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Seasonality is a fact of life in the real estate industry, and your work schedule likely mirrors this cyclical trend. In fact, NAR data has shown that 40 percent of an agent’s annual sales volume occurs within a four-month period (May, June, July and August).
So, what does this have to do with your personal finances? Well, a chain reaction of events occurs that makes it vital that you make impactful financial decisions in the midst of your heaviest workload of the year.
Since 40 percent of sales transactions occur during the summer months, that leads to 40 percent of your annual income being generated within that time. This leads to your need to decide how to best deploy that hard-earned commission income right in the middle of your busiest time of year.
This is the biggest financial hurdle real estate agents must face, and these are the two biggest pitfalls I see agents succumb to:
- The most common scenario: You spend so much time on your business, serving your clients at the highest level, that you simply neglect decision-making around your personal finances. You pile up a mountain of cash in the bank but never put it to work.
- Less common, but we see it: Same work ethic and business drive as scenario No. 1, except instead of piling up cash in the bank, you end up spending in line with whatever comes in.
Keep in mind that neither of these scenarios occurs purposefully. Rather, they occur due to a lack of information available to help agents make informed decisions around how they will manage their hard-earned commission income.
This is where your ability to leverage fintech steps in to provide you with the information and tools you need to make financial choices in real time. Let’s dive into the fintech tools that will have the highest impact on your ability to succeed in managing your finances.
The ability to view your net worth on demand
To make a tactical financial decision about deploying your commission income, you must know where you stand today. It is not uncommon to have many financial relationships with banks, credit cards, mortgage companies and investment firms, leaving your net worth values scattered over a multitude of account logins.
The solution? Data aggregation software, which allows you to link a read-only data feed to one central hub so you can view the balances of all your assets and liabilities in one place.
The result of data aggregation is a live net worth statement that can quickly show you the landscape of your financial life. With this information in hand, you can quickly determine if you are meeting benchmarks for various areas of your financial life and which categories you should add to. A great example of this is your emergency fund.
Let’s assume your target emergency fund is 12 months of living expenses held in cash, but you utilize a couple of banks for various checking accounts and a high-yield savings account to maximize your interest.
Data aggregation software will add up the total of all your cash accounts, giving you the ability to quickly decide if you are overweight on cash in your net worth and would benefit from deploying the money to other areas.
If data aggregation sounds like a tool that you could benefit from, here are a couple of the most popular options:
Or, if you work with a financial advisor, they will have their own software that takes data aggregation a step further by allowing them access to collaborate with you on your data. RightCapital is a leading provider of this technology.
The ability to manage your cash flows
The ideal strategy, and corresponding tech tools, for managing cash flows heavily depends upon your stage in your real estate career.
For top producers
If you are a top producer, I 100 percent believe you do not need a budget, and here’s why: It takes far too much time, and your time is far too valuable. But here is what you do need: a backward budget. As the name suggests, backward budgeting takes the traditional concept of a budget (setting forward-looking spending limits for various categories in your life) and flips it on its head.
Instead of planning where your spending happens, you plan where your investing happens, and you systematically do this first. As a result, where your spending occurs becomes irrelevant because you know you are already on track to hit your financial goals based on your investing habits.
Now, here is where the fintech comes in for top producers: knowledge. Just because you are not forced to spend a certain way to make ends meet doesn’t mean your spending habits do not impact the quality of your life. The more in line your spending habits are with your values, the greater the happiness you will experience in life.
Here are a few examples:
- Enjoying traveling? Spend the money seeing the world.
- Kids are the top priority? Fully fund their college costs.
- Impacting your community is a goal? Maximize your giving to the organizations you love.
- Fortunately, the same tech that allows you to view your net worth on demand will also aggregate your spending across all accounts (banks, credit cards, etc.).
- With the breakdown of where all your money is going at your fingertips, you can direct your capital to what matters most in your life.
- But without knowing where it is going in the first place, your ability to fully fund the areas of highest value in your life will be a guess at best.
For new agents
If you are a new agent, first of all, congrats! You are in for a very fulfilling and potentially lucrative career. But getting started in the real estate industry is not for the faint of heart, especially when it comes to your personal finances.
For this reason, you must take the opposite approach to your budgeting as you build your business since every commission check must be maximized. Remember, a budget is forward-looking, meaning you tell your money where to go as each commission check comes in.
There are a couple of great tech tools for the forward budgeting approach:
Both tools offer mobile apps that allow you to plan on the go—but know that you will get out of these apps the effort that you put in. They cannot be put on autopilot as the backward budgeting approach allows for. Utilizing either app gives you the structure to succeed in your budget, but you must take an active role in adjusting and monitoring to keep on track.
That said, with the right tools in hand and your determination to succeed, you are headed for financial success. The ability to switch over to the backward budgeting strategy will present itself as your business grows.
The ability to automate money movements
Now that you know exactly where you stand in your finances and how you are managing your cash flows, it’s time to automate your money movements. While this isn’t a flashy new technology, it is largely underutilized.
Systematic investment plans are an essential piece of a backward budgeting strategy. They ensure that even if your attention is spent on your business, your personal financial goals are still being achieved in the background. Almost all financial institutions allow you to set up a reoccurring transaction to occur at the same time at a variety of intervals.
Say your financial plan success requires you to invest $24,000 into your Solo 401(k) for the year. You can simply select the date of the month you want this transaction to occur, and $2,000 can be automatically invested into your retirement account each month.
This simple technology helps level the playing field between self-employed Realtors and their friends in the corporate world who enjoy this equivalent via payroll deductions into their company 401(k) plan.
Knowledge and systems
As you can see, fintech has come a long way from excel spreadsheets that require the manual entry of tracking every penny. Top Producers can instead leverage the next generation of financial technology to increase their knowledge of their own personal finances and automate the busy work through systems.
Because just earning a high GCI isn’t enough to build wealth; it’s how you deploy your GCI that determines your financial success. So, while the burden ultimately lays with the agent to take action, don’t sleep on these financial apps that allow you to delegate the heavy lifting and spend more time focusing on landing your next transaction.
Jordan Curnutt, CFP, is a Certified Financial Planner professional for top-producing real estate professionals who want to strategically manage their wealth, optimize variable income, build a balanced net worth, and mitigate what is likely their biggest personal expense, taxes. Reach out to Jordan on Facebook, Instagram and LinkedIn.