Money Management for the Self-Employed
In my time I’ve helped with a large back-tax project for five entities, none of which I owned. I was also a bookkeeper for the company for almost a year and did Payroll, Benefits, Accounts Payable, Accounts Receivable, and for years was responsible for reconciling the overly complicated commissions on wireless lines that could make royalty statements cry.
The first time I found myself self-employed I went whole hog into it. I got an S-Corp, I subscribed to Quickbooks Online. I did payroll for myself. I even screwed my taxes up really good (but that’s a story for later). And was in a bit over my head.
This time I‘m a little less intense, and making way fewer mistakes.
Banking
Especially if you have a dayjob or you have a spouse with the dayjob who shares a bank account, the best thing you can possibly do is get your own bank account. One at the same bank is fine, but make it a checking account in your name (ideally with a debit card.)
The hardest thing for most people is finding all the ways their money goes in and out and reporting it to their accountant (or tax program if they’re brave.) If you have one account that every bit of writing related income goes into and only use the attached card for expenses you have by far the easiest way to manage your cashflow for the end of the year.
I know spreadsheets are a thing and even I use Quickbooks Self-Employed (more on that later) but trust me on this one. A separate account for each of your identities is the cheapest way to manage your income and expenses against that specific income.
If you tie the accounts together you can “pay” yourself by transferring money between the accounts at any time. That keeps the accounts clean and reduces all kinds of frustration at tax time.
Recording
Now, as I’ve mentioned, I’m a HUGE fan of Quickbooks Self-Employed. The reason is that one time I forgot to pay my quarterly taxes and things went a little wonky. I’m now happy to pay for the service that helps me make sure I have all that under control. (Or not pay because I also do TurboTax Self-Employed and get it all for free.)
As I mentioned above I’ve been involved in some pretty complicated tax stuff, so I’m more confident than most people about doing my own taxes at this level, but that wouldn’t stop me from using it even if I had an accountant. In fact, ESPECIALLY if I had an accountant.
Quickbooks is tied to my special author only bank account, it downloads my transactions as they happen. I can attach my receipts when I accrue them so they don’t wander off. It rough calculates my quarterlies based on my household income reducing the amount I owe at tax time (in years where employers and the IRS bother to calculate withholding properly.)
At the end of the day I’m a data person, and I know how many ideals we all have about spreadsheets, and reporting reimbursements, and keeping receipts. But it’s not the start that matters, it’s the end, and in the end this kind of tool is FAR more likely to help at tax time than the spreadsheet you don’t know if you actually put every single thing onto.
Credit Cards
Here’s a thing that is sometimes harder than the rest, but if your credit is in the place to get a credit card, consider getting one associated with your author account. This will help with the very lumpy nature of writing AND if your credit is in a less than ideal state any bank attached card can help you get that turned around.
So there’s two paths:
If your credit is poor:
Regardless of the annual rate or the size of the balance get a card and set up your recurring author related expenses you KNOW you can pay off every month. Things like Libro.FM credits or Scribd subscriptions. Consistent purchases that won’t push you over and you know you’ll be able to afford one way or the other.
The regular nature of these regular purchases you 100% pay off each month will start getting your credit turned around IN YOUR NAME. Which is really important for people whose income is lumpy or they have a spouse/partner who is the primary earner (for now!)
If your credit is good:
Get a miles card! Trust me! I’ll talk more about frequent flyer programs and benefits in a future letter, but for now, if you’re accruing regular expenses and you’re approved for a card associated with the nearest hub’s or most convenient airline you’ll be able to save yourself A LOT of money in the long term.
As above, pay it off every month you can. But if you can’t because you’re between royalty statements/advances/appearances/rights sales you can use it as a float without having to dip into your household account.
The key is that regularly paying off whenever you can. That increases your float and reduces the APR which will help in the long run.
I hope this all helps! And you can feel free to reach out to me on twitter @muliebris if you have questions or concerns.
I know I’ll hope go a lot deeper on some of these things in the future, but I thought this would be a good primer on how to set yourself up for success managing the complicated world of irregular income.
I sat down recently to brainstorm a bit for this newsletter and I realized I have 11 topics off the top of my head I can address not including this one! But if you’d like to suggest more feel free to leave a suggestion in the questions post or email me at lana@muliebris.com!