Raihanaty A Jalil writes poetry and fiction and has been on a panel during Perth Festival Writers Week 2019. She has performed a reading of her work at the Wheeler Centre Melbourne during the Digital Writers’ Festival 2019. She currently sits on the board for Centre for Stories.
Hey everyone! Welcome back to the next instalment in my blog series Mastering Money for Writers. As discussed in my original post, we’ve been focussing on the topic of taxes (something that many of my writer friends have asked me about).
So today, I’ll be discussing what writers could claim as a tax deduction. Let me start with a few disclaimers. What I’ll be sharing below are just ideas and possibilities. At the end of the day, you still need to confirm with your accountant what will hold up in the eyes of the taxman.
The key principle I hope to get across is a huge mindset shift I experienced in my own life—so much could actually be claimed! So I hope by the end of this post, you’ll find your mind thinking more creatively about this topic.
Let’s now begin discussing one category at a time:
Hey everyone! Welcome back to the next instalment in my blog series Mastering Money for Writers. As discussed in my previous post, we’ll be focussing on the topic of taxes for the next couple of months (something that many of my writer friends have asked me about, since it has been tax time in Australia).
So today, I’ll be discussing tax record-keeping tips.
The key principle I’ve learnt about taxes is, the more you can prove to the government that you have legitimate expenses in your “writing business” (the more examples you can show), the less tax you will pay. Because in fairness, you should only be taxed on your net profit (i.e. income minus expenses), not on your revenue (income before expenses are accounted for).
Dear fellow writers. It’s great to have you back for another topic in my blog series Mastering Money for Writers. The previous months, I discussed the dreaded B-word (Budgeting). The focus of the next few posts will be the dreaded T-word—Taxes.
I wanted to begin by sharing something I’ve realised since frequenting the ATO (Australian Taxation Office) website. This realisation has sparked a shift in my mindset and consequently my approach when taxes are concerned.
Guess what? You’ve made it to the last post in this topic!
If you landed on this page and don’t know much about this blog series “Mastering Money for Writers”, I recommend starting from the Introduction or at least Part 1 before continuing.
Because by now you should know the following:
Your Lowest Monthly Income
Your Total Critical Monthly Expenses
Your Total Discretionary Monthly Expenses
The meaning of Cashflow & why Pay Yourself a Salary
Why you should start filling your Water Bucket
Hopefully some months, you’re still going to have money left over. You may not believe me now but there is something about being in the mindset that you’re in control—life rewards you by giving you more abundance. It’s almost as if it knows you’ve now got the tools to handle more wealth. That you’ll have a greater respect for the money coming your way, no longer consuming it without consciousness that more often than not ends up being wasteful.
Let’s now discuss these final steps.
Chapter 6: Pay Your Debts, Build Your Dream Fund, and/or Invest the rest
What you do with the surplus money you will have depends on your personal circumstances.
Pay Your Debts
If you have debts (credit card, personal & car loans, money owed to others, etc), it’s logical to attack this before you even think about things like investing. Because the nature of interest-ridden debts especially is, every single day, your unpaid debt is growing, which in effect is making you poorer and poorer. Banks and lenders use language to make it feel like it’s such a small amount and thus not a big deal as long as you make your minimum payments. But when you look at and understand the Maths, you might find yourself feeling sick… I’ll give you an example:
Let’s say you have a rewards credit card debt of $2000 with an interest rate of 20.24% p.a.
Every day, interest is incurred on the current balance as follows:
20.24% / 365 days = 0.056% per day
0.056% x $2000 = $1.12 interest per day
This might not seem a lot, but if you didn’t pay that debt at all, in a year, your debt is now over $400 more! $400 could’ve been a plane ticket to a holiday destination, a couple of nights in a nice hotel, but instead, it’s making the banks richer.
How about if you’re making the minimum payments?
The minimum payment is usually only about 2.5% of the closing balance. Let’s say you only made the minimum payments (the way the banks want), the maths is complicated but this calculator gives you a summary of how long it would take to pay that debt and the money you’ve lost in the process:
So it would take you over 14 years to pay off $2000 and the money you’ve lost in interest over those years is $2908, 145% of what you originally owed! If you’re a banker, that’s a pretty damn good investment: loan $2000, get $4908 back. But if you’re the victim, it’s a huge burden, having that weight hanging over your head for over a decade…
So if you have debts, attack them first from the smallest debt to the largest (while making minimum payments for the rest).
For example, let’s say this is your debt hit-list:
Car fine: $200
Credit card 1: $500 (min 2.5% = $12.50)
Credit card 2: $1500 (min 2.5% = $37.50)
Car loan: $5000 (min 2.5% = $125)
If you have an extra $300 one month, the minimum payments add up to $175. After paying those, throw the $125 left at the smallest debt (the car fine), which will mean that it will be paid off maybe as soon as the next month!
Why the smallest debt rather than the debt with the highest interest?
Because being in debt is a crippling and demoralising experience. You need these small wins to feel like you’re making progress that will motivate you towards slaughtering the bigger debts.
Build Your Dream Fund
Let’s now talk about saving any extra. We’ve already discussed filling your Water Bucket, which will eventually be 3-6 months worth of your critical expenses.
Start a Dream Fund for big purchases like a Holiday, Wedding, Dream Car, Editing/Publishing/Book Marketing, etc.
Get excited about this fund as you watch it grow! Think about this fund when you sacrifice coffee at a local cafe—instead imagining having coffee in, say, a cafe in Italy! Yes, we still have to wait for this whole COVID19 situation to blow over, but this only reinforces that you have time.
Invest
Now let’s talk about Investing. This is a topic that really needs a post (or two) of it’s own, but what I’ll mention for now is this.
It’s wise not to keep “all your eggs in one basket”. Yes, this is a cliche, but cliches exist for a reason. Like many individuals, businesses and investors have learnt from the past number of months due to the impact of COVID19, depending on only one source of income puts you in a very vulnerable position.
So investing allows you to reduce that risk should your main income source suddenly disappear.
But, and this is another very big BUT, do not ever invest in something you don’t understand, even if the advice is coming from a millionaire share investor! From experience, this is the guaranteed way to lose money. Trust me, I have lost thousands of dollars this way. I’ve made the money back now Alhamdulillah, but in investments that make sense to me.
So what do you do for now?
Start an Investing Fund while you learn more about how and where to invest.
In later posts, I’ll discuss Investing in more depth.
But otherwise, congratulations, you have completed your mission to master this topic of “How to budget when your income isn’t consistent”!
Obviously, your initial estimations will not be perfect, especially as your circumstances change. Ultimately, if a budget is not working one month, adjust the values and see how you go the next month. Eventually, you will learn the right figures that work for your circumstances.
The best part though is, with this financial roadmap, how good will you feel seeing the abundance grow in your life, starting with in your bank accounts!
Until next time, praying for much blessings your way.
Raihanaty A Jalil
P.S. If you found value in this post, please share it with others.
Congratulations on making it this far! We are on the last leg now.
If you landed on this page and don’t know much about this blog series “Mastering Money for Writers”, I recommend starting from the Introduction or at least Part 1 before continuing.
Because by now you should know the following:
Your Lowest Monthly Income
Your Total Critical Monthly Expenses
Your Total Discretionary Monthly Expenses
The meaning of Cashflow & why Pay Yourself a Salary
Let’s discuss what to do with some of the money that is (hopefully) left over.
Chapter 5: Start filling your Water Bucket
Like I’ve mentioned in past posts, the language used in money can impact how you feel and thus the actions you take. This category of money is also described by many names, the most common being an “Emergency Fund”. In one of my most favourite personal finance books ever, “The Barefoot Investor”, Scott Pape calls this pool of money the “Mojo Account”.
I’ve chosen the name “Water Bucket” because, the purpose of this fund is to put out the unexpected fires that are unfortunately just part of life. So this is money to cover only emergencies like (God forbid) a car accident, household and car repairs, medical expenses and other emergency bills.
Welcome back! If you landed on this page and don’t know much about this blog series “Mastering Money for Writers”, I recommend starting from the Introduction or at least Part 1 before continuing.
Because by now you should have the following figures:
Your Lowest Monthly Income
Your Total Critical Monthly Expenses
Your Total Discretionary Monthly Expenses
Now get your spreadsheet ready (if you’re a Plotter) or a pen and paper (if you’re a Pantser) so we can analyse what we’ve got and learn some new terminology.
Chapter 4: Understanding cashflow & paying yourself a salary
First, put the figures we’ve worked out into your spreadsheet or as a list on your sheet of paper. Here’s an example:
Your Lowest Monthly Income
$3000
Your Total Critical Monthly Expenses
$2000
Your Total Discretionary Monthly Expenses
$800
Cashflow = Your Lowest Monthly Income – Your Total Critical Monthly Expenses – Your Total Discretionary Monthly Expenses
+$200
In Business, the term Cashflow refers to “the net amount of cash and cash-equivalents being transferred into and out of a business.” (Investopedia)
What does this really mean and why is it important?
It made me realise, I’ve never actually been a true entrepreneur and I think this is why I felt uncomfortable about continuing the businesses I had started: event coordination, admin support, life coaching etc. Because these are freelance ventures where I’m tied down and stuck working on the ground. I realised for the first time that I prefer the idea of being an entrepreneur, being the director, working “on” the business, not “in” the business.
Then an opportunity unexpectedly presented itself for me to start a business for my family that wasn’t necessarily something I was passionate about but as I’ve begun, I’m discovering a mindset shift, a different and exciting vision I’ve never experienced before.
Hi again! If you landed on this page and don’t know much about this blog series “Mastering Money for Writers”, I recommend starting from the Introduction or at least Part 1 before continuing.
Because by now you should have the following figures:
Your Lowest Monthly Income
The amount you need to cover your Critical Monthly Expenses
But let’s get into this next step!
Chapter 3: Work out your discretionary monthly expenses
This section should be easy, yet at the same time eye-opening, maybe disconcerting. Because we will finally understand where all our money is going, see expenses we perhaps didn’t even realise existed or forgot about. So attack this in two stages.
Just understand your reality and list the additional monthly expenses you incur such as:
Welcome back for another lesson in Mastering Money for Writers. If you landed on this page and don’t know much about this blog series, I recommend read the introduction and part 1 before continuing.
Otherwise, let’s dive straight in!
Chapter 2: Work out your critical monthly expenses
If you do a search on the internet, this category of expenses is given many names, some quite creative. For example, Dave Ramsey refers to these essential expenses as the “Four Walls”: food, utilities, shelter and transportation.
It’s also been known as the “noodle budget”, describing the times we’ve all been through when we’ve had to survive on instant noodles so we can still cover those critical expenses until our next payday.
As writers, we know words are a powerful thing. A single word can halt a nation, stir a rebellion, move someone to tears, shift a person from a state of hopelessness into enlightenment.
So let’s be honest for a moment. When you hear this word, “Budget”, what are your immediate feelings and thoughts? Is it anxiety because how can you budget when your income as a writer is perhaps small and unpredictable? Is it scepticism because you’ve tried budgeting before and it just didn’t work for you? Is it tiredness, overwhelm, the thought of the work to put this into motion? Is it rebellion when you just don’t like the idea of the restrictiveness associated with it?
What if I were to tell you in the world of Business, completely different emotions are evoked by this word?
Budgeting enables movement and growth. Budgeting is your heartbeat, your oxygen. Budgeting is clarity and power.
