Business and Banking Issues Affecting Realtors
Money management is an essential part of being a successful realtor. Unfortunately, being a realtor doesn’t mean that you get to rely on a consist paycheck. No matter how hard you work on a deal there is no guarantee that it will close and without a closed deal there is no commission check to be had. Some realtors live from one commission check to the next while others make smart decisions to manage their income and expenses. Real estate agents are self-employed and are thus independent contractors that live at the mercy of the market. Sure, there may be credit to use, but if you use up all of the credit before a large commission check comes through, then what do you do? A tough economy can make it even more difficult to survive, ultimately affecting both your business and personal life. Smart planning and saving can help control both stress and debt in order to make money management decisions easier.
The first step that you need to take is to create a monthly budget. You can begin by setting up an estimated amount of what you spend on each monthly expense you have. Everything from a car payment, fuel, cell phone bill, groceries, housing, utilities, etc. Not only do you have the regular vehicle and homeowner or renter’s insurance, but you will also more than likely have to pay for your health insurance as well and be aware of retirement planning. Your spending plan can be pre-determined by setting and sticking to a budget. But as a realtor it’s also important to be frugal even if you have a large sum of money in the bank now, it may not always be there if you experience poor market conditions and/or loss of business.
Next, determine your cash flow. This can be done by comparing your monthly income against your expenses. While some expenses will vary from one month to the next, this will still help you to realize what you need to make on a monthly basis in terms of income in order to meet your fixed expenses.
Perhaps one of the most important parts of being self-employed is to know that you are responsible for withholding your own Social Security and taxes. The last thing that you want is to find out at tax time is that you owe a large portion of income to Uncle Sam and have nothing set aside to pay the tax bill. It’s a good idea to set up a savings account and deposit into the account a set amount or percentage each time that you earn a commission check. You can also work with a Certified Public Accountant (CPA) to determine quarterly payments to the IRS.
It’s a good idea to plan ahead! Consider determining a budget for future years, this way if you have a large purchase coming up you can put money aside for it. Perhaps you are looking to up-size your current home or are in need of a new vehicle in the near future?
Real estate has its ups and downs so it’s important to set aside funds from good business months to utilize in the slow months. Most professionals recommend a goal of having six months’ worth of expenses set aside in a reserve account.
We’ve discussed money planning, but you can’t complete your money planning strategy without having a sound business plan in place to support earning the money. No doubt your business will experience both peaks and valleys in terms of income so it’s important to be prepared for whatever the market may throw at you. Good money management can ensure that you aren’t maxing out credit cards nor lines of credit. The last thing that you want to have is additional financial stress added on top of the day to day business dealings. As the old saying goes, “it’s much easier to go into debt than it is to dig your way out of debt.” As a realtor, you are essentially running your own business and with that comes being financially savvy.