Jan

9

2014

Two Basic Tips on Budgeting with an Irregular Income

by Tamela Hancock Murray

Senior man checking home finances

One challenge of writing books for a living is the fact that unlike many other jobs, you don’t usually see a cycle of paychecks appearing at regular intervals with predictable amounts. Instead, you may see a whoosh of money, followed by smaller amounts every few months triggered by actions on your part, such as turning in manuscripts and proposals. Only well-established authors will have this income augmented by royalty checks, and even then, those checks feel infrequent (to the author) and are unpredictable in amount.

This isn’t much of a worry if you’re not using writing income to pay bills, which do arrive on time every time, with startling regularity. But if you’re hoping to pay bills with this income, here are two basic management tips:

1.) Realize that your advance is a payment against future earnings. It is not a signing bonus. Once you accept the advance, your book must earn that advance back before you see any royalties. So while your advance may seem like a windfall, it is not. I recommend dividing the advance payment by the number of months you will need to fulfill your contract and using that figure as a guideline to your true budget. For an example using easy math, if you will take two years to fulfill a book contract and your advance after agent’s commission is $48,000, you have $2,000 a month income from your books. But don’t spend it all because of…

2.) …Taxes. I recommend budgeting at least 30% of your income for federal, state, and local taxes, and 40% is even better, especially if your total household income is high. Part of the reason is because you are now responsible for the employer’s portion of Social Security. It’s better to budget too much and be happily surprised at tax time than not enough and have to scrounge for funds on short notice later. But as always, please seek a personalized plan for yourself from a professional tax adviser. My point here is not to forget to hold back enough for taxes.

As for the rest, be wise and be sure to have a little fun, too!

Your turn:

What are some tips and tricks you can share for managing an irregular income?

What is the hardest aspect of living on an irregular income?

10 Responses to “Two Basic Tips on Budgeting with an Irregular Income”

  1. J.D. Maloy January 9, 2014 at 9:50 am #

    Topics like this always make me smile. That may be silly since it’s about jobs, writing, money and taxes (ugh) but I am filled with beautiful hope. I have a day job and while I want writing to be my “day job”, it’s not. And it won’t be for awhile. And that is ok. Clinging to the hope that one glorious day, my dream job will become a reality helps me get through the hard work days where I remind myself, This isn’t forever, there is a light…

    About managing an irregular income. We budget in categories. If there is a month where there is left overs in a category it goes into savings for when there are months when we go over (which is the unexplainable “curve balls of life” one) and need to pull some extra money out.

    The hardest part was when my husband and I didn’t see eye to eye on what need(s) were the top priority and how much of the budget they should get. It’ the whole Mars Venus thing you know? But, we have wonderful communication and a great God who we pray to, together, for guidance. Oh my word, what a life saving blessing that has been!

    • Rachel Muller January 9, 2014 at 11:12 am #

      J.D.,

      Love what you said about God being your guidance. He is what has brought me and my husband this far. Always nice to hear another word of encouragement from someone else. :)

  2. J.D. Maloy January 9, 2014 at 9:54 am #

    P.S– I think there was a hiccup since I didn’t get this post in my inbox this morning. No biggie. It’s just a nice morning welcome. I came here to check it out, and wha-la, there is it :)

    • Tamela Hancock Murray January 9, 2014 at 1:13 pm #

      J.D., thank you for letting me know you were looking for my post! I’m glad to be a regular part of your Thursdays. :)

  3. Ron Estrada January 9, 2014 at 10:08 am #

    Anyone should have 3-6 months of living expenses in a savings account, easily accessable. But for the self-employed, I’d take that out to one year. For most of us that will be between $30k and $40k (not income, just base living expenses). Yes, it’s possible. But no one needs the pressure of an upcoming house payment with nothing in the bank and no checks coming in. It wrecks havoc on your creativity. Not to mention your marriage.

  4. Rachel Muller January 9, 2014 at 11:10 am #

    Ah! Living on a high and low tide budget…as a former dairy farmer I can relate to that. January was always the ‘cream of the crop’ month as earnings from harvesting started rolling in. With a cow’s milk production fluctuating from day to day that also toyed with paychecks.

    We actually budgeted our earnings using your system mentioned, Tamela. We had to be extremely careful with our earnings as part of the harvest income was sure to go toward next season’s seed and fertilization costs as well as figured into taxes. A portion *had* to be set aside in order not to fall under.

    One question to help a writer keep a little consistency though: How soon after proposing a series/book should he/she consider sending in another proposal for a new book/series?

    Glad to see you were up and running today and thanks for your insight. It’s always helpful! :)

    • Tamela Hancock Murray January 9, 2014 at 1:12 pm #

      Rachel, that’s a great question. While the question seems simple, it really does depend on your publisher. Some mass market publishers can quickly accept proposals because they publish many books per month. Other publishers prefer that writers publish once a year. And others are on yet a different schedule. As always, your agent can help you set the pace, as well as your editor.

      I appreciate you for making the point that to keep income rolling in, writers need to be persistent in keeping proposals out there. :)

      • Tamela Hancock Murray January 9, 2014 at 1:14 pm #

        Oh, and thanks for the kind words, too! :)

      • Rachel Muller January 9, 2014 at 2:29 pm #

        Thanks so much for making that clear! :) My ideas are many and I’m trying to prioritize, so this helps me do that.

  5. Iola January 9, 2014 at 1:19 pm #

    I’d absolutely echo the advice about taxes. In my first year of being self-employed, I didn’t put any money aside for tax. My second year was the middle of the recession, so I saw a 50% drop in income – which meant that almost every cent I earned went straight to the tax department. Now I know better.

    Fortunately, I have a spouse with a steady job, so that income pays the regular bills.

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