Money - Making the Jump to Full Time Writing, Part 2

Personal finance is a huge topic. And when it comes to quitting the day job and becoming a full time writer, it gets very complicated.

I decided to write a slightly different post than I originally intended because of a discussion going on over on The Passive Voice blog. And I realized that the reason it is so hard to talk about money around writers is because there are so many different goals, and so many different experiences, and levels of experience.

Trying to answer the questions that came up over there, AND trying to set up the topic for regular readers of my blog who don't really give a hoot about any of the arguments about valuation of literary properties may be too big of a task for one blog post. Or even a bunch of posts. I hope I don't lose you all....

Financial independence. That's the goal right?

When you get right down to it, when we talk about writing full time, what we really want to do is quit the day job and stop worrying about bills.

Not everybody cares if you achieve this through financial independence. A lot of writers just want to make a living from writing and are perfectly happy with all the struggling and hard work. They're fine with writing being a real job. They just want that job to be viable.

But that's where writers get into trouble. Because writing isn't a salaried position. The economic model isn't even like manufacturing widgets. You aren't making shoes, which will be made, sold, worn and thrown out. Instead, you are creating a capital asset. You write a book, and then it is sold multiple times.

In other words, it's not a product, it's an asset.

Traditional publishing in the past twenty years has broken the relationship writers have with this ongoing income. Writers write a book, sell it, and then write another and sell it, just like shoes. The publisher wears the shoes and gets the good out of them and throws them out. Writers seldom see any ongoing income from a book.

So writers have a tendency to see books like shoes. They think of the money they get up front as the value of the work. And they think of books as expiring when Barnes and Noble's ordering systems get tired of them.

But books are not shoes. Books are more like savings bonds. Sure if you receive a savings bond from Aunt Edna for your birthday, you can sell it at a discount for ready cash, and buy those really spiffy headphones you wanted instead. But that does not lead to financial independence, or being able to quit your day job.

Publishers and agents may try to convince writers that books are like shoes, but they themselves know better, and once they get your book they treat it very differently. For them, the name of the game is acquiring and keeping assets. The individual deals don't matter, they may be good or bad, but the winner in the end is the one with the greatest asset holdings.

Think about how publishers handle the asset once they've got it:

Do they, like bankers with mortgages, package it up and resell it? No, they don't. If a book were the kind of asset where the price is set by what the market will bear (which is a commodity) they would be doing that. But the value of a book is not in the buying and selling. That's a suckers game and they played the author for a sucker in acquiring it, but they're not going to fall for the same schtick themselves.

The value in an asset like a book is in holding it.

You may think your book will no longer be valuable after ten years. If that were so, then why are publishers in a mad scramble to lock up rights in perpetuity? Just try to get your rights back to old out-of-print books. Just try to get a real reversion clause into a contract these days. They won't do it.

Publishers know that it doesn't matter if that book isn't earning much -- it's still an income stream.

Writers get distracted by short term things like the size of the advance, and whether a book hits a best seller list. And yet a publisher is more likely to give you a bigger advance than let go of rights in perpetuity, and they won't let you get back rights to books which never made a best seller list.

If you want to write full time then the first step is to really understand what you've got.

Now, last week, I said you should not count on your writing to rescue you from the day job. It may sound like what I'm saying now goes against that, but actually I'm talking about why you shouldn't see it as a rescue. Your day job provides wages. Writing does not. Writing is an investment, and investments take a heck of a lot of input before things start paying off. It is very much like a retirement account.

How an investment account works is this: you acquire capital -- assets and cash -- and they pay interest, dividends and royalties. That part is income. If the value of your stocks rise, you might sell off a little to "take profits." That can be considered income too -- although you should be careful with that one. The thing you don't want is to lose capital. That's a rule of living off investments, never dip into capital.

That means you do not sell off the assets and spend the money. Your savings won't get anywhere if every time you put money in, you take it out again.

Writers have a fantastic advantage over your everyday schlub. Your everyday schlub can't spare the money to save or invest much, so they seldom have assets. But you, Writer Boy and Writer Girl, you have a freaking drawer full of assets. You have a fully funded IRA in your head!

And yet so many of us are willing to simply cash that out for quick gains. And if they can't get the cash -- because they can't find a buyer, they declare it worthless and throw it in the trash.

And when writers are smart about money they tend to focus on being better at selling off the asset. But they still think they are stuck with what the market wil bear, so they tend to take bad deals because it's what is being offered. Meanwhile, publishers don't buy and sell. They just buy.

I was going to talk about investing strategy here, but someone over on Passive Voice wanted specific examples, so I'm going to start with talking about my own situation.

First a little background financially:

I am not rich. Long ago I decided that I wasn't interested in having a lot of money. And I sure didn't want to stop writing just to get money. What I wanted was a sustainable life I could live from now until forever, which involved plenty of free time, plenty of time to write, and a satisfying day job which I liked. My goal is to be financially independent, but not at the expense of my lifestyle. I could be hit by a bus tomorrow, so I live the way I want now.

So before I even consider writing, I deal with my life and money. I have a lifestyle which is easy to maintain on a low income. I've got a healthy IRA, a work-sponsored annuity, a very healthy emergency fund, and my only debt is a low interest mortgage. I'm good for retirement, and I'm now working on early retirement.

And when I look at my writing income, I look at it exactly as I do my IRA.

Around ten years ago or more, I took a look at what was going on in traditional publishing in my genre -- the traditional mystery -- and I saw that it was not financially viable. Advances were appallingly low. But the real issue for me was that you had no opportunity to struggle through on that low income to success later. Every new series I found and loved would be gone within a few books because Barnes and Noble's ordering system didn't like midlist books.

This was particularly devastating for traditional mystery, because the readership in my genre likes LONG series. Most of us like to jump into a series at the fifth or sixth book. Or later. The value of the early books doesn't really take off until the series has gone that far.

So I stepped out of the pool, because it didn't make financial sense at all. I went off and did script reading and screenwriting. I still wrote fiction, but only short fiction for publication. But I really prefer to write mysteries, so I came back to the fold a couple of years ago. I had one mystery in the can, and I was working on another, when indie publishing came along. I thought I was going to save my mysteries for commercial publication, but I started playing with my unpublishable quirky stuff first.

Then I ran the numbers and decided that even an utter failure at self-publishing was better than selling my assets off to publishers.

Have a look:

[Note: I made an entry error in first version of this post -- I said it probably took me 500 hours to write the book, and 500 more to do the rewriting and marketing and such. I meant to say 500 hours total. So I first said I would be better off working the day job, and giving the book away free. With corrected numbers that conclusion is different.]

Have Gun, Will Play might have sold commercially, but the western aspect really turned most publishing professionals off. Odds are it would have taken a heck of a long time and effort to get people to look at it, and when I did finally sell it, I would have been required to revise the heck out of it. I don't remember how long it took me to write it, but since I've been timing myself, I will guess it took 250 hours to write and polish it to my satisfaction. I would expect to put in 250 more on the revisions and marketing and all that.

The average first book advance is $5000. That's ten bucks an hour wages. At the time I was making maybe $17 an hour at the day job. Given that the book was exactly what I wanted after 250 hours of work, I would have had nearly the same result by working the extra 250 hours at the day job and just giving my book away free.

And nowadays I make more money, but the advance is the same, so I would be better off working the day job.

But hey, you can look on a first book as a loss leader. So forget wages. Let's just look at the value of the cash.

Hmmm, before I do that, I have to pay taxes and the agent out of that money. And the publisher will expect me to spend some of that money doing promotional work. So the cash I would get for that book would really be closer to 3000, or even nil. But you know what? I'm going to be generous to the old school thinking and assume that I beat the system and ended up with a full $5000 from the sale of that book.

Remember my goal is to have enough capital to retire early, so I'm going to buy an asset with that money. I'm going to buy half a 30-year treasury bill. T-Bills are not terribly high returns, but they are just about the safest investment, and a good standard for the kind of assets you want in a retirement account. So that's a good baseline to measure an investment by.

The return on a 30-year t-bill right now is about 3 percent or a little higher. The return I'd get on a $5000 investment would be $150-175 a year.

Now let's look at what I've have to do as an indie publisher to make the equivalent return from the asset that is my book.

At the cheapie $2.99 price tag, I'd have to sell about 80 books a year to make that return. If I priced it at $4.99, I'd only have to sell around 50.

I can hear non-investors getting antsy. "But but but, what about the $5000? With a t-bill you get it back after the thirty years, and you may not be able to do that with a book!"

The point of investing is not to buy and sell. The point of investing is to create income streams. When a T-bill matures, you don't go spend the money, you roll it right back into another bond.

"But a T-bill has a guaranteed yield!"

That's right. But that's why it's got a relatively low yield. It doesn't appreciate like stocks, and books, do.

Because of the way bookselling has worked over the past couple of years many writers don't realize that books appreciate in value. The past couple of decades of books have been forcibly expired by the book distributors -- who do better with rapid turnover. But though the history of publishing, books have always been steady, long-term sellers as long as the writer keeps writing. While later books might hold steady, earlier books tend to appreciate in value as time goes on. That's the nature of the beast. When someone discovers your twentieth book, they go back and read your earlier ones.

If you don't believe that, just remember what I pointed out earlier: if backlists aren't of value, why are publishers hanging on to them with such ferocity?

There are a lot of different approaches to money, and the ins and outs of every deal are going to have much much more to consider than the relative value of investment instruments. However, when you are valuing your assets, it is extremely important to understand that they are assets. You can treat them as commodities, and manufactured goods, but you are putting yourself at a disadvantage when you do.

Next week I want to talk about how you figure out what you're going to need (financially) in order to quit the day job. It's probably both more and less than you think.

See you in the funny papers.