Recently, a student in the Ultimate Health Journalism Basics for Nurses workshop asked me how she could figure out “how much” to pay herself as a freelance writer.
I think this question contains a lot of sub-questions and issues, so I’m going to delve into them in this post.
The Real Question is “How Much Do I Need to Earn?”
I think the question here is not “how much should I pay myself” but “how much do I need to earn to replace my nursing income and enjoy a high-quality standard of living?”
Isn’t that what you’re really thinking?
The beauty of becoming a freelance writer is that you have a high degree of control over your salary – and your business expenses and everything else.
So, to figure out how much you need to earn in order to pay yourself, you need to consider both your household and business expenses. It’s that simple.
Here’s how I did it, when I was first starting out.
First, Calculate Your Household Budget
To do this, I first stripped my monthly household budget down to the bare minimum. I tallied up only the bare necessities:
- Student loan payment (the Department of Education waits for no entrepreneur)
- Auto insurance and fuel
(Never, never relegate “savings” to a non-essential category. Setting aside money to pay yourself when the lean times hit is an essential strategy that allows you to avoid going into personal debt for your business.)
Let’s say that hypothetical figure was $3,000.
Then I calculated a best-case budget that included all the bells and whistles, like NFL Sunday Ticket on DirecTV and a vacation fund.
Let’s say that hypothetical figure was $5,000.
Based on these numbers, you could surmise that they mean I would need to bring in at least $3,000 in gross monthly revenue to cover my minimum budget or $5,000 a month to enjoy a nice lifestyle.
Well, that’s close to correct, except…what about my business expenses? What about estimated taxes?
Next, Calculate Your Business Budget
I’ve mentioned many times that nurses turning to freelance writing need to create a real, actual business budget – not just “wing it” on the financial side. The good news is that you can get started as a freelance writer very, very cheaply.
When I decided to freelance full-time circa 2011, I sat down and calculated a bare-bones monthly business budget:
- Estimated tax withholding (consult an accountant to figure out this number)
- Internet service
- Cell phone
- Office supplies
- Quickbooks subscription (though I now recommend Freshbooks because it’s way cheaper)
- Microsoft Office (though now I recommend a Microsoft 365 subscription)
- Fund for a new computer every two years
(At the time, I was covered under my late husband’s health insurance plan. Today, I pay for that plus my internet and cell phone from my business account because those items all are at least partly deductible as a business expense.)
Let’s say the hypothetical figure here is $2,000.
Then I calculated a robust business budget that included funds for attending conferences and buying shiny new objects.
Let’s say that hypothetical figure was $3,500.
Add It All Up
Now we just have to do some math…
To squeak by at a minimal level, based on these figures, I would need to earn $3,000 per month to fund my household budget plus $2,000 per month for my business budget. That means I would need to pull in $5,000 per month in gross revenue to fund everything – and pay myself $3,000.
Using the same calculations, I would need to bring in $8,500 per month – and pay myself $5,000 – to continue enjoying the fine standard of living I’d become accustomed to on my nursing salary.
You Can’t Pay Yourself Money You Don’t Have – but You Can Float Your Business Without Cash
OK, well, those numbers all sounds dandy – or terrifying, depending on your perspective – but what about those months when you only manage to pull down $1,000 in revenue? How do you pay yourself then?
The secret to this has three parts:
- Don’t quit your day job. First, this scenario illustrates precisely why I recommend nurses slowly transition to freelance writing by not quitting their day job, if at all possible. Keeping your secure nursing income while you build your freelance business on the side not only provides you with initial income stability, but it also allows you to…
- Build up a savings fund. When you transition away from nursing by freelancing on the side at first, you can build up a sizable reserve fund – so that you have enough money set aside to calm your nerves when you decide to quit your nursing job and freelance full-time.
That’s how I did it, and it’s how I recommend everybody do it. Look, if you only take on four assignments per month that net you $2,000, you’ll easily accumulate a savings cushion of up to $12,000 (depending on your business expenses) in six months.
Personally, I always, always maintain a six-month cushion of revenue equal to my minimal household budget. This reserve fund gives me peace-of-mind in knowing I can survive multiple bad months, if I have to.
Why a cushion that only covers the household budget? Why not the business budget, too?
Well, the answer lies in the third part of the secret:
- Float your business on a line of credit. Yes, it’s true. I do fund my business with my American Express card from time to time. I launched RN2writer on AmEx. I don’t run up five-figure credit card debts, but I’ll admit that having a line of credit at my fingertips has helped me survive some lean times in my career.
But I never, ever float my household expenses on credit. That’s a sure path to financial ruin. Get in the habit of always paying yourself – not your business – first out of all the revenue you collect. It’s far, far easier and less painful to slash business expenses than to cut your household budget.
The only exception to this rule, for me, is my tax set-aside. I would always fund my tax set-aside before paying myself, if it came to that. The IRS doesn’t take credit cards. Try to avoid dipping into your tax set-aside to pay yourself. Build up that savings fund instead.
How does all this information leave you feeling? Motivated? Terrified? Did I even manage to answer my student’s question?
Drop me a comment with follow-up thoughts and questions!
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