Establishing a Strong Financial Foundation: Essential Strategies for Real Estate Professionals
By Anna Kinney, Chief Product Officer
Maintaining financial wellness can be as crucial as closing deals for real estate professionals. Often juggling multiple transactions and facing unpredictable income streams, agents must adopt robust financial strategies to secure their financial future and optimize their earnings.
On our blog, we cover a wide range of topics aimed at enhancing agents financial literacy and helping you make more informed decisions. From understanding tax implications and managing cash flow to investment strategies and retirement planning, our goal is to equip you with the knowledge and tools you need to thrive in your real estate business.
In this post, we’ll dive into the fundamentals of financial literacy for real estate agents, outlining key strategies and tactics that create a foundation for financial wellness.
Budgeting Best Practices
Your budget will iterate and evolve over time, but the first step is assessing where you are today, where you’d like to be tomorrow, and detangling personal life from business transactions.
Expenses: Gather all your expenses. Simple awareness of how much you're spending on what is a great first step.
Insurance: Health insurance is an expense category, but given the fact that approximately 30% of real estate professionals don’t have health insurance according to the National Association of Realtors (NAR), it merits being called out separately. Health insurance through partners or spouses is an option for some agents. NAR also recently published a summary that describes coverage options available to real estate professionals, which is a helpful resource.
Business vs. Personal. I frequently hear from real estate professionals how intertwined business and personal expenses are on any given day – mileage, business meals, open house expenses, and the list goes on. It’s essential to have an accurate delineation of business vs. personal expenses in your budget. There are some tools to help, which I’ll discuss in more detail later in this blog series.
Short-term and Long-term Personal Financial Goals. Short-term goals are things like saving for a wedding, travel, or home repairs. Long-term goals are typically bigger-picture aspirations that may take several years or even decades to reach. Long-term goals will vary based upon your age and the stage of your career. You may be focused on a down-payment for a house in your 20s, paying off student loans in your 30s, or trying to be entirely debt-free in your 60s. These are personal and unique, but an essential part of your budgeting exercise.
The resources section on Credit Karma has a lot of practical and informative guidance on these topics, specifically things like what categories of expenses to include in your budget and what are typical financial goals for various age brackets.
Understand Your Income
Managing cash flow effectively is fundamental for real estate agents. Since income can be irregular and tied to the fluctuating property market, it’s vital to have a clear understanding of your income.
Deal Flow. Do your best estimate of your deal pipeline for the next year and the predicted cash flow. This isn’t always easy, but an estimate is better than crossing your fingers month-to-month. And make sure you’re only “single dipping” into commissions. Have you ever spent a commission more than once? I know I’ve done that with bonuses. It’s important to acknowledge how easy this is to do and simply documenting how you’d like to spend that well-earned windfall (once!) can ensure it doesn’t result in debt.
Business Goals. Establish your business revenue goals – this is of course unique for everyone. It could be at your current level, or above or below current deal flow estimates. This is when you take a hard look at how your business goals support your short-term and long-term personal financial goals. Ask, do I have enough income to pay myself adequately?
Business Investment. Assess whether you need to allocate additional funds (increase expenses) to achieve your business goals. For example, what business development and marketing expenses will be required.
Supplemental Income. Ensure you’re folding in any additional income. More than 40% of workers in the United States have a “side hustle.” If you have one, include that in your data, as well any other income sources.
Financial Advisor. Do you have a financial advisor on your team? According to a 2023 Harris Poll, 71% of Americans said they've bought a lottery ticket and 24% of millennials said they've spoken to a fortune teller – but only 33% of Americans have spoken with a financial planner. This professional can be helpful with setting realistic goals and aligning income with expenses, particularly with a long-term view. And not all advisors require a lot of out-of-pocket expense for advice, as many are trying to sell commission-based products.
Develop Financial Wellness Routines
Once you’ve established your budget and income baselines, it’s time to set goals for new habits that can bring these two, essentially what’s coming in and what’s going out, into closer alignment.
Agile Budget. Revise your budget to reflect not only current reality, but also aspirations for business and financial growth. Think of your budget as something that evolves as your personal and business goals do vs. a one-time exercise.
Routine Tracking. Establish a weekly or monthly cadence to update financial data to support more real-time decision making and ensure that come April you’re not drowning in the dreaded tax season pile of receipts.
Accountable Partners. Ask yourself, “Do I have time to update my data weekly or monthly?” Using an accountability partner, like an accountant or a bookkeeper, can help you keep your tracking “on track.” [pun intended]
Account Security. Ensure that only you and your accountability partners have access to your personal and business data. There are lots of tools out there for this, like password managers, but first ensure you’re using basic best practices like strong passwords and double authentication for financial accounts.
Please continue to check back on the blog for deeper dives into the above. Here are some related posts to check out:
Helpful Expense Tracker Apps for Real Estate Professionals
Mastering Income Estimation: Tips for Real Estate Agents
Unlocking Tax Savings: Essential Deductions for Real Estate Agents