5 budgeting tips that will ensure you have a fighting chance to make your real estate career work.
Independent real estate agents have the challenge of living on an income that’s dependent on the success of the housing market. If you play your cards right, however, there’s no reason you can’t succeed in bad times as well as good. The key lies in knowing how to budget your finances effectively on a fluctuating income.
Here are five tips to get you started:
- Start having a Personal Budget:A great place to start is by getting yourself on a strict personal budget. You can use an Excel spreadsheet so you can make changes easily. List your itemized income opposite from your expenses. From there, it’s simply a matter of cutting your spending until it’s outweighed by the money you’ve got coming in.Since your income as a real estate agent varies from month-to-month, you need to create a flexible personal budget. If you can, use your worst month from last year as a conservative estimate of your monthly income. Or, consider crafting two separate budgets – one for the solid months and another for the leaner months. This strategy can be especially helpful if you don’t yet have an emergency fund built up.
- Get an Emergency Fund in Place:If you don’t already have one, you need to start an emergency fund. This will keep you from racking up credit card debt when you can’t cover all your monthly expenses. With a solid emergency fund, you can cover rent, utilities, and groceries while working to bring in more money. When you receive a big commission, bulk up your emergency fund before you spend a dime.
- Save for the Future:If you’re a sole proprietor like most real estate agents, you may not have a robust retirement fund. You can contribute to a Roth IRA or even set up an individual or solo 401(k) to save for retirement. When those big commissions come rolling in, make saving for the future a priority.That said, it’s important to put away something every month if you can, even if it’s a small contribution like $50 or even $25. Of course, you want to leave your retirement savings alone until you eventually call it quits. But if a major expense unexpectedly surfaces that wipes out your emergency fund, or you have a long run of dry months, you can always withdraw contributions from a Roth without penalty.
- Pay With Cash After Bad Months:Using your credit card when you don’t have the cash to pay it off is a surefire way to dig yourself deep into debt. If you’ve had a string of less-than-stellar months, try to limit yourself to paying cash for all your purchases. Break out that “worst case scenario” budget discussed above, and make sure you know what you can comfortably spend. And, before you reach for your wallet, always ask yourself, “Do I need to buy this?” If you’re completely honest, you might find the answer in most cases is no.
- The key to living well with a fluctuating income is discipline:Implement your monthly budget and stick to it. Don’t overspend when you’ve had a good month or when you’ve just gotten a signed contract (wait for it to close). Being in business for yourself has a lot of benefits, but it’s critical that you devote the proper care and attention to your financial picture. The last thing you want is to have to go back to a 9-to-5 position.