Unique Aspects of A Real Estate Agent’s Personal Finances
Even if you work under a brokerage, you are still responsible for obtaining all of your commission through your work as a salesperson, paying your own expenses, and keeping track of your finances for tax season.
Here's a look at some of the distinctive financial characteristics that define a real estate agent's journey:
👉 Volatile monthly income
Picture a month where you're basking in the glory of a $10,000 commission, followed by a two-month dry spell with zero sales. Welcome to the rollercoaster of agent earnings.
👉 Self-employment dynamics
Your commissions don't just represent your earnings; they're your business's revenue. Setting aside a portion for taxes, including the self-employment tax, is a must.
👉 Business entity crossroads
Hitting a certain income level might lead you to consider structuring your business as an LLC or S-corporation to optimize tax and liability scenarios.
👉 Budgeting for business expenditures
Allocating funds for essential expenses like marketing and advertising is crucial for keeping your business afloat.
👉 Ensuring health insurance
As a self-employed individual, securing health insurance falls on you, with various marketplaces offering options tailored to realtors.
👉 Self-funded retirement
Planning for retirement is a solo mission, with a range of investment options available to real estate professionals.
👉 The separation principle
Maintaining a clear divide between business and personal finances is essential for both sanity and solvency.
👉 Expense tracking
Diligently cataloging business-related expenses is key to ensuring you're not missing a dollar come tax time. Proper organization can turn tax season from a headache into a breeze.
Your Business Day to Day
Personal finance is crucial for real estate agents, perhaps more so than for any other profession, as you must manage both your business and personal finances simultaneously.
Reviewing, tweaking, and organizing your finances is fundamental to optimizing your real estate business.
At Doing Well, we’ll help you construct your financial plan from the ground up, starting with getting your personal budget in check.
- Managing monthly expenses: This starts with identifying and categorizing all your monthly expenses, separating needs from wants, and ensuring your income covers essentials while leaving room for debt repayment, saving, and investing.
- Varying levels of income: As a commission-based entrepreneur, you may have high-earning months and then others with little to no income. The key is to determine your average monthly income. That number should be able to cover your base monthly expenses completely, with extra wiggle room for savings and investments.
- The importance of an emergency fund: Since your income is so volatile, set aside enough during high-income months to cover a portion of your expenses for the lower-earning months. Having a fully funded emergency fund of 3-6 months of expenses or more is a key pillar of anyone's budget - but especially yours. Bonus Points if you can park this in a high-yield savings account that gains interest.
- Managing business expenses: With your base budget in place, it's finally time to move on to organizing and managing all of your expenses. We can help you break down these expenses into unique categories - and navigate between the business and personal ones for tax time.
The importance of splitting up your expenses
Dinner with clients where you not only talked about a potential purchase but also got your favorite dish at that Italian spot? ✅ Business Expense
Your newest online shopping purchase for cozy pajamas? ❌ That’s on you
Navigating the gray area between business and personal becomes tricky and categorizing these expenses complicates things even further.
Even for those items that are explicitly funding your business as a realtor — like continuing education classes, insurance, licensure fees, office expenses, mileage and vehicle expenses, and advertising they can get lost in your monthly bank or credit statements if not tracked.
But why is it so important to split these purchases and expenses up?
❗️Come tax time, money not tracked is money lost, taxes over or underpaid, and even incorrect profit and loss analysis on your business.
This can not only hinder and hurt your personal finances - it hurts your business too, and these two things, although separate, depend on each other!
Planning ahead
Once you’ve got your day-to-day flowing smoothly, it's time to look ahead and plan for the long-term financial needs your business is asking for. These are some essential areas to keep track of.
Budgeting and saving for taxes
Accomplishing this every quarter is important for a self-employed individual. This makes it even more essential to keep track of your income and expenses monthly, as you can’t wait until the end of the year to send your taxes in.
Consider creating an LLC or S-corporation
Keep this in mind as your real estate business expands. Both have benefits including protecting your personal assets, improving your credibility, improving your tax options, and even allowing you to 1099 others who do work for you.
Save and plan for potential advertising/marketing costs
This ensures that you’re prepared when you need them. These costs are what propel your business forward, and having to dip into your personal budget for them can create financial hardship.
Protect your future by investing for your retirement
Most agents don't have employer-sponsored plans. You can open a solo 401K, SEP IRA, or even a basic IRA (Roth or traditional) and supplement these with market investments and potential investment properties.
Protecting yourself and your loved ones with health insurance is just as important.
- Since you are self-employed, you won't have employee-sponsored insurance and will have to seek it out from the private market.
- You may be eligible for discounts through your state-sponsored marketplace depending on your income.
- You can also access the NAR realtor benefits marketplace, made just for agents.
- Remember having health insurance is essential to keep you healthy in the short term, and prevent medical debt, and a bonus might be a tax write-off as well.
Your real estate business is your own to cultivate, and its success lies squarely in your hands. With the right financial plan, you become unstoppable at scaling your business, eliminating all the hurdles that come from shoddy finances.
Doing Well understands the unique financial situations and caveats that real estate professionals face. Unlike generic AI solutions, we provide personalized, human support tailored to the unique demands of real estate agents.
We’re here to help you with
- Building a solid and robust financial plan and budget based on your personal and business needs
- Categorizing expenses and having them organized for tax time
- Insights into your credit and debt situation with your business needs in mind
- Conducting audits of your insurance coverage, business expenditures, and retirement plan
- Offering ongoing support that adapts to your evolving personal and business circumstances
We offer you recurring monthly calls, constant check-ins, ongoing email support, and asynchronous service anytime so that you can worry about your real estate business while we worry about optimizing your finances.
Don't let your finances be the detriment to your business, let them be the fuel to your real estate fire! Doing Well is here to be your partner in financial management that puts you on the fast path to personal and professional success.
