Jacqueline Kyo Thomas
Working for yourself as a real estate agent is a dream come true for the independent, entrepreneurial spirits out there. However, when you're operating your own business, you don't always get a steady paycheck. This is especially true in the early years when you're establishing your business and professional network. But, the bills come every month, whether you have the money to pay them or not. So, it's essential that you manage your money well to prevent any rude interruptions to your lifestyle.
In this guide, we'll share time-tested tips for managing your money as a real estate agent. Use this guide to help you navigate the sometimes choppy and uncertain waters of self-employment.
1. Track your expenses
The first step to managing your money effectively as a real estate agent is to see where your money is going. This allows you to maximize your income and catch any money wasters that could be draining your profits.
Here are a few ways to track your expenses:
Use accounting software like FreshBooks or You Need A Budget. These tools make it easy to see your expenses at a glance. Enter your expenses in the software regularly to discover your spending habits.
Keep your receipts. This tip is essential for all businesses, but especially for real estate. As we’ll discuss later, keeping receipts is important for tax purposes. If you’re ever asked to prove your spending, you’ll have a record in receipt form. And your software may allow you to scan and save a digital copy of your receipts. Keeping receipts will also help you see where your money goes.
Be sure to separate your business and personal expenses. It’s much harder to track your expenses when business purchases are mingled with personal ones. Use different bank accounts and different credit/debit cards.
You can create a list of your expenses, whether it’s in software or by hand. If by hand, grab a notebook and a pen and list out all of your regular bills for the month. Estimate how much you usually spend on rent, insurance, utilities, food, fun, and miscellaneous. Then, track how much you actually spend based on your receipts. This will help you get real about your finances.
Consider hiring a professional bookkeeper or accountant. An accountant can help you manage your expenses. Remember you can hire an accountant exclusively for your business and keep your personal finances separate. Your accountant may also help you when tax time comes.
2. Set a budget and stick to it
Here comes the not-so-fun part: setting a budget.
While a budget gets a bad wrap, it’s not all bad. By spending within set parameters, you’ll have confidence in every purchase you make because you know you’ll be able to afford it.
Here’s how to set a budget and stick to it:
Calculate your expected monthly income. As a real estate agent, this can be difficult to do because your income may fluctuate each month. However, consider other income streams you may bring in from other jobs or investments.
Grab the list of the expenses you created when tracking what you spend each month. This list should include your rent/mortgage, utilities, food, transportation, and business-related costs.
Next, prioritize your expenses. Not all expenses are created equal. It may be useful to divide your expenses into four sections: Needs, wants, savings, and debts.
In the “Needs” category should go all vital expenses, such as rent/mortgage, utilities, insurance, groceries, toiletries, and child care.
In the “Wants” category should go expenses that are nice to have but can be done without if you experience a dry period in your finances. These expenses include dining out, social events, gym membership, and so on.
In the “Savings” category should go to funds that you use to support your future, including your emergency fund and Roth IRA (more on that later).
In the “Debts” category should go any debt-related payments, such as credit card payments, extra mortgage payments, and so on.
By prioritizing your expenses, you can easily see which ones can be reduced or stopped altogether.
Be sure to track your expenses, after you’ve taken the time to set a budget. Tracking your expenses will ensure that you’re sticking to your budget and will identify any areas for budget re-consideration. Remember to review your budget on a regular basis. It needs to be updated whenever your financial position changes.
Set financial goals for your business and your personal life. Be realistic with yourself and set goals that you can accomplish by a specific deadline. Also, be sure to set a deadline, or else the goal may not feel “real” to you. An example of a financial goal is to reduce your expenses by X amount monthly or to increase your income by X amount by a set date. Setting financial goals will help you stay motivated.
Finally, look for ways to reduce your expenses. Unnecessary spending can deliver a death blow to a fledgling real estate agent who’s just starting their business. Get creative with your savings. For example, prepare your meals at home instead of eating out. Shop online to remove the temptation to buy extra food that you don’t need. And audit your subscription services every month to ensure that you’re still getting value out of them.
3. Invest in yourself
The last section begged you to reduce or eliminate unnecessary spending. But this section recommends investing in yourself. What gives?
Investing in yourself is an essential key to your success in real estate. The industry is rapidly evolving and you can’t rest solely on yesteryear’s wisdom for today. If you want your business to grow, you need to spend as much money as you can reasonably afford to invest back into your business. And, because you’re a real estate agent, your business is you.
Here are a few ways you can invest in yourself as a real estate agent:
Attend industry events, such as real estate conferences and seminars. In addition to networking, these events will give you an up-to-date look at industry trends. You can use the information you learn here to grow your real estate business quickly.
Continue your education with professional development courses. No agent knows it all. You will likely benefit from taking a course to develop a skill, such as a client communication, negotiation, or marketing.
Read, read, and read more. Read as many books and industry publications as you can on real estate. Glean from other agents and industry professionals who can teach you smart tips and tricks to get you ahead. And, if you have a library card, you can get many of these books for free. (And yes, the library has the latest books, too.)
4. Save for retirement
You can’t just live for today. You must also save some money for the future, even if it’s a few dollars here and a few dollars there. While you could save your coins directly in a bank, you can also put your money to work for you with investment accounts, such as IRAs.
IRAs are "individual retirement accounts." They're a bit like a company 401k plan, but can be set up by an individual person rather than a company. There are two types of individual retirement accounts: Traditional and Roth. With traditional IRAs, contributions are tax-deductible. This means that you don't pay taxes on the money going into the IRA, but you will pay tax on it when you withdraw the money in retirement.
On the other hand, with Roth IRAs, you pay taxes on the money when it's going into your account. But your future withdrawals are tax-free. Just keep in mind the income limits for Roth IRAs if you are interested in setting one up.
The above options allow you to save for the future.
Final Thoughts
Working as a real estate agent means that you have uncapped earning potential. But it also means that you'll have ebbs and flows in your income, especially when you first start out. Incorporate the above tips to ensure that you're managing your money well as a real estate agent.