Dollars & Sense — Maintaining a Budget on Commission

Most real estate agents agree, one of their favorite aspects of being a REALTOR® is not having a ceiling on their income potential. However, because real estate is not a 9-to-5 job with a predictable paycheck every two weeks, many agents find themselves in feast-or-famine mode and come up short while waiting for their next commission. This is especially true for newer, less established agents, but it can happen to long-time agents as well. Here are several tips to to help real estate professionals avoid being cash-strapped during slow periods.

Determine Your Baseline — Total up all your monthly bills and living expenses so you know exactly how much money will be going out every month. This way you’ll know the minimum you need to make or save to carry over from the previous month to cover the basics.  A REALTOR figuring out his budget using a calculator.

Avoid Relying on Credit — When you’re waiting for that big commission to come in, it’s tempting to charge up your credit cards with the intention of paying them off once you get the funds. But a lot can happen between now and then. If you end up with credit card bills you can’t pay off right away, you will be accruing interest charges and always chasing that next big payday to try to catch up. Keep credit card use to a minimum and if you do use them, have a plan in place to pay them off quickly.

Start Saving for Emergencies — Having a cash cushion to fall back on will give you peace of mind. Start depositing a portion of every commission into an accessible (but not too accessible) savings account reserved exclusively for true emergencies, such as major medical bills, home repairs, or a long lull between commissions. Having emergency funds in place will help you avoid turning to credit cards if you face a tough month.

Plan Ahead for Expenses — Be sure your monthly budget allows for all types of expenses: fixed, variable and periodic. Fixed expenses are the ones you can count on month after month, such as rent and your car payments. Variable expenses may also occur monthly, but they will be different each time; think utilities and groceries. Periodic expenses are the ones that only happen once or a few times a year, such as car registration, property taxes or purchasing birthday and holiday gifts. Place these on the calendar and start saving for them in advance so you’re not caught off guard when they inevitably come up.

Keep Expenses and Spending in Check — When commissions are rolling in regularly, it’s tempting to overspend. But remember, the housing market depends on a number of factors, many of which are outside your control. If you spend every last penny of each commission assuming there will always be another one, you’re setting yourself up for financial hardship down the road. Go ahead and treat yourself now and then, but be sure you’re saving with an eye on the future.

Budgeting for an unpredictable income can sometimes be challenging, but it’s worth it when you consider the many incredible benefits of a career in real estate. With some planning and care, you will be able to enjoy the good times and sail through the challenging ones.