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.

In January, I wrote a blog that went viral. The blog started out as a comment on the All Romance eBook disaster, and then went on to examine the business cycle that we’re a part of. I’ve received several reprint requests for the blog for writers in the print media, and many writing aggregate sites, including those in traditional publishing, linked to the blog.

Why? Oh, for a variety of reasons. Traditional publishing was happy that I said the indie gold rush was over. Writer publications liked the advice I gave about how to survive the upcoming changes. And a few business sites started keeping track of the various side businesses that are disappearing. (I noted a few in the last couple months, including Shelfie and Samhain, which keeps trying to hang on, and ultimately will not. Get out now, if you haven’t already.)

In that post, though, I quoted several times from a Harvard Business Review article from the 1980s which looked at the life cycle of a business. It lists five stages—Existence, Survival, Success, Take-Off, and Resource Maturity.

None of the writing businesses that started up in early days of the indie publishing boom ever made it past the Survival stage. You have to look at the article itself to see why I say this. Success in this model doesn’t mean short term success. Rather, it means something that can be sustained over time.

So, in the Survival stage of a business, here’s what the article’s authors, Neil C. Churchill and Virginia L. Lewis say about planning:

Systems development is minimal. Formal planning is, at best, cash forecasting. The major goal is still survival, and the owner is still synonymous with the business.

Cash forecasting. It sounds so easy. It isn’t.

A study conducted in 2015 by the FINRA Foundation, “quasi-government organization that regulates brokers and Wall Street,” found that two thirds of Americans couldn’t pass a basic financial literacy test, getting fewer than four questions right in a five-question test.

Fortune Magazine printed a short article analyzing the study (which surveyed 27,564 people over a five-month period of time). The article had this lovely sentence buried in the middle of it:

Worse, the percentage of those who can pass the test has fallen consistently since the financial crisis to 37% last year, from 42% in 2009.

You’d think, after a financial crisis that put millions out of work, cost hundreds of thousands of people their homes, and showed over and over again that even more people got scammed, that Americans would improve their own financial know-how.

Nope.

I’ve been thinking about this because I’ve watched several friends who are not writers up close and personal lately. A couple of them are extremely good with money. One of them even says that they follow all the rules.

Those rules, by the way, say that you should maintain the best credit score possible and you should never ever pay off your mortgage, because—at least in America—you can use the mortgage tax deduction and it’ll be better for you than…oh, shit. This is where it breaks down for me. Because I have no clue how a tax deduction is better for a person than owning something outright. Especially something like your home. Shelter. The place you live.

But 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.

Because most writers are trained to exist in a paycheck world. In a paycheck world, the income is regular and it is predictable. That $2,000 every two weeks comes magically if the work gets done. The boss pays you, and you can dole out the money to the people you owe. No guesswork, no worries (unless you have more debt than you have income).

But in the world of the business owner, particularly an owner in the Existence phase or Survival phase, the paycheck world does not exist. Nor do the rules of the paycheck world apply.

Let me give you a retail example: I live on the Oregon Coast. It has a summer season, in which hundreds of thousands of people descend on our little town for half of the month of June, all of July and August, and, to a lesser extent, the first few weeks of September.

Retailers here (and hotels and restaurants) make the bulk of their income in those few months. And with sad predictability, about half of the businesses that opened their doors for the first time in May will be closed by the following May.

Why? Because they didn’t think ahead. They thought the money earned in the summer would continue throughout November, December, and January. This winter, even the weekenders from the cities didn’t make it over the mountain to our little town because of extreme bad weather. But I can remember many Decembers in which local retailers had no Christmas business at all—except locals. We count, of course, but there are only 7,000 of us. Compared to July, when we can have as many as 150,000 people in town, 7,000 people barely register.

Writing is just like that. There are good months and bad months. Good years and bad years.

I’ve had years in which I earned one-quarter of what I earned the year before. If I didn’t know how to roll with those punches, I would never have survived this long as a freelancer.

How did I learn? Partly I learned because I never entered the paycheck world. Partly I learned because I’ve run businesses. And one of the things every new business owner learns is that what works in the paycheck world doesn’t work in the world of the self-employed.

I watched one of my friends deal with the fact that their credit score has gone down in the past few years due to some setbacks. Not that I would notice what this person considers a bad credit score. Their bad score is higher than any credit score I’ve ever had.

But the person is worried about losing perks given to people with stellar credit—lower interest rates on new loans, fewer credit card offers, lower insurance rates. I get it, in theory. But I’ve never experienced it. I’m used to paying more when I step into the paycheck world, and I do.

I really get annoyed when my paycheck friends refuse to do routine medical procedures because they got a new insurance plan and the co-pays for doctor visits are higher. I’ve paid my own way at the doctor for years, and I got excited after Obamacare kicked in because for the first time in my life, I could go to the doctor and not fork out at least $50 for the visit.

But I would still go to the doctor, even when I did have to fork out that $50, because without my health, I couldn’t work, and if I couldn’t work, I didn’t get paid, and if I didn’t get paid—well, you understand the death spiral. (Or, maybe only a third of you do. Seriously, that study has me somewhat terrified.)

The “good” advice you hear about finances is good only for paycheck people. Those of us running small businesses need security. The best way to get security is ownership.

If those writers who made boatloads of cash during the indie gold rush years of 2010 to 2013 or so had paid off their houses, bought new cars with the cash, and put a bunch of money in easily accessible savings (yes, with almost no interest), those writers would have weathered the decrease in income.

Think about it: If the writers had entered those years with a house payment of $1,000 (which, the Great God Internet tells me is an average mortgage payment in America), a car payment of $400, and credit card payments of $300, and then—as the money poured in—the writer paid off all of those things, the writer would have saved $1700 per month.

So that writer, by 2015, could get $1500 less per month than she did in 2014—and still be farther ahead financially than she was in 2011. (By paying $200 per month less in expenses.)

Instead, most of those indie writer who made a small fortune increased their expenses. I know of several writers who made millions and hired all of their friends, at the same salaries those people earned their other jobs. You can’t do that and have it sustain. I don’t care how much money you earn. All income is finite, and I guarantee you, someone who tries to share the wealth like that will always spend more than their expenses.

But even if the writer was frugal, chances are she never paid off her house. She probably leased a better car or maybe two better cars. She answered yes to credit card offers, and then used those credit cards for things like cruises and clothes—things she couldn’t afford before.

So when the bottom dropped out, she was probably in the same position she had been in when the gold rush began. Or maybe she’s paying a few hundred more per month than she did in those days.

But she isn’t financially better off.

Dean and I bought a new car last fall. New to us, that is. We paid cash for a car that was several years old but had less than 50,000 miles on it. Now we own two cars outright. We could have kept another car that we also owned outright, but the maintenance on that car was getting prohibitive. So we didn’t keep it. We sold it. What do two people need with three cars, anyway?

Those of you who’ve read the Freelancer’s Survival Guide know what I’m going to say next. Your job as a freelancer is a risky job. Do not do risky things with your finances.

When your income is irregular and unpredictable, living like a person with a paycheck is risky. You can’t guarantee that you’ll get enough money every month to cover that month’s bills. Some months you’ll get five times what you need. Some months you’ll get no money at all.

Imagine that, paycheck people. No money at all.

The writers who’ve survived the loss of the gold rush know how to manage money. Even better, they know how to manage the flow of money into and out of their business. And best of all, they understand they no longer live in a paycheck world.

They make choices based on how to sustain their freelancing, not on getting some good rating from a credit agency or saving money on taxes instead of providing security for their family. (Freelancers, by the way, rarely get tax refunds. If they do, they’re probably not handling their finances correctly in the first place.)

So, for those of you who are going to get windfalls this year—and many of you will—pay off things. Get rid of your credit card bills and keep those cards at home so you don’t charge them up again. Buy your car outright or find a good used model. Move to better (cheaper) housing. Maybe buy a house with cash. Put money away for a rainy day.

Or rather, a rainy year.

Because freelancing is all about the ups and downs. It’s rarely a straight line, and it’s never a straight line uphill.

Stop worrying about your credit score. Look at what you own that you can’t lose if the money decreases. If you don’t own much, then change the way you handle your personal finances.

Guaranteed that will help your writing much more than some Book Bub promotion or throwing thousands at a brand new cover for your indie-published book.

If you’re one of those people who would fail the financial literacy test, you have homework. Start learning how to manage your money, or you will lose your chance to be a career writer.

You won’t lose that chance because you’re bad at writing or storytelling. You’ll lose it because you’re bad at money management.

Which is sad—and happens more often than I want to say.

Occasionally people make fun of me for putting a donation button on my blog. Clearly, they say, I’m not making money on my writing because I ask for contributions to the nonfiction blog. That criticism got ramped up again when I started a Patreon account to support this blog.

Those people clearly don’t understand financial management. Every bit of writing I do needs to bring in some income. Writing for free on my blog is not long-term sustainable. I wrote nearly 7,000 words of blog posts today. If I wrote 7,000 words of fiction, I would make ten to twenty times (if not more) what I will make from this particular blog post—and that doesn’t include resale income or anything else.

So, I keep this blog going by asking for financial support. I don’t need much, because I enjoy writing this. But I need some to justify it to my balance sheet.

I’ve been a freelancer for that long, you see. Earning money per piece of writing is a habit I started at the age of 16. It’s not one I’ll abandon now.

All of you who have financially supported the blog over the years, thank you! And those of you who support it in other ways, thank you as well. It means a great deal to me.

I keep the blog free on my website so others can discover it, but you can help by sharing this blog with your writer friends.

If you can’t afford to donate, that’s fine. That’s the reason this blog is here for free rather than behind a pay wall.

If you feel like supporting the blog on an on-going basis, then please head to the Patreon page.

If you liked this post and want to show your one-time appreciation, the place to do that is PayPal. If you go that route, please include your email address in the notes section, so I can say thank you.

Which I am going to say right now. Thank you!

Click paypal.me/kristinekathrynrusch to go to PayPal.

“Business Musings: Writer Finances Versus The Paycheck World,” copyright © 2017 by Kristine Kathryn Rusch. Image at the top of the blog copyright © 2017 Can Stock Photo / fantasista





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