Whether you’re just starting your journey in real estate or a seasoned veteran, you’ll want to continue reading for some valuable tips to help you control your money and not let your money control you!
Planning around commissions
Its feast or famine for a lot of agents starting out. Or, if you’ve been around for awhile and have a steady pipeline of listings then your income may be more steady. Either way, you need to plan and budget around your commissions.
One of the best ways we’ve helped agents do this is by following the 80/20 rule. The rule is simple: take 20% right off the top of your commissions and use the rest for business expenses and to pay yourself. If you save 20% of your income then you’ll have a decent chunk set aside for taxes and anything unexpected that comes up. Just remember, taxes can be the #1 expense for the real estate professional so do some planning ahead of time.
Taxes can be the #1 expense for the real estate professional so do some planning ahead of time!
The next step in the process is to follow a 3-month rolling budget. We know the commissions don’t happen every month when you’re first starting out. And some months you may be “feasting” while others are a “famine”. But over the course of 3 months, you should be able to have a good idea of what your income and expenses are. Setting up a budget can be as simple as using a spreadsheet, or our preferred method is to use easy to use financial software like Xero.
Check out how easy it is to setup and use a budget in Xero:
Following Up and Being Held Accountable
Following a budget means nothing if you don’t ever review it! If you’re going to be successful at controlling your money then you have to review and look at your actual and budgeted income and expenses. We’ve seen professionals be the most successful at this when they have an outside person holding them accountable to their plan. Or, if you don’t want someone else helping, you should calendar a time and place (preferable somewhere different from where you normally work!) and stick to your budget review appointment. Remember, if you don’t treat it like a normal business meeting, it probably won’t happen! We like to mix food and drink in this meeting–that seems to always make something that can be grueling a bit more exciting.
There’s no time like the present
Decide to take control now by following these simple steps:
- Gather your bank statements for the past 3 months so you can see how much you made and spent
- Tally up all your income, and then expenses into categories or “buckets” so you know where your money was spent
- Setup a spreadsheet or budget in finance software. Set realistic goals in your budget so that you can acheive your budget goals.
- Record your business income and expenses from setting up your budget and see how you did for the past 3 months.
- Record your income and expenses often and review every 3 months. Setup a calendar event and stick to your meeting.
- Adjust your budget as necessary for changing costs like advertising, staging, open houses, etc.
If you follow those steps then you’re well on your way to being in control of your finances.
We’ve worked with many real estate professionals so we know what works, and what doesn’t. Feel free to reach out, we’re happy to answer simple questions and be a resource for you. Here’s to your financial freedom and listing lots of properties!Read More