Let's be honest - money management is an important life skill for anyone to have, but it's especially handy if you're a real estate agent. Unlike most workers who can rely on regular paychecks every two weeks, you're an independent contractor in a commission-driven profession. You battle against the ebb and flow of the market as much as your own motivation!
This can make budgeting hard - but not impossible! While 87 percent of real estate agents fail in the first five years, those that thrive learn how to get on top of their cash flow. To make sure you're a part of the 13 percent of winners, check in with these money management tips. Whether you're a brand new agent or a veteran who's hit a slump, this advice can help you budget better.
Know what you need to earn
While the median income of a real estate agent is $45,900, this profession seems like it has decent earning potential. But this figure might not sustain your lifestyle.
It's important to figure out what you need to support your standard of living by establishing your monthly cost to live - and work.
To do this, you simply need to find out how much money you spend on the necessities like housing, utilities, and taxes. Don't forget about professional costs as well, including your licence, insurance coverage, advertising, and brokerage fees.
Once you've tallied up all these expenses, you'll arrive at your minimum standard. This figure is what you absolutely need to make to pay the bills.
Think about taxes with every commission
Tax season is a stressful time of year for anyone, but the pressure is on when you're an independent contractor. While salaried workers have taxes taken off their paycheck by their employer, you don't.
You're the boss, after all. The only way you can have taxes and other deductions set aside each paycheck is if you choose to separate your income this way.
Setting up your accounts so that you can deduct taxes from each commission is easy. You can use a calculator like this one to estimate how much Medicare and SSI you'll owe - as well as any income tax on your earnings.
Once you have a good idea, you should set this aside in a protected account, so you aren't tempted to spend this on things that aren't your taxes. If you're able to get a high interest account, all the better as it will compound in between tax payments.
Make saving a priority
Like any good budget, your minimum standards should include savings. Some experts suggest saving 10 percent of your income. They recommend splitting these savings into an emergency fund, debt reduction, a retirement plan, and fun savings - things like a vacation or big purchase.
This advice is largely curated for people with regular 9-5 jobs who can expect a steady paycheck, and who pay into insurance, employer-matched 401(k)s, and unemployment programs that could act as a safety net. These deductions could help them in case of an unexpected layoff, firing, retirement, or medical emergency.
As an independent contractor, you have to string up your own safety net. In which case, you may want to prioritize your savings to cover more than 10 percent.
Victoria Gillespie REAL REALTORS® Federal Credit Union recommends setting aside 20 percent for savings with the intention of creating an emergency fund containing six months' worth of earnings. This will help create a cushion in case you can't work.
Without a safety net of any kind, even small emergencies may be a challenge to overcome. Something like your car breaking down could prevent you from meeting your clients and finalizing deals - yet with no savings, you won't be able to afford the repairs.
Most people will turn to the country's biggest banks for help in their time of need, but these institutions often follow strict policies when issuing loans. They may delay or outright reject your application.
Although you may encounter issues when you apply for a personal loan through a mainstream bank, there are other options. You may be able to secure an installment loan online through a lender like MoneyKey. They offer convenient, fast-acting loans that bridge the gap between paychecks, making it easier to get help when you need cash. As long as you can establish a consistent pay frequency, you may qualify for an installment loan to take on unexpected repairs like a busted car.
These may work as a stopgap until you're able to build up your savings account. You should also check in with these resources to learn how you can start contributing to other benefits and insurance you lack as an independent contractor.
Set realistic goals
Hitting the bare minimum in a volatile industry is a definite win. However, in an ideal world, you'd make more than just what you need to cover the basics and earn what you need to flourish.
Some real estate agents run into trouble when they set goals that don't reflect their minimum standards. They're looking towards the superstars of the industry for guidance - potentially attempting to sell five, ten, or fifteen houses in a single month.
If you can't meet these goals, you'll feel like a failure even when you're hitting your minimum standards. These negative thoughts could convince you to drop out of the industry.
To make sure you don't compare yourself to others in a negative way, set appropriate goals that complement your minimum standard. If you need to sell two houses in a month to pay the bills, set your sights on selling three or four.
The bottom line: be prepared
Realty is an industry that fluctuates; if you expect to succeed, you need to learn how to move with these changes. Start thinking about your money carefully and figure out how you can prepare your finances through responsible money management. With the appropriate budget, safety net, and goals, you'll be in a better position to handle anything that comes your way.
