Novelist John Scalzi, who has earned a buck or two from writing, has written a damned fine post about money management for writers. I spent a few years figuring this stuff out myself -- the hard way -- and really wish I'd had this around when I started earning my living from writing.
4. Your income is half of what you think it is.
When you work for someone, the employer withholds your income and Social Security taxes for the IRS, pays part of your Social Security, automatically deducts for your 401(k) and health insurance, and (if you’re not an idjit) also kicks in a bit for the 401(k). When you’re a freelance writer, none of this happens. The problem is, lots of writers forget that and spend everything they get when they get it, so when taxes come due (which is quarterly, because per the earlier notation, the government quite sensibly doesn’t trust freelancers to pay their taxes in one lump sum) lots of writers go “oh, crap” and have to suck change out of sofas and the few remaining pay phones to square the debt. This is also why many writers never get around to funding IRAs or other retirement vehicles, and spend their lives hoping they don’t slip or catch cold or get hit by a taxi, because they have no health insurance.
Simple solution: Every time you get a check, divide it in two. One half is yours to pay for bills, rent and groceries, and if there’s anything left over, to play with. The other half, which you deposit into an interest-bearing account of some sort, goes to federal, state and local taxes and your Social Security taxes, and anything that’s left over goes to fund your IRA (do the Roth IRA, it’ll pay off in the end) and, if you’re not lucky enough to have either number two or three above, your health insurance (have a day job or a spouse with bennies? Save it anyway. Be one of the wacky single-digit percent of Americans who actually save something in the bank. Also, and more usefully, that money you’re saving becomes a “buffer” for the times when you have bills but no income on the way. The buffer is your friend. Love the buffer. Fund the buffer).
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