How to Budget As a Real Estate Agent
Whether you’re a new or seasoned real estate agent, budgeting is something that needs to (unfortunately) be done … and done thoughtfully at that. While we know not knowing your exact income can be daunting - the good news is, there are factors that you do know. In the below steps - we outline how you can look at your budgeting in simple terms, based on what you do know.
Step One - Personal Income Needs
Mortgages, bills, and other expenses. In order to maintain your current lifestyle and quality of life, with no major changes - figure out how much money you require in monthly income. (If you are a joint income household, then calculate for only 70% of those expenses, so that it is a more conservative estimate than just knocking it down to 50%.) Thinking of mortgages, utility bills, insurance, car payments, etc. If you aren’t sure where to start, check out Money Crasher's research on how to create a budget for first timers.
Step Two - Figure out your savings needs.
Now that you have your required income, it’s time to think about more. As many would say, “savings and investments aren’t optional for real estate agents”. Because of an inconsistent income, and lack of traditional retirement plan help - you have to work yourself to ensure you are set up for future success. There are three different funds to keep in mind:
Emergency Fund - A general best practice is to have 3 to 6 months worth of expenses (amount being from step one), saved in a high yield savings account. This cushions you if you have a not so great run in sales, or if something else that requires “emergency” funds happens in your life. The good part about this one? Once you have 3 to 6 months worth of savings and feel comfortable with your fund you can stop saving in this fund and move on to the next two types of savings.
Retirement Fund - Without having a pension or sponsored retirement plan, and no matter how much you think you will be a real estate agent forever, it’s smart (and necessary) to save for retirement so you can live as you wish post-working years no matter when and why that ends up happening.
Without us getting into the nitty gritty of funds and tax options (talk to a trusted professional), find a type of retirement account that works best for your needs and contribute regularly. You’ll thank yourself later!
Dream Fund - The fun, but also necessary fund to save! Think about what you want to set aside per paycheck to do the things you know you want to do! Travels, kids at college, whatever it maybe - it’s important to be consistent. Remember: even the smallest amounts will add up!
Step Three - Business Expenses
Not as obvious, but oh so important - it’s time to budget for all the (strictly) business expenses that come into play as a real estate agent. This covers things such as marketing and advertising costs (can’t forget those signs!), closing gifts, ongoing training and education, subscriptions for tools you need and income taxes.
Step Four - Track
The great thing about knowing what you need to spend, is that you then know what you need to make each month. The helpful part about this is the fact that you can work backwards, and be realistics about how that breaks down. If you know you need “x” amount of sales, then you know by working backwards how many leads it typically takes per sale, and how much time it takes to get leads, and therefore how much time prospecting you need to spend.
In addition to working backwards on knowing how much time to spend getting set up for success in the leads and sales department, you should also track on an ongoing basis about what is being earned and spent.
Step Five - Adjust
Did you earn more, or save more than expected? Great - now you can increase some of your investing or marketing! Lower than expected? Maybe new lead generation tactics need to be planned, or you can cut down on some spending in other areas.
Some fluctuation is natural and expected - but by glancing over your budget month by month you know what small tweaks need to be made. Then, once a year it’s helpful to really dive in and go through the process again to see what more major changes need to be made.
Happy Budgeting!
P.S. Be conservative in your estimates - that will make your life less stressful later!