If you want to truly build wealth in your business, there are four money management strategies you need to follow.
Do you know how to build wealth in your business?
As far as income potential goes, the sky is the limit when it comes to real estate, but there’s not enough emphasis on what we do with our money as we earn it and how we manage it moving forward. Oftentimes, agents who experience a windfall of business take a vacation or buy a new car to celebrate, only to find out six months later that they’re over-leveraged.
That’s why we at RE/MAX Realty Affiliates work with our agents to craft solid money management strategies. This way, they operate at a business level instead of a financially reactive level. If you want to do the same for yourself, there are four strategies you need to follow.
First, build a personal budget and a business budget. Knowing these two things will help you work backward and figure out what you need to produce to fulfill the obligations of both. Too often, an agent’s budget revolves around how much money they made that month. If that’s how your budget is structured, you’re only putting yourself in a more stressful situation. Also, don’t forget to add taxes to both budgets.
Second, separate your personal account from your business operating account. When you close on a commission, is it just going into your personal account? That’s where everybody starts, but eventually, you have to separate the two. As you close more transactions, you want to consider forming an LLC for greater liability and tax benefits, and having separate accounts gives you a stepping stone to do this.
Third, pay yourself first. Are you paying yourself a salary? As I said, once you establish your household budget, you’ll understand how much you need to make per month to meet that budget. As you produce, all the money goes into your business operating account, and that account pays your paycheck—just like if you were an employee. Your business will function as a business, and your household is funded so you don’t have to worry. It’s a really great motivator, because when business is slow, it’s easy to see what will happen to your household budget if there’s not enough in your business budget to make payroll.
Lastly, stay on top of your savings. As everyone knows, there are highs and lows in our business, and not having a safety net can cause a lot of anxiety. That’s why you should create an emergency fund for both your business and household budget. Your goals should be six months’ worth of expenses for each.
Imagine the freedom you’ll have after you do this. If you’re dealing with a difficult client, it won’t be hard for you to walk away from the transaction due to your reserve funds. You’ll have a better quality of life and a better quality of interactions because you’re not so fearful in your business. Start small—perhaps 10% off each paycheck and each commission—and pretty soon you’ll be fully funded.
If you’d like to know more about building your wealth or you have any other questions for me, don’t hesitate to reach out to me. I’d love to speak with you.