to live in an area where real estate is shockingly (compared to other states) cheap. I had a mortgage on my first house, but not the three houses after that. When I watch HGTV, I’m amazed by some of the house-hunting shows when they announce the prices of the homes. I really don’t know how people afford it, unless the pay in their areas is also much higher than here. Some of the California homes, for example, might be half a mil for a very modest home that would be about 75K to 99K where I live.

      • Yeah, I was just watching some of those shows too. The prices always made me wonder why people didn’t just find cheaper regions to live in. But what really amazed me was when the buyer said, “This is my max budget” and the agent would show them houses far above that number, and in some cases the buyer bought a house well above their “max budget”. Which is crazy to me. Do these people even know what the word “maximum” means? Living at the tippy-top of your means and assuming your means will never change is a big part of the underlying problem that so many people have with money.

        • “The prices always made me wonder why people didn’t just find cheaper regions to live in.”

          Traditionally, the places with high house prices were also the places with high wages. There’s also the ‘house prices are going up 10% a year, so buy the most expensive house you can!’ thing, where people want to pay more for a house so they’ll ‘make’ more money when prices go up.

          And then there’s ‘Keeping Up With The Joneses’. ‘My house cost $500,000’ ‘Oh, poor dears, our is $700,000. How can you live with only four bathrooms?’

          Fortunately, writing is now something you can do entirely over the Internet, so there are many places you could live cheaply off an indie writer’s income, even without having any bestsellers.

          As I said yesterday, I’d like to be living somewhere pretty self-sufficient in the countryside in a few years. If I can make enough from writing, I will be.

          • That’s one of Pat Rothfuss’s top tips for writers. Live someplace where it’s cheap to live!

            • Another great benefit of living where properties are cheap is that the property taxes are low, too. As for the sun tax: I live in the mid-west where we should be buried in snow right now, but it’s been like spring. Today, sunny and 67 degrees. We’ve had so many days like that, my flowering shrubs have come to life. Saw a couple weeds popping up, too. It’s both wonderful and scary. Orchard owners are worried their apples crop will be lousy because the trees are in spring mode. I’ve been going to a nearby park every day and it’s always packed. All the parking spaces are occupied and people are parking on the grass. Some are having picnics, playing disk golf, using playground equipment, but most are walking or running. Some days I wear t-shirts instead of sweatshirts.

            • Nice tip if you’re not Canadian. There is no cheap real estate in any part of Canada where there is also work.

            • Yes, Veronica! I think John Green lives in Indiana. Super affordable.

      • For me, it’s the weather. “Sunshine tax” is what it’s sometimes called.

        A friend was recently shopping for a house in my town. He saw a $1,000,000 listing that was “unfit to live in” and this isn’t because my friend is snobby…..

        The reality of my town.

        • Haha, I agree that weather is an important factor, but I’m a pale redhead descended from Celts. The sun hates me and I hate it right back. The idea of paying *more* to live in a place with a lot of sun is, to me, like not buying the $10 shirt made of cotton and instead buying the $50 shirt made of bees.

          • LOL. Me too. I love living up here in the pacific northwest where it rains for months at a time. I still go through gallons of sunscreen, though.

            • PNW here too. I mostly just stay inside most of the time. I do like to go out on those nice overcast days, though. I hate it when it’s drizzly out (to those from dry climates: here in the PNW we have many words for rain) and checkers at the grocery store are like, “Don’t you just hate this?” and I’m like, “No. That’s why I live here. Why are you here?”

  5. Another friend was selling her 3 bedroom, 2 bath, large yard, etc house that she inherited. I was so happy for her as she had been struggling financially and (using my California brain) I imagined she would be set for awhile.

    I was utterly shocked to learn it was selling for $148,000. She lives in North Carolina. That house here would be well over a million.

    • Dexter von Dexterdorf

      Crazy right? State taxes are another consideration. I live in IL right now, and we are trying to get out. Looking at Florida.

      On your interest calc above though, the thing that you must keep into consideration is that with an amortized loan, your interest is always calculated on outstanding principal balance. While I agree that you should always pay as much towards principal as you can on your debt, it is a much better idea to take care of the high-interest items first like credit cards (always pay them off at the end of the month).

      Your number one goal should be to tackle and limit the interest you’re paying each month. And while it may seem like a good idea to take on a debt behemoth like a mortgage, some people who aren’t used to money management are advised to take on the smaller debts first (assuming interests are the same) to give them a sense of satisfaction that they are making progress.

  6. Long Ago, in the Far Away:

    – I bought my first car on credit. I made car payments until it was paid off. I then continued to make those monthly payments to savings, knowing that I would have to buy a new car someday. Each time it was easier to buy a new car, until now I just write a check, not on credit.

    – I have a credit card, but treat it as check cards and pay monthly. I do not buy what I cannot pay for that month. I started out with a $400 dollar limit, and never asked for a limit increase. Over time they raised it to $10k hoping that I would spend that money. Every month I round the payment up to an even $100, so I actually pay more into the card than I owe.

    – I bought a house with a mortgage. I made my payments, plus extra. I paid off the 30 year mortgage in 11 years. It would have been 10 years, but I had to buy a new car in that last year. HA! I keep making house payments into savings to pay for upkeep. A house is a business that you need to keep investing in.

    – I took a job with the State, did 24 years and retired making less than half the income I would have made in the private sector. I now have retirement for life. The cost of course was 24 years in State Government. Glug! You don’t know what pain is, but I am here living the Dilbertian Dream of retirement.

    At no time did I ever look at the money in the bank as anything but for the car or house. Any money I make from the books goes straight into savings, it is not mine to spend. If the money stops, I still have what I made in savings.

    I love Kris and Dean, but if my book money stops, I do not have to meet payroll. I do not have to pay lease on warehouses to story tens of thousands of books. I do not have to pay lease on multiple stores. They have built a beautiful small publishing house, with commercial businesses; good for them. I am an Indy Writer with no debts; good for me.

  7. Hands-down, the best credit cards to have are the ones you swipe off the counter at Macy’s when somebody’s not looking.

    Or so I’ve heard…..

  8. I put away a lot of money the last two years, which were good financially for me as an indie author. Then I bought a used car in the summer, and in December I bought a house. The house is very small and does not have a mortgage. However, used most of my savings and borrowed some money from my parents to help cover the cost, and I want to pay them back as quickly as possible.

    The first quarter of this year is fiscally the worst I’ve had in a few years. I’m tightening my belt and figuring it all out. I’m learning to prioritize and budget. It was nice having a lot of savings…it’s nicer having a house. But I’ll be happiest when I’ve paid all I owe to my parents, so I’m not letting them down.

    That is my only debt.

    I will add a caution about avoiding credit cards, though. If you never use a credit card or take another sort of loan…you will not have a credit score! I didn’t. I’ve been building one up over the last year or so, paying off each month so I’m not building up interest. If I ever need a credit score, I’d like to have a good one.

    I grew up learning to avoid debt, and I’m grateful for that, but I wish I’d known about credit scores sooner.

  9. This makes fascinating reading. I’ve been a fulltime writer since the mid-1970s, own my home, car and everything else ditto. I know I disappoint the media who expect a show home with heart shaped pool and Bentley in the drive.Their bad. My solution is to meet journalists at a cafe, library, wherever, never at home. Saves time and stress. I only spend money when I know where it’s coming from and never include royalties until they arrive, as they’re never predictable. I do use cards to suit myself, just as well when a bunch of flocktards from Argentina cleaned out every cent including my overdraft. Bank replaced the money but it was a scary few months. Would have been worse if bills had been piling up. Every writer is different but planning ahead, always knowing your exact financial situation, and buying less make a big difference. Travel is my main luxury. I’ve even bought two cars on eBay including my current one. My Scottish genes were well pleased.

  10. With interest rates so low, I don’t think paying off your mortgage makes sense. If you invest that money in the stock market–in a good index fund if you don’t want to bother managing individual stocks–you should average returns well over the 2-4 percent you’re paying for your mortgage.

    • Finally someone with financial sense (JUL2873). Paying off debt, especially low rate mortgages are a bad idea compared to investing in a good ETF with a 6% return. This money is available, mortgage payments no longer…

      • “Paying off debt, especially low rate mortgages are a bad idea compared to investing in a good ETF with a 6% return.”

        Then the stock market crashes, you lose half your money, and you have to find a way to make that mortgage payment.

    • I disagree. Owning our home and having no credit card debt and having savings in the bank has been the biggest peace of mind. (We always buy used cars outright, etc).
      We have a credit card but pay it off each month.

      We have savings and so we can now invest. But not having to pay for things twice (once for the item, once for the bank interest, etc)… SO much better!

  11. We paid off our first house in 13 years. We’ve always lived below our income. We’ve both been self employed almost our whole adult lives so saving is a habit. We live debt free and our extra money goes into investments for retirement.
    Some may have thought I quit writing this past year because I stopped updating my website and frequenting Kindleboards/ the Writers’ Cafe, but I did put two books in box sets with other authors this past year and submitted a flash fiction piece.
    I took up homeschooling and have five kids two days a week, plus our daughter is in a myraid of activities from food bank service, to music lessons, volleyball, basketball, cheerleading, golf, plays, church activities plus youth group at a second church, frequent field trips, etc. so frankly, publishing has been on the back burner this year, and might be on there next year too as I enjoy these last few years of quality and quantity time with our kid.

    • The nice thing about living below your means is that in a few years, you develop enough of a cushion so you get to live the life YOU want. We live in a home on the water (I love kayaking and having manatees and dolphins in my backyard) that we paid cash for, just sold an investment property which we will reinvest into a new venture.
      So yes, pay off your home and car, then save for the future.

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