Payday Tactics — How To Calculate Your Top-Out Figure

Last month, around payday, I suggested that every author should build an escape stash, with an eye towards the future when they can quit the day job.

Then yesterday I suggested that you should accept the idea that your day job is part of being a fiction author, and learn to work with it.

They might seem like contradictory ideas, but if you’re going to sleep at night and not walk through your day being angry all the time, then you must work with both ideas simultaneously.

So, you accept completely and absolutely that the job is going to be around forever, and maximise your life to take advantage of the unique benefits a day job provides an anchored author. At the same time you set up strategies and work towards quitting the day job to write full time. Some novelists do write full time, and there’s no reason you can’t be one of them, if you go about it the smart way.

One of the strategies that’ll get you to quitting your day job faster is building your escape stash. Knowing the top-out figure for your escape stash is a huge psychological boost to your enthusiasm and motivation, and every time you check the balance of your escape stash and see how much closer you’ve got to topping-out (and thereby having the financial resources available to quit), the harder you’ll work.

What is your top out figure? You’ll need to answer a few questions to find that figure – it’s different for everyone.

1) How much of a cushion do you want when you quit?

Many experts suggest the equivalent of six month’s pay will do, but the fiction industry cash flow runs at the pace of treacle on a cold day compared to other forms of self-employment, so you might want to go for a year’s cushion. It depends upon your tolerance for risk and uncertainty, which is a factor of your life circumstances. If you have a spouse and kids, you’ll be more risk averse than if you’re single with no dependants, for instance.

Decide how much of a safety net you want in place before you quit the day job, in terms of months or years.

2) What are your monthly expenses?

Assuming you’ve decided on a year’s cushion, you next need to work out how much money you spend on essentials every month. If you’ve never done this before, it can be a challenging exercise, but it is absolutely worth the time and effort.

The quickest and most reliable method is to grab the last 12 months’ worth of bank statements and credit card statements, which are true and often excruciating records of exactly what you blew your money on over the last year.

Sort every expense into categories: gas, power, water, eating out, how-to books, novels, other books, car expenses, public transport, groceries, medical, dental, etc, etc.

Brace yourself.  Then for each category, tote up the sum and divide by 12 for a monthly average. Your jaw will drop over some of the totals. I blush whenever I see how much I spend on books, for instance.

3) Which of your expenses are essential?

There are some expenses you can’t duck – utilities and taxes, and some form of transport, food, housing, etc.

There are some expenses that are genuine luxuries that you could live without. You’ll find that many expenses you might have considered even somewhat essential (the caramel machiatto you buy every morning, just to sweeten the first hour of your day job) suddenly feel like embarrassing indulgences when you consider that living without lattes for a year will allow you to write full time.

There are some expenses that fall into grey areas: They’re probably luxuries, but denying yourself these luxuries would make your day-to-day life so grim and unbearable, or inconvenient, that they should remain on the list of essentials. A weekly massage, for example. Depending upon where you live, a second car might be an essential.

For me, an abundance of fresh fruit and vegetables is a necessity because I follow a raw food diet. I could chose to eat more reasonably-priced foods, but my health and energy would nose-dive, and the loss of clarity of thought that comes from a raw food diet would impact my writing, so a somewhat excessive grocery bill stays on my list of essentials.

Don’t forget to include your writing business expenses, including marketing, advertising, postage, conferences, stationary, etc.

Remember to consider each expense as if you were writing full time. Your daily latte, for instance, would definitely go once you were writing full time, because you wouldn’t be working the day job and need the daily jolt.

4) Can you reduce any of your essential expenses?

If you’re writing full time, then transport expenses would automatically drop, and so would your clothing and cleaning bills. Eating out would probably decline quite naturally, just because you’re home most of the time.

There are other essential expenses that you may be able to reduce without too much pain and sacrifice – especially if it enables quitting your day job. Examine every essential category on your list, and think about how it would (will) change once you’re writing full time. Could you cut back? Would it increase? (Power might, for instance, and perhaps your long distance phone bill, and postage.)

Adjust the total for each essential category to what you think would be a reasonable, liveable monthly amount.

5) Calculate your top-out figure.

Add up the sums for each category, to arrive at a monthly total expenses figure.  This is the minimum amount you would need to survive each month as a writer writing fiction full-time, even if you brought in zero income from your writing.

Multiply that figure by the length of your chosen ‘cushion’ – 12 months, 6 months, or whatever you chose.

Add a 15% fudge factor, for emergencies, expenses you’ve forgotten to include and once-off unexpected payments.

The figure you have now is your top-out figure. That’s the sum you need to have deposited in your escape stash before you can even think about quitting your day job.

Sit back and study it. Does it seem impossibly large or surprisingly small?

If it seems too large, look at your essential expenses, and reconsider if you really can’t live without them.

If it seems too small, check your workings again, and make sure you haven’t made a mistake. And also think about what your life would be like if you only live with the bare essentials you’ve left yourself. Perhaps you need to add in some luxuries to sweeten the pot.

Don’t forget, every spare penny goes into your escape stash between now and when you finally say “I quit” – and that includes all the royalties and advances from your books, and a portion of your current salary.

And if you start cutting back on non-essentials immediately, the stash will build that much faster. Plus you’ll be learning to live a more frugal lifestyle now, instead of trying to adapt to it when you’re writing full-time, and already stressed about making the leap, and sweating over the ticking clock your bank account now sounds like.

6) Review your calculations regularly

Every six months or so, rework your calculations. As your writing career matures, and you better adjust to the life of an anchored author, the “essentials” list will change and so will the monthly amounts for each. You’ll learn how much you can reasonably spend on marketing to reach your readers.

Constant monitoring of your stash will provide positive reinforcement, and you’ll find yourself almost unconsciously cutting back on frivilous purchases, noticing ways to save cash and live better on less. You’ll also find yourself working harder and more consistently on your writing and marketing, and you’ll start to take more notice of the financial side of the publishing industry, and look for efficiences in your business.

And you’ll find the day job easier to swallow, knowing that you’re actively working towards quitting.

First appeared on Anchored Authors on July 02, 2008

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Tracy Cooper-Posey © 2009. Cannot be copied or distributed without permission.