Real Estate Agents: How to Budget with an Irregular Income

Calculator, money, pen and empty lined paper

Being a real estate agent can be one of the most gratifying career choices ever. Helping people find their dream homes while acting as a solopreneur provides the best of both worlds to those who appreciate independence while making a good living.

One of the challenges to working as a real estate agent is learning how to manage on an irregular income of commissions. Some months may be very lucrative and there may be some months where there is no income at all. This may be especially challenging for those just transitioning from a job with regular paychecks but there are some tactics to make this work style work for you.

Determine your baseline.

If you have been an agent for a year or two, one good place to start when determining your budget is to look at the income you had over the last couple of years. You should be able to use those income figures to project a new year, especially if you plan to work as much or more as you did in those years. If you know that you’re not going to be working as much in the new year, you’ll need to dial down the income estimate accordingly.

New to real estate and don’t have a previous income to determine your baseline? Start by making a note of every purchase you make and how much it costs. Review your budgets weekly for at least three months so you can see where your money is going for your business and personal life.

Be sure to keep up to date with the latest housing trends and market forecast in your area. This will help you measure and track your revenue and income goals. Realtor.com and your own brokerage is a great resource that will help you find the latest numbers of home values, median list and sold prices, and overall marketing forecast for your geographic area.

Prioritize your expenses.

As real estate agents, your personal expenses can many times get intertwined with business expenses. Start by creating separate lists for your personal and business expenses. Your personal budget should include all the bills that must be paid each month such as your mortgage, utilities, transportation and food. And be realistic about your food bills. Too many people underestimate grocery expenses and end up shorter than is comfortable.

Credit card bills and other expenses may have to wait to be paid if the month is a short one financially. This doesn’t mean that you can ditch your obligations, it just means that there are things you have to pay to keep your family housed and fed first.

Your business budget should include tracking everything that is associated with building, growing and maintaining your business including gas, mileage, vehicle maintenance, marketing expenses, computer costs, business meals, and desk fees.

Pro-tip: Use separate bank accounts for business and personal expenses. This will not only help you differentiate between business and personal expenses, it will also help with deductions and expenses during tax season.

Get it in writing.

Creating a monthly worksheet will give you a pretty good idea of where your money is going and where you could make adjustments when the commission checks are low. These worksheets are a good place to start and you can revise them to make them more appropriate for you and your family. Free apps, such as Mint, can also be useful in managing your bills and money.

Set up different accounts.

During those months when the commission checks are larger or more frequent, be sure to put as much money as possible into a savings account for unexpected expenses or other items that fall outside the regular family expenses.

You should strive for a household account that holds enough money for a year’s worth of expenses. You can then draw a “salary” every two weeks from this account to keep family expenses paid.

And don’t forget about setting up a tax account to pay for your tax bill each April. Your tax account should have enough funds to cover both federal and state taxes. It is recommended that you set aside 25% to 30% of your income for taxes. Remember, you won’t just be paying an income tax. You must also pay a self-employment tax that covers your FICA taxes—the Medicare and Social Security that your employer would normally withhold from your paychecks.

If you set up these basic parameters, you’ll soon find it easy to manage with an irregular income. One note—give your budget time to work. Don’t abandon it if you didn’t meet all your goals in the first month or two. If you stick to your plan, the projected budget and itemized worksheets will mesh and you’ll be comfortable managing your financial life as a real estate agent.

Make Income Protection a Priority

Without a guaranteed paycheck at the end of the month, and the unpredictability of the real estate market, real estate agents are open to a number of financial risks. Putting money away each month for savings and taxes will help you overcome come this financial risk.

However, other risks, such as disability, can strike as an unwelcome visitor when you least expect it. Unless you’re prepared, the inability to work can put you and your loved ones in damaging financial conditions.

Long-term disability insurance (LTD) can provide you and your family with the income protection you need to bring in money when you can’t work. Rosenbaum Financial is proud to offer the 1099 Advantage Plan, an innovative benefit program designed especially for real estate brokers and professionals.

The plan provides an assortment of group benefits including long-term and short-term disability insurance. The plan is customizable so that any brokerage can be comfortable in offering these benefits. Best of all, the cost to the brokerage is minimal and the monthly cost to agents is often 30-50% less than what they would pay on their own.

Finances can  sometimes get complicated, but a little preparation will set you up for financial success. By budgeting, accurate forecasting, putting away 25-30% for taxes and a minimum amount each month away into savings, as well as having an LTD plan, you will be well protected against the financial risks of an irregular income that one faces as a real estate agent.

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Investment advisory services offered through Rosenbaum Financial, Inc., a registered investment adviser. The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.

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