I'll wait for you to stop laughing and saying "What money?" Even if you haven't gotten to the point of earning an advance, or even better, royalty checks, many writers earn some money through freelancing, self-publishing, editing services, short story sales, etc. But money earned as a writer will always be different than that earned by those who get a steady paycheck each week. Even in the scenario of royalty checks, it's never a guaranteed amount. So how do you budget or calculate living expenses on uneven income?
Though I've recently made some money through freelance work and by offering query services through the blog, I know a lot about this topic because I've been self-employed for a decade. I run my own private practice as a psychologist, and my income has always varied from month to month. I'm used to the uncertainty principle, and thought I'd pass along several tips that might help with budgeting. NOTE: This is my own personal experience and should not be construed as financial advice. That's what CPA's are for. :)
1. Keep good records. If you're earning money from various
sources, such as selling several articles or short stories a year, keep
careful track of all your income (and expenses.) Money spent on websites, marketing, editing, etc. will help offset the cost of your total income. You can track this through a
program like Quicken or Excel, or you can use an old-school ledger and
pencil. Just make it thorough. This will make step 2 easier.
2. Pay Estimated Taxes if needed. I've paid estimated taxes for years, but look at it as a positive thing, because it means my business is profitable. A good accountant, or a reliable tax program like the Business Edition of TurboTax, can help you figure out what you should pay. A good rule of thumb is to set aside at least a third of what you earn for taxes.
3. Make your budget based on the lowest expected amount of income. After a few months of receiving writing related income, you can probably get away with taking an average of those months to determine your budget, but I use the lowest amount I make in a given month to set my budget. That way, I make sure I'm covering basic expenses, and if I make more than that, it can be added to an emergency fund for unforeseen crises. If no crisis occurs, the money can be used for other things, as mentioned in the next step.
4. Use the bucket method for your income. I'm a huge fan of the bucket method, because it allows you to put a little money towards fun things, along with boring stuff like the aforementioned estimated taxes. I have a savings account labeled for each "bucket," so you could have designated accounts for things like taxes, mortgage, etc,. but make sure to include at least one bucket for something fun. Even if you can only put a few dollars in your fun bucket at a time, it will eventually add up. Then you can get that new laptop or go on a weekend getaway--and what writer doesn't need those things (BONUS: that new laptop may even qualify as a tax deduction depending on your situation!)
These are some basic tips, but I'm sure there are plenty more. Has anyone tried any of these, or have any other money tips to share?