(This is the 8th post in a 9 part guide, please read them in order)
You’ve made new-found money as a real estate agent!
It looks like you’ve been plugging away at your business and some big commission payments have rolled into your bank account. You’ve never seen so many digits before. Congratulations!
Many agents make the most crucial mistake in their business at this point and that’s thinking: I’ve finally made it! (somebody call a press conference!)
Wrong.
You may have closed a few deals, but you certainly haven’t built a complete business yet. Sales does not equate to business mastery, and commission does not equal profits.
Whatever you do, risk the urge to start shopping for that Mercedes and stay clear of the Louis Vuitton store.
Being smart with your money from the beginning will help you develop a proper money mindset and build a real estate business that has longevity.
Lets break down what you should be doing with your money.
- Open an additional bank account with your bank. Every time you get paid a commission, immediately transfer a percentage to this separate bank account for tax purposes and do not touch it. Depending on where you live and how much you earn, this could be anywhere from 30% – 40% and will be used to pay for your income tax, business tax, self-employment tax, and any other tax you have an obligation to pay. Whatever happens, DO NOT spend this money.
- Open one more bank account that you will use for savings, and transfer 20% from every commission you earn into this account – this is you paying yourself first before you spend any money. This can be a savings account or a pre-authorized contribution into an investment that earns you interest. On dry months where you’re not closing any deals, you’ll get a tremendous amount of satisfaction knowing that you’re not totally broke because you have savings to your name.
- You’re now left with approximately 40% – 50% left in your checking account, and THIS is the money that you are allowed to spend. Remember, this amount is what you will use to pay your expenses, allow you to enjoy life, and reinvest back into your business.
By looking at the amount you have left to spend, you’ll notice that you won’t have much left if you have to pay your rent/mortgage, bills, food, entertainment, and set aside some to grow your business.
What are good ways to spend money and reinvest back into your business?
- Hire a coach or mentor to guide you one-on-one
- Farm and become an area expert
- Take paid courses to upgrade your knowledge and skills
- Pay for effective methods of advertising to get more clients
- Add more services to your marketing plan for listings
What you don’t want to do is to get into real estate just so that you can carry a debt of extra expenses like a new car or a bunch of fancy vacations. This is an incredibly difficult hole to dig yourself out of, and you’ll spend many end-of-months stressing over paying your regular bills.
In entrepreneurship, controlling your unnecessary spending in the biggest key to surviving. What a lot of people don’t tell you is that many seemingly successful salespeople are barely scraping by and are often fighting massive amounts of debt. Don’t be one of them.
Your ego is going to be your biggest monthly expense if you don’t keep it in check. Even if you have a good year and earn more money than you ever have before, maintain your standard of living and continue to strengthen the systems in your business. Avoid vanity purchases.
If you’re going to spend money, make sure it’s on important things that can improve your business. Don’t be cheap when it comes to paying for tools and resources, systems, or mentorship that can directly improve your sales.
We’re almost there! Lets go to Level 9: Scaling A Real Estate Business That Stands The Test Of Time