Duhigg says that habits occur in loops that basically have three parts: the cue, the routine, and the habit. By recognizing the cue, or the thing that triggers the routine, and by changing the routine, you can turn bad habits into good ones.

For about a year, I’d been drinking powdered cappuccino every morning at breakfast. I was trying to lose a few pounds and realized I was drinking 160 unnecessary calories. So I switched to instant coffee, lost 3 pounds and had about $12 more to spend on healthier options.

Sometimes people don’t realize they have bad habits. These routines have been practiced over and over until they’re as natural as breathing and blinking. They may recognize the habit, but may not realize the negative impact. I realized the cappuccino was costing me $14 a month, I didn’t realize how much it was affecting my caloric intake until I started tracking.

I often hear people complain that they don’t make enough money. They think that making more money would solve their problems. Sometimes, that’s just not true. Often, the real problem is that these people aren’t making good choices with their money. You can’t change a bad habit if you don’t know you have it.

One of the best ways to pinpoint bad habits is to start tracking. If you’re having money problems, track your spending. For help with time management, keep a journal of how you’re spending your time. To figure out why you’re not reaching a weight loss goal, start counting calories.

Eliminating bad spending habits was key in helping me transition to full-time freelance writing. And since writing income fluctuates, keeping my spending habits in check is also key to remaining fully self-employed.

If you want to know more about habit formation, Charles Duhigg has a book on habits: The Power of Habit. I haven’t read it, but I have it on my list. Reviews say it’s not a self-help book in the sense that he tells you how to change your habits. It’s more of a psychological book that talks about how habits happen in the first place. And well, if you know how habits happen, you can change most of them yourself.

Dozens of writers have added their names to the list. For example:

• Lanelle: $300 for Content Writing for Web Design
• Shirley T: $2,500 for Grant Writing
• David S.: $3,400 for Technical Writing
• Martin: $50,000 for articles sold to other publications without permission
• Melanie: $600 for copywriting

There are even a few people on the list who have over $50,000 in unpaid invoices. I can’t imagine being owed that much money.

Unpaid invoices is just one of the many risks of freelancing. Unless the client pays you 100% of the project upfront, there’s always some risk that the invoice will go unpaid. Size doesn’t matter – corporations and individuals alike can fail to pay. Sometimes even an established client-customer relationship doesn’t protect you from unpaid invoices.

You can minimize the risk of nonpaying clients, even if you don’t ask for full payment upfront. Break the payments into installments based on the work or the timeline. For example, get three payments for a three-week project. Or you can time payments to fall in line with the dates of specific deliverables. Getting paid in installments gives you a better opportunity to cut your losses. If the client misses a payment, stop working until they pay you. And cancel the project completely if they don’t pay you within a certain amount of time.

Reading a few of the stories on The World’s Largest Invoice Tumblr (where you can submit your own story) it becomes obvious that contracts don’t matter with unethical clients. Contracts are necessary to define the terms of the work, but don’t assume that because the deal has been signed that the client won’t walk away. A signed contract is still necessary, especially if you decide to take legal action against a nonpaying client; the client can’t claim ignorance if there’s a signed agreement.

The worst part of unpaid invoices – besides not receiving the money you need for survival – is that pursuing clients for payment can be time-consuming and costly. Calling and sending emails takes up time that you could be working on paying projects. Suing in small claims court is an option, but requires upfront filing fees and things get complex when the client lives in another state. Even a court judgment won’t force some deadbeats to pay up. You may have to go a step further and ask the court for a wage garnishment or bank levy. You could hire a collection agency, but they’ll definitely take a cut of anything they collect from you. Unfortunately, it’s sometimes cheaper – and less stressful – to take it as a loss and move on.

Do you still have unpaid client invoices?

Make sure your business can afford the payment

As with all expenses, be sure you have enough money to pay the contractor. One-time projects are a little easier to handle. But, if you’re adding a contractor to your regular payroll, you could run into cash flow problems waiting for your clients to pay you, so you can in turn pay your contractors.

You might start a separate account to use solely for payroll. Whether you use your primary business account or another account, it would be helpful to have a few months of payroll funds in the account to eliminate cash flow problems.

Get the contractor’s taxpayer ID number if you plan to pay more than $600

You’ve probably had clients ask you to complete IRS Form W-9 which is a Request for Taxpayer Identification Number and Certification. The form basically asks for the contractors name, address, type of business, and taxpayer identification number. You’ll need this information to issue a 1099 MISC. Form W-9 has sensitive information, so be sure to keep these documents in a safe and secure place.

The IRS requires you to report payments to nonemployees who work for your freelance business if the payments totaled $600 or more during the year. You’ll use the 1099-MISC form to do this. It basically tells the IRS and the contractor how much you paid that person during the year. Generally, you’ll include that amount in the box for nonemployee compensation.

Things get a little tricky if you pay the contractor with a credit card, debit card, Paypal, or another third-party. Because these third-parties are required to report credit card payments to the IRS via 1099-K, you’re not required to send a 1099-MISC form for these types of payments.

Other considerations:

• You generally don’t have to send a 1099 to a corporation.
• A different form is used to report compensation paid to a nonresident alien.
• A tax professional can give you full details on tax reporting and other concerns.

Keep track of what you’ve paid and to whom you’ve paid it.

This can be as simple as writing it down in a notebook or keeping track in a spreadsheet. You can also use payroll software to keep track of this information and to complete your 1099-MISC Forms. Another great reason to keep track of what you’re paying contractors is that you can take a tax deduction for these payments. When you’re dealing with the IRS, accuracy is important. Be sure you record and report the right amounts.

You might set your hourly wage first. For example, using the number of billable hours you work and your desired salary, you might set your hourly rate at $100. If you typically write 1,000 words per hour, your per word rate would be $.10 per word. And, if 250 words fit on a page (double-spaced, 12 point Times new Roman, 8.5×11, 1 inch margins), your per page rate might be $25. Or, if it takes 30 minutes to produce a page, then you might charge $50 per page regardless of the number of words. Full project quotes are often based on the number of hours it would take you to finish the project.

So if you have four different rates, how do you know which one to use to price your project? I base it on what the client has asked for and most often I use the per word and per project rate.

Many clients wanting articles or blog posts have a specific word count in mind, so I’ll quote based on that word count. Or, if they’re not particular about word count, then I bill upon completion based on the number of words actually written.

For bigger projects, like an ebook, I estimate the amount of time it takes to complete the project and then give a project quote. To give the client some perspective on what they’re paying for, I might break down the quote into the number of hours required for each piece of the project, for example, 10 hours spent on interviews and research, then 15 hours spent on writing.

If you’re quoting a per page rate for writing projects, then make sure you confirm the page size, margins, font type and size, and whether it’s double- or single-spaced. All that makes a big difference in the number of words that fit on a page and therefore the amount of time it takes you to produce a single page. Find out the specifications for the page, then see how many words fit on the page (use the Lorem Ipsum text if you need some dummy words). That will give you an idea of what to charge for each page.

For per page pricing on proofreading, editing, and other projects, use your hourly wage as a starting point. How long would it take you to proofread and edit one page?

It may be difficult to predict how many words or pages a project will end up being. And you may not be able to estimate how long it will take. In that case, you could use your hourly rate. You can bill the client in advance for a certain number of hours and re-bill when you’ve completed those hours. Or, you can bill the client after you’ve worked based on the number of hours you’ve actually worked. Either way, keep track of how much time you’re spending on that client’s work so you can account for your time if necessary.

If you haven’t done so recently, this would be a good time to review your rates – hourly, per word, etc. – to make sure they’re consistent. Be sure that your hourly clients aren’t paying more for the same amount of work as the clients who pay by the word.

I considered my own payment policy and looked at a few other business policies and came up with a few fundamental pieces of a good policy.

Rates

Are you charging by the word, page, hour, or project? In a generic payment policy, you can list out your by-word, by-page, and hourly rates so clients know what to expect. If you have a standard rate for certain types of projects, e.g. press releases or business memos, list those rates as well. Price ranges are acceptable.

Invoice Timing

Let clients know when they can expect to receive an invoice from you, e.g. at the end of the project, weekly, monthly, etc. For larger projects you might send invoices after a certain number of hours, words, or some other interval.

Payment Due Date & Penalties

Let your clients know upfront when you expect to be paid: 100% upfront, 50% upfront and 50% upon receipt of the final invoice, or 100% upon receipt of the final invoice. You might break up larger projects into other intervals, like 25% every week. But, specify how long after receiving the invoice the client should make payment. If you require prepayment, let the client know you won’t start working until you receive payment.

Define “larger projects,” at least for your own records, so you’ll know when to apply your long-term project pricing and invoicing terms.

Of course, clients don’t have forever to make payments and just because you say payment is due upon invoice receipt doesn’t mean clients will pay at that time. You might impose a penalty for late-payment clients, either a certain amount $10 per week after 3 weeks or a percentage of the invoice amount like 1.5%. Your state law may limit the amount of interest you can charge, so check with an accountant or contract attorney.

Payment Methods

Let clients know how they can pay you: cash, check, money order, Paypal, Western Union, bank transfer, etc. Remember that certain types of payments take longer than others and factor that into your payment policy. Electronic payments can be received in 1-2 business days. A mailed check or money order may take longer to receive and might affect payment due date.

Put it in Writing

Include your payment policy in new contracts, post it on your website, include it when you quote or accept a new project, and definitely include it on your invoice. Make sure you notify clients if you change your payment policy, for example, if you add a new payment method or you begin to require payments upfront.

How Much to Reinvest

The amount you put back into your business depends on how much you make and how much of your money goes toward taxes and required living expenses. If you routinely have a surplus, then you can decide to reinvest a certain amount each month, like $50 or 10% of your surplus, for example. If you can’t immediately come up with extra funds to reinvest, look for ways to increase your income or cut back on your spending.

Once you’ve allocated money for reinvesting, you can either reinvest immediately as you earn or you can save up if you have a big project in mind.

Remember that as a sole proprietor or partnership, you’ll owe taxes on everything you earn even if you retain it to spend on your business. Your business expenses are typically tax-deductible on Schedule C, so keep a record of your business spending.

Ways to Reinvest in a Writing Business

Pay someone else to do your non-core work so you can focus on your core work. In other words, outsource. You might pay someone else to: design a template or logo for your blog, design your business cards, create an infographic based on data you’ve gathered, do your accounting, or even write or edit some articles for you. The less time you spend on these things – which may take you longer if you don’t do them well – the more time you can spend writing, for yourself and for your clients.

Don’t be afraid to give up a little control if it means you’ll get more in return.

Start a new blog. You can buy a new domain for pretty cheap and if you already have an unlimited hosting plan, then that’s one less cost to worry about. Setting up the domain and installing the CMS, e.g. WordPress, can be done in less than 30 minutes. But, you might consider outsourcing the rest of the work like template design and installation. In the meantime, you can start writing posts and working on a monetization plan.

Spend more on marketing and advertising. This might mean redoing your business website, purchasing online ads (e.g., pay per click or banner ads), printing some flyers (maybe pay someone else to design them or even to put them around town), creating brochures, or creating a webinar or video to promote your business or blog. You might even hire writers to create content for your blog. (I wouldn’t hire people to write for my clients unless both the clients and the writers knew I was doing this.)

Learn more. Look for classes and seminars both online and offline that will help you hone your writing skills, learn more about running a business, or teach you more about your niche. You can also take an informal approach to learning by purchasing books, or even college textbooks. If you look hard enough, you may even find free courses or at least a syllabus for a course. Then you can use the money you designated for the course for something else to help your business.

These are just a few ideas. What ways have you reinvested money (or thought of reinvesting) back into your business?

For us, planning for tomorrow includes more than the next day or the day after, but the years and decades to come.

Get rid of your past debt.

Most of my debt is student loan debt. Oh, if I knew then what I know now. But many of you may have car loans, mortgage, and credit card debt to deal with also. Debt keeps you from reaching your most important financial goals because you’re often paying for something you’ve already consumed.

The feast and famine aspect of freelancing may make it hard to pay off debt, but put more toward your debt when you can. The sooner you can get rid of debt, the sooner you can start putting more toward your other financial goals.

Build up an emergency fund.

An emergency fund is savings that you can access whenever you have, well, an emergency. For example, my car’s air compressor went out last August and here in Alabama it was still 90+ degrees every day. Thankfully, I had the $750 for the repair stashed away in an emergency fund. It hurt to part with the cash, but what if I hadn’t created an emergency fund. I might have had to use a credit card, dip into my buffer account, or maybe even borrow the money.

The ideal emergency fund is 6-12 months of living expenses, but working toward a short-term goal of $1,000 is better than having nothing at all.

Have sufficient health insurance.

Part of securing your future means you have a health insurance plan that will cover some of the most expensive medical expenses. Without health insurance, you could be one major illness away from bankruptcy.

If you have a health insurance plan with a high deductible, make sure you have that deductible stashed away in an account somewhere. There are tax advantages to placing the money in your health savings account, which is basically a savings account you can use for medical expenses.

Save for retirement.

If you’re like me, you can’t imagine that you won’t be writing forever. But, one day I would like a more leisurely life that’s void of deadlines and invoices.

In a perfect world, I’d spend my retirement living off royalties from all the best sellers I’ve written. Since the aforementioned are still in draft and idea form, it’s probably best that I go with plan B – set some money aside for retirement.

While the days of employer-matched retirement plans may be gone, there are retirement options for freelancers that allow you to save more tax-deferred money than if you still worked for someone else.

Remember that you’re not just making money to pay the bills for this month or next month, but you also have to plan for your financial well-being for the rest of your life.

I’ve been delaying a crucial marketing device because I’ve been too cheap to pay for it and my DIY list is so long, I may have never gotten around to it. For years, I’ve been too cheap to pay for a professional business picture. It’s a requirement for one of my major clients and I’ve skated by without a picture for a very long time. And several times, I’ve been asked for a photo to accompany an article or an expert quote but I haven’t had one – at least not one that I felt gave justice to my more professional self.

I finally decided to move it up on the priority list. I even added to my 30 before 30 list for extra motivation. I made an appointment at a studio in my area and forked over $75.99 for their business package, which essentially gives me the right to use my photograph online or however. I took my photos today and I’m only sorry I didn’t do it sooner.

Saving money is great. But some business expenses are worth spending the extra. For example, if your web design skills don’t go beyond basic HTML, it may be better to hire someone to create your professional website (note to self). If tax rules and accounting aren’t your thing, hiring an accountant (one with small business or sole proprietor experience) is better than doing your own taxes and certainly cheaper than penalties you may face from DIY errors. You might buy accounting software instead of fussing around with your own Excel spreadsheets. You could pay someone to design your business cards or to edit your work. Or, you may pay extra for a computer that will last longer or for faster internet service.

The lesson I’ve learned is not to sacrifice much-needed business expenses for the sake of saving money. (Oh and it also takes time to save money, but that’s a story for another day.) You can justify the cost with a business tax deduction.

Don’t be desperate enough to accept anything.

You might be tempted to accept a lower rate if you’re short on work and you need money quickly. Knowing that type of situation makes you vulnerable, try to avoid reaching the point of financial desperation. Market your writing services even when you don’t need to and money set aside during your good months to fill in future income gaps. Slumps are often a good time to work on your own projects.

Don’t let clients bully you into a lower rate.

Clients may try to negotiate lower rates by quoting a price from another freelance writer. “Don’t you think $450 is a little steep? I have an offer from someone who’d accept $45 for this project.” I always find it amusing when these clients try to haggle instead of just taking the lower rate offer. There must be a reason they haven’t hired the other writer – perhaps because they realize the end-product may lack quality?

Try to work within the client’s budget.

If you’re truly interested in a project, leave room for negotiations. Clients may walk away when they receive a quote outside their budget if they don’t realize you’re willing to work with them. Let the client know that you can better accommodate their budget if you know what they’re willing to spend. For example, the client may want 20 articles but only has $500 to spend. Instead of lowering your rate, you could offer the client 10 articles for $500, for example, if your rate is $50 per article.

Make sure your rates make sense.

When your rates make sense to you, you’ll have an easier time explaining them to potential clients. Experience, education, credentials, and attention to detail are all reasons why you charge what you do. Helping your client understand this may encourage them to hire you for your rate. If clients aren’t willing to pay your rates, it’s a sign that you’ve either priced too high or targeting the wrong customers.

Know when to walk away.

Sometimes I have a hard time turning down projects; I guess it’s the Samaritan in me. But, it’s ok to turn down a project especially if it’s going to cost you, but don’t do it prematurely. Make sure you’ve taken time to understand what the client is looking for and confirmed you can’t work within their budget. It doesn’t hurt to follow up in a few weeks to be sure the client’s needs have been met. There’s a chance they went the cheaper route, were unsatisfied, and are now willing to pay your rate.

How do you handle clients who want you to change your rates?

Living Expenses/Taxes/Savings Ratio

This “live on the rest” budgeting system isn’t something I made up. I’ve read about it over and over in personal finance books, so I can’t take credit or give it to anyone else for that matter.

The gist is that you live on 70% (or some other percentage) of your income. The other 30% goes toward taxes and savings. When you get paid – or when you pay yourself – immediately set aside 20% for taxes and 10% for savings. And then, you live on the remaining 70%. If your monthly income is $4,000, you would set aside $800 for taxes, $400 for savings and you live on the remaining $2,800 left for your living expenses. It makes a big difference in how you budget, physically and mentally.

I mention the mental budget because we often make plans for our money long before we ever receive the money and even before we commit to a paper budget. If you’ve planned your spending based on one amount and what you’re actually able to spend is a much lower amount, adjusting is going to be painful. But, when you have more realistic expectations of your income, the budgeting process is much easier.

Tweak the System

For me, the system works best when I pay myself a set amount each month. That way, I can work with a lump-sum amount. But, you may have to work up to that point if you pay current month’s expenses with the current month’s income. You also budget this way on a payment-by-payment basis. Just split up your payment, 20% in an account with taxes 10% to savings and 70% in your primary checking account. If you’re faithful about splitting up your payments, you won’t have to play catch-up later on.

These numbers are generic and can certainly be adjusted, especially if you’re in a higher tax bracket. You can use an average tax rate calculator to calculate your Federal tax rate, then add 15.3% to compensate for self-employment taxes, and don’t forget to consider your state taxes. If you’re trying to pay off debt, you might use a 65/20/10/5 ratio where 5% of your income goes toward debt payments.

At first, the system may be painful. The mere thought of only getting 70% of your income is undoubtedly depressing. But, it’s pretty close to how things work when your employer deducted taxes and benefits from your pay. Believe me, you’ll be happy you did it this way. When it’s time to pay your estimated taxes, the money is already there. And though retirement may be while away, it’s a big goal to prepare for. The sooner you start and the more disciplined you with saving, the better off you’ll be when it’s quitting time.