4 Smart Budgeting Tips for Real Estate Agents
Real estate can be a lucrative field, but it’s also one where income can fluctuate dramatically. For real estate agents, mastering the art of budgeting isn’t just a skill – it’s a necessity. Effective financial management ensures not only personal financial health but also the ability to invest back into the business for growth and stability. But with an irregular income, learning how to properly budget can be a challenge.
Try These 4 Budgeting Tips
Budgeting is easy for W-2 employees (technically speaking). The average employee knows, down to the dollar, how much money they’re going to earn on a bi-weekly or monthly basis. This makes it easy to plan ahead and accurately estimate how much to set aside in different spending and saving categories.
For independent contractors and individuals who depend on commission checks, there’s no such luxury. Income can vary rather dramatically from month to month. But that doesn’t mean you get a free pass to not build and follow a budget. You just have to approach it a little differently.
With this in mind, here are several budgeting tips we’d recommend as a real estate agent:
- Budget Based on Last Month’s Income
Most people budget looking ahead. Meaning, they plan for the income they’re going to make over the next 30 days and then tailor their spending to that anticipated income. They’re able to do this because they have a clear idea of how much money will be coming in.
As a real estate agent with an income that goes up and down, the best thing you can do is build your budget based on the previous month of income. In other words, on the last day of the month, you calculate the total dollar amount you earned over the previous 30 days. Then, you use that income to dictate the following month’s budget. By taking this approach, you don’t have to guess what your income will be (which can get you in trouble when a deal falls through).
- Build Up an Emergency Fund
Every person on the planet should strive to have an emergency fund in place to help them withstand those rainy days and months when unexpected expenses arise. However, if there’s one type of person who needs it more than most, it’s a real estate agent on a commission-based income.
You could make $50,000 one month and nothing the next. If you get stuck in a place where you’re living commission check to commission check, well…that’s a dangerous place to be. All it takes is one cold spell combined with an emergency and you’re in trouble.
As a general rule of thumb, you want at least six months’ worth of expenses saved up in a dedicated checking account that you don’t touch. That means if it costs you $5,000 to pay all of your monthly expenses, you want to aim for having $30,000 set aside.
Don’t let a big figure like six months’ of expenses overwhelm you. Start with a goal of having one month. Then make that two, three, etc. Building an emergency fund is a gradual process.
- Focus on Growing Your Income
Everyone always wants to focus on slashing expenses when creating a budget. And, yes, cutting unnecessary expenses is one of the fastest ways to get your budget to align. However, it’s not the only option you have. It’s actually much more powerful in the long run if you can increase your income.
Don’t expend so much effort on decreasing your expenses and pinching pennies that you neglect actively working to improve your skills as an agent and earn more. Find partners and programs, like Housejet, that you can align with to get in front of more leads and generate more clients. This inevitably results in more predictable income for better budgeting.
- Set Aside Money for Taxes
As an independent contractor who isn’t getting taxes pulled from your commission checks, it’s up to you to pay quarterly estimated taxes to the IRS four times per year. Do your research and work with your CPA to ensure you know exactly how much to set aside out of every check (and when to pay your taxes). This will prevent a big (unwanted) surprise come tax season.
Adding it All Up
There are pros and cons that come with every career. One of the pros of being a real estate agent is that you have unlimited income earning potential. However, one of the potential negatives is that your income isn’t always stable from one month to the next. But don’t let this keep you from being a disciplined budgeter. By following the tips above, you can practice smart, common financial sense and get ahead.
