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.

That’s not to say you should never consider negotiating. That’s an individual decision. The problems start when you allow clients to control what you earn — a right they only have if you choose to give it up. And when you do give it up, chances are good you’ll attract more cheapskate clients.

What are Cheapskate Clients?

We can’t define “cheapskate clients” as ones who are only willing to pay a certain dollar amount, because projects and experience and expertise all vary. Instead, these are the clients who repeatedly try to talk down your rates. Or they simply offer far less than you charge and they expect you to jump right into their project, completely ignoring the fact that they can’t afford you.

Some will get huffy if you dare to mention your professional rates. Some with give you sob stories to try to win your pity (and a lower rate because of it). Some will even get downright nasty telling you that you’re not worth as much as you charge because some Joe Schmo with no credentials halfway around the world is willing to do your $2000 project for a mere $50. Some of the more passive aggressive ones will state they can’t afford you, but in a way that it’s clear they’re hoping you’ll come in with a cheaper counter-offer.

Hopefully you never have to deal with the nasty variety of cheapskate client, but there’s a good chance you’ll run into at least one of these prospect types during your freelance career. Here are some tips to help you deal with the situation when you do.

Dealing with Cheapskate Clients

Here are four tips for dealing with cheapskate clients of any variety:

1. Justify your rates. — Ideally you’ll convince a potential cheapskate client to pay your going rates. It’s a matter of conveying your value and showing that you’re worth what you charge. You can do this with samples and testimonials, but hard numbers can be even better — show how your last sales letter brought in six figures for the client while you charged only $5000 for example. Of course you won’t be able to convince everyone. Some simply won’t have the budget for you, and some aren’t ready for professionals yet. They’re not in your target market though, so don’t fret too much about it.
2. Offer adjusted project specs that fit within the client’s budget. — Buyers need to understand that if their budget can’t pay for their expectations then they either need to increase their budget or lower those expectations. Let’s say a client has a $500 budget for monthly blog posts. They wanted 10 500 word blog posts per month, and they really want to hire you specifically because they love your voice and style. You charge $200 per 500 word blog post. That would require a $2000 budget for the number of posts they wanted. Instead of flat out refusing the project, you might come up with a counter-offer of 5 250-word blog posts per month for $500. They stay within budget and still get the writer they want, but they accept less content and only purchase what they can afford for now. You don’t get short-changed on your billable hours, and you still get a regular gig out of the deal. Sure, not all will go for it, but you’d be surprised how many would consider it when they really want you and not just some random writer. They’ll find a way to pay your rates. That’s why it’s so important to make yourself indispensable to them.
3. Refer the cheapskate client elsewhere. — Your cheapskate might be another freelancer’s golden goose. Let’s go back to the previous example of someone wanting to pay $50 per article when you charge $200. And let’s say they’re not interested in your adjusted offer to fit within their budget and your rate requirements. But let’s also say that you know another writer who would love to get to $50 per article. They might not have your credentials, but you know they’re not bad and they could handle the project. You could refer the client to them. Referrals are an important part of networking, and when you give them you tend to get more of them as well. At the same time, the client is kept happy, and they tend to remember that. I’ve had many an occasion where clients I referred elsewhere due to budget constraints have come back to me later when they could afford me because I still made sure they were taken care of. On the other hand, some clients are so cheap I wouldn’t wish them on my worst enemy. In those cases I don’t refer them to other writers at all. I send them to freelance marketplaces where they’ll find some extremely low-priced writer to fit their budget. Of course I do that also knowing that most will be unhappy with the work they get for those rates and they’ll eventually come to appreciate the fact that professionals are worth more than those who are simply out to undercut each other because they have no value to convey beyond super-low prices. It doesn’t always happen, but I’ve had several come back — tail between their legs — wanting to hire me at my normal rates (no questions asked anymore) after being exposed to the work from some of these “cheap writers.”
4. Keep on walkin’. — There are some clients you’re better off just walking away from. If their cheapskate nature turns into a case of bashing you because they can’t afford you, walk away. If they keep trying to talk you down no matter how many times you say no, it’s okay to walk away from that too. If it’s clear the client has no idea what they actually want from the project, that’s another good sign that you’re better off leaving it alone (the ones wanting low rates and not having solid project specs tend to be the ones that demand the largest amount of your time anyway). You should never feel like you have to take a project if it doesn’t meet your requirements. When one prospect disappears, just think of it as an opening for an even better one.

Cheapskate clients are all around us as freelancers. But they don’t control our rates — not for a particular project, and certainly not what we earn in our careers. It’s up to us to educate clients and prospects and demonstrate our value, showing them we’re worth what we charge as professionals. When we do that, we minimize our exposure to cheapskate clients, and more importantly we kill any chance that we’d actually be tempted to meet their demands. Don’t be afraid to stand your ground fellow freelancers. There are plenty of good ones to go around, and if you haven’t found them yet try tweaking your marketing plan towards a better market. You’ll get there.

Instead, I’m going to give you some easy-to-follow tips on managing your records throughout the month so it takes less work to figure out how much money you’ve made.

Keep track of your invoices. If you’re not invoicing your clients, start now. An invoice is just a bill that says “you owe me this much money by this date for this work.” It’s sort of like what the plumber sends after fixing your leaky pipes.

Don’t have an invoice template to use?

1. Jenn includes an invoice template in her Web Writer’s Guide workbook.
2. You can find invoice templates online by doing a search for “invoice templates.”
3. There is software specifically designed for invoicing. For example, I use MacFreelance.
4. Use Paypal’s invoice tool.
5. Create your own invoice template in Microsoft Word. (Tip: save as .dot file.)

Prepare and send your invoices soon after your project is complete, or before the project is done if you require advance payment. Make sure your clients get their invoices and make sure you keep a copy for your records. I keep both electronic and hard copies for added security. (You never know when your computer might crash or your house burns down and hopefully they don’t both happen at the same time).

Follow up on unpaid invoices. Get a file folder and label it “2009 Invoices.” (You need a new folder every year.) As you receive payments from clients, mark your invoices as “Paid” and file them away. Periodically review your invoices and follow up on those that remain unpaid.

Track your expenses. When you shop for your business items, like office supplies, shop only for business. Save your personal shopping for another trip and expense tracking will be much easier. Keep receipts for all your purchases, even if you have to print them from online.

I put all my receipts in an envelope until the end of the month when I total them up. After that, I file them away based on their tax categories, e.g. Advertising, Travel, Food, etc. (See About.com Tax Planning for a list of tax-deductible business expenses.)

Add up your net income each month. Earlier, I talked about all those useless spreadsheets you might have learned about in your college Accounting class. I still use a spreadsheet, it’s just far more simple than anything I’ve ever learned about in school. My spreadsheet has 4 rows, 13 columns, and looks similar to this:

It’s such a simple chart, you could just draw it out on a piece of Notebook paper. (But then, you wouldn’t be able to put in a formula to calculate your Net Income.)

At the end of each month, I add up all my paid invoices and all the expenses I’ve paid. Then, I subtract expenses from income to get my net income – that’s how much money I made that month. I try to generate income two months in advance of spending it. For example, what I make in October is what I pay myself in December. It gives me peace of mind knowing the bills are covered for the current and next month.

Writer You Are, Accountant You May Not Be

Of course, DIY accounting is not for everyone. Some of us need accountants and there’s nothing wrong with that. Make sure you get someone who has experience working with self-employed individuals and that it’s someone you can afford. Ask for referrals from friends and family members. When you find someone you like, get a few references to see how satisfied their other clients are.

Making the System Work for You

Doing your own accounting and bookkeeping can be time consuming, especially in the beginning as you’re working out a system. Once you pass that hump, you should be able to cut down your accounting time to 4-8 hours a month. Filing things away during the month makes the process a lot easier than having to spend an entire day looking for receipts and invoices only to spend another day sorting and adding them.

As your business grows, continually evaluate whether it makes sense to continue doing your own accounting or if it’s time to get some outside help.

Are you your own accountant? What are your accounting and bookkeeping practices like?

I hope you’ll give LaToya a warm welcome!

If you have any specific finance-related questions as a freelance writer, feel free to ask them in the comments here or on any of her posts. Even if they aren’t used in future posts in the series, I’m happy to respond myself when I can help or bring in another writer on a one-off basis to tackle specific issues.

I charge all of my new clients in full up front. Most of my repeat clients also pay up front, even for large contracts. It’s not common for me to make exceptions (oddly, only twice now I’ve been stiffed by a client, and in both cases they were long-term clients and not new ones, so I don’t really break them down in that way).

The only times where I don’t charge up front are generally where I either forget (it happens especially with repeat clients where I just get the details and start working, in which case I just send the invoice afterwards), or where it’s such a large project that I offer to break it down into two or three payments (but that would probably never happen for a contract under $1k or maybe even 2k depending on how well I knew the client).

I look at it this way – you pay for a new car up front; you pay for a new computer up front; you pay for your business flights up front; you can pay for your content or copy up front as well. While things are different with magazines, you know that before you choose to get into that area. With other freelancing, your rates and payment terms are completely your own to determine.

There’s nothing wrong with choosing to negotiate case-by-case, but no writer should ever feel pressured to do that (and frankly, it simplifies the admin side of things a lot when you’re a bit more consistent).

For me, specifically, my work can rarely be reused. You can’t get your time back once you’ve invested it into a project. Your client can file Paypal disputes, credit card disputes, etc. so they have options to protect themselves that you don’t. I can’t re-use a press release if a client doesn’t pay me for it. I can’t simply re-use marketing copy I wrote that’s specific to their website. If they want my time, they generally pay for it up front.

Other things to consider are:

1. Your own experience – if you’ve spent years building up a reputation, you have far more flexibility in how you choose to bill your clients.

2. The demand for your time – if you have the luxury of being able to be choosy in the work you take on, you also have the ability to keep stricter payment policies (because if someone doesn’t agree to them, you can turn down the project and take on another).

What do you think of billing clients in full upfront? How about billing just partially upfront? If you don’t bill upfront, why not? Do you think your views would change if you were doing a different type of writing than you are (such as company-specific copy instead of general content that could be sold or used elsewhere)?

Different Ways to Flip a Website

There’s more than one way to flip a website. In some cases, the website is a long-term investment – you build an authority site or high-income site to sell at a high price. In other cases you’ll cultivate a website for a few months (long enough to build a bit of traffic and have income stats to show potential buyers). In a third type of website flipping, you build and then sell the website almost immediately on completion.

It’s the third way of flipping a website that is most relevant to freelance writers looking to build another revenue stream from their writing.

Benefits and Drawbacks of the Quick Flip

Some people look at quick flips as a bad thing. They assume a new site (with no real traffic or income to use as selling points) simply can’t make much money, so it’s always better to hold onto it for a while first.

That may be true for a typical webmaster, but it’s not true for you – a freelance writer. You have an added value in the sites you flip. You have your content.

That said, one of the biggest drawbacks of a quick flip is that, even if you can get a decent amount for the site quickly, you could probably get even more by holding onto it for a little while. Another downside of flipping sites (specifically for freelance writers) is that you’ll often get less overall than you would if you sold the content on that site separately (through unique and custom sales to clients).

Despite those two negative aspects, flipping websites can still be a great extra income source. Why?

• A quick flip can put money in your hands fast (often in a few hours to a few days).
• A quick flip doesn’t require much of a time investment in marketing (link-building, traffic generation, etc.) or monetization.
• You can create and flip website on your own time and in any niche that you want. While you can get more for a site where you’re offering expert content, they can be a good way to dabble in new niches as well. You don’t have client deadlines, or have clients deciding on the specific content – they buy it as-is.

Whether you have a slow day or two without much client work, or an extra half hour a day you’d like to start monetizing, you can flip a site and earn some extra income.

The Site-Flipping Process

We already mentioned that there are different ways to flip a website. Now let’s look at the easiest process when your primary value is your content (then we’ll talk about things you can do to increase the value to potential buyers if you want to).

1. Choose a niche. - Ideally, you’ll want a niche you’re an expert in to some degree as well as one with a solid potential demand from buyers (like a typically high-paying niche).
2. Register a Domain Name. - When building a site for authority value in the long run, I consider it vital to look for a brandable domain name. However, for quick flips I’ve had the most luck going with search engine friendly / keyword-rich domains. This tool may help you find one (use the word search tool).
3. Get Web Hosting. - You’ll need to host your website(s) before flipping anything. In some cases, you’ll transfer the hosting account to the site buyer. Personally, I don’t operate that way (just an added headache). I use one shared hosting account when setting up sites to flip (or new sites of my own being developed), and I transfer the files and database to the buyer for them to host on their own account. I find this easier and more cost-effective when flipping more than one site. But do whatever you’re more comfortable with.
4. Setup the Web Site. - You can set up pretty much any type of content site that you’re comfortable with, from a static site to something on a content management system (CMS). I always set them up on a self-hosted WordPress blog. It makes for a relatively easy transfer (and there are a huge number of templates / themes out there you can use). A blog format also means you don’t have to create a homepage in addition to your content pages – it’s dynamic. I also always use free themes when flipping a site. Why? Because the value is in the content – a custom design would be an up front cost that then also has to be accounted for in your selling price. I find it easier to base the price on the content (and sometimes the domain if it’s a particularly good one), and then let the buyer swap in any theme they want. That said, I try to make sure it’s a decent theme, not overly basic or over-used, and I generally make a few design changes (color changes, add a logo or header image, etc.).
5. Write the content. - Pretty self-explanatory, right? You know the niche, the site’s setup, and now it’s time to create the content. Write your articles. Make them unique. Make them worth buying. Make them on par with (or better than) your work for clients. It’s also a good idea to incorporate advertising into the site or blog when you add the content – even if it’s not earning money yet, you want buyers to see how it could.
6. Sell the site. - You can sell your sites anywhere you can find potential buyers. Personally, I sell them at a webmaster forum. You can set a price, or run an auction – I suggest running an auction (you choose the starting bid, bid increment amounts, and set a buy-it-now / BIN price for an instant close to the auction). Going this route, I’ve sold sites in anything from a few hours to a few days. It helps if you sell them in a place where you’ve already built a reputation.
7. Transfer things to the new owner. - When your sale or auction ends, you can choose to transfer files first or have the payment sent first. My usual policy is this – I’ll send them a copy of the files and database up front, but they don’t get the domain name transfered (and I don’t pull my site down) until they pay in full. This way, even if they don’t pay and try to essentially steal the content for their own site, it’s just duplicate content for them and there are things you can do to have that stolen content pulled down (I’ve never had this happen fortunately). The last thing to do is to transfer the domain name to the new owner (you’ll need to check with your domain registrar on the process – it’s a bit different with each one – know though that you generally can’t transfer to a new registrar if it was registered within 60 days, so you can only “push” it to an owner who has an account with the same registrar).

How Much Can You Make?

I mentioned that one of the drawbacks of flipping websites as an income stream for freelance writers is the fact that you’ll likely earn less per article than you would if you had spent the same amount of time on client projects.

However, quick-flips can be an excellent source of “filler” income – when you need to kill some time, just want to try something new, or simply want a break from your typical routine.

It’s tough to give you an exact estimate, but with the half dozen or so sites that I’ve flipped, I’ve sold them for anywhere from $75 to $450 (sites I spend no more than a day putting together between the site setup and content creation). I’ve seen many sell for less than $75 (generally from people who don’t have the luxury of putting added value on their content). The exact price you can get will depend on a few things, including:

• How much unique content is included.
• How old the site and domain are (traffic, revenue, etc. will play a role on the higher end sometimes if you’ve chosen to hold onto it for a while).
• How much you normally charge to write unique content.
• Whether or not you’re a niche expert / specialist.
• Your reputation in the community where you’re holding your auction or sale.
• Whether or not your domain name is good enough to add extra value.

Why would your normal freelance writing rates matter?

Easy – because people are looking for bargains. For example, when I was flipping a few previously, I charged a starting rate of about $.35 per word for most unique content in that niche. Many webmasters in that community couldn’t afford to hire me to write custom content for them. But because I offered a price on the site being flipped that would be a big discount on my normal rate, it became affordable. I didn’t earn as much, but they didn’t have the luxury of choosing the content, asking for edits, etc. – at the same time, I earned some money for sites I didn’t feel like keeping and maintaining on my own, and they got affordable professional content from an expert in a decent niche (which they couldn’t have otherwise afforded). That value completely outweighed the fact that the sites were relatively new, had pretty much no traffic, and no declared earnings during the auctions.

That said, if you normally charge $100 per article, you’re going to be able to get more for your flipped sites than someone who normally charges $10 per article. Let’s say in both cases, the writer is offering a site with ten unique articles. The asking price is $300. Buyers aren’t going to be attracted to the site by the lower-price writer here. Why? Because it’s still three times cheaper to hire the writer to put together exactly what they want instead. However, it’s a 70% discount over unique content from the first writer – that’s a more attractive proposition for the buyer (and relatively quick money for the writer – again, I suggest this as “filler” income and not a replacement for client work if you have a full schedule – do it during some free time or slow periods).

Adding Value

You can better your chances of getting a decent price for your quick-flipped sites if you do a few things:

• Choose a niche that’s in-demand.
• Choose a niche with high-paying keywords.
• Use those high-paying keywords in your articles (especially in the titles).
• Include on-site SEO (add meta descriptions and keywords, cross-link related content, etc.).
• Build some incoming links (you could do something simple like setup a Squidoo lens even – and include that lens with the article price).
• Don’t sell until it’s indexed by search engines (my sites are usually indexed in 2 – 3 days – if you want it to happen quickly, get links to it).
• Spend some time in a community with buyers before trying to sell something to them – the more they already know about the value of your content, the more likely it is they’ll be interested.
• Age the domain. While the site can be quick-flipped in the end, it can be a good idea to register the domain name earlier, and let it sit before building and flipping the site (better yet, let it sit with a page of content, and it may pick up natural backlinks, search engine traffic, and Google PageRank before you complete it for sale).

Have you ever flipped websites to earn some extra money as a writer? If so, share some tips of your own for those new to flipping websites and blogs.

Books

Sure. Most bloggers won’t ever convert their blog content into a published book, but it is a possibility if you feel inclined to pursue it.

You can go several routes here. For example, you might decide to self-publish a book by combining your best blog posts. Another option would be to pitch publishers on a book closely tied to your blog content, but not using your existing posts (or editing them a good bit first).

Columns

You’re already used to writing regular resources within your niche. Why not pitch a column to your area’s newspaper or even a larger website? You may be able to get a paper to purchase print rights to existing content you’ve written, or you may decide to offer completely fresh content (especially with larger publications).

E-books

If you can turn your blog content into a book, you can also turn it into an e-book. E-books are a great way to pull together your best content, edit it to improve the flow, and then market your blog or earn a bit of income. This can be especially useful for assembling beginner-level content (for example, if you run a blog on freelance writing, you might pull content directed at beginning writers, without including posts targeting more experienced writers – a sort of “how to get started” guide).

Reprints

There are plenty of websites, e-zines, and other outlets who would be interested in re-publishing your existing content. You can use it for promotional purposes by offering it for free (with a link to your blog), or you can sell reprint rights.

Have you done any of these things to get more mileage out of your blog posts? How else can you get more from your blog?