Build a bigger than average emergency fund
Common personal finance wisdom is to save three to six months of expenses in an emergency fund. While this is sufficient for most people, it is not sufficient for real estate agents, freelancers, and other small business owners. As a real estate agent with irregular income, it is important to save much more than the typical family.
Real estate can be a feast and famine scenario. Some months you are a rock star selling multiple homes bringing in multiple big commissions. Other months you don’t have a closing in sight and it seems like your bank account balance is moving too quickly in the wrong direction.
To normalize for this, take a lesson from Joseph and Pharaoh of biblical times in Egypt. During seven years of plenty, the Egyptians stockpiled food and supplies that allowed them to survive a famine that followed for the next seven years. But real estate agents don’t have a prophet here to reveal when the good times and bad times will be, so it is important to always plan and save for the bad times.
I suggest doubling the average advice for emergency fund savings. Instead of three to six months of expenses in the bank, aim to have at least six to 12 months of expenses saved in your emergency fund.
Budget for good seasons and bad seasons
Saving for bad times is an important aspect of weathering the rough times, but to truly master your irregular income as a Realtor it is important to live on a budget. This should be a budget that you follow all year, regardless of your performance at work. With a successful budget, you won’t have months that you feel rich followed by months of feeling poor. Instead, you will find a comfortable level to live all year.
Achieving the perfect budget for your unique needs does not happen overnight. Try a budgeting app like Mint or YNAB to track your monthly spending, then refine over time until you find a good midpoint.
Your budget shouldn’t restrict your spending, it should guide it. And the numbers are not arbitrary, you choose them. A budget is a tool, and it is only as effective as how it is used.
Cut your overhead wherever possible
Every month, you have some purchases that are by choice, like shopping and groceries, and others that are recurring expenses that happen whether you act or not. These recurring expenses, like rent, utilities, and car payments, are the overhead of your personal finances.
Businesses work hard and employ very smart people to help cut overhead expenses for good reason. Even in the bad months, you have to pay the overhead expenses before you can save and deal with other bills.
If you can eliminate those monthly payments, either by getting out of debt or avoiding them all together, you are setting yourself up for the best financial success.
Skip driving the best and newest car
Some real estate agents think they always need the best and latest luxury car to drive clients from house to house. WRONG! Clients don’t care what kind of car you drive. They just want it to be clean, safe, and comfortable. If my real estate agent is driving around in a BMW SUV, I might think they are successful. More likely I will think they are foolish with their money.
Cars do not have to be a status symbol. I paid off my ten-year-old Toyota eight years ago. Assuming a monthly payment of $200, I have saved $19,200. If someone gives me a hard time about driving an old car, I can give them about 20,000 reasons why it was a good idea. I have anti-lock brakes, front and side curtain airbags, and keep my car in excellent shape. And I’m nearly $20,000 richer for it compared to someone who buys a car with a monthly payment or, even worse, leases a car.
You see the best and worst of people’s finances: learn from them
Every day when working with clients, you are focused on their budget, the home they can afford, and how they can get approved through the lending process. This gives you a unique view into people’s personal finances that most professions don’t get.
While it is imperative to keep your client financial information private, you can learn from them. Look for patterns of what your most financially successful clients have in common compared to less successful ones. Odds are, the clients that are least worried about money are the ones that live on a budget and have everything under control. If you can follow that example, you will be setting yourself up for long-term financial success.