For independent contractors, a slowing market might mean less money. But budgeting is always important since commission checks ebb and flow.
CHICAGO – You may be watching your cash flow during the market slowdown. Use these smart tips to protect your nest egg.
News about economic tumult may be making you feel jittery about your finances. A “housing recession,” as National Association of Realtors® Chief Economist Lawrence Yun characterizes the current market slowdown, may be daunting for real estate pros whose commission checks can vary greatly with the ebbs and flows of the real estate cycle.
Last fall, 37% of agents said they were struggling to pay office rent, according to a poll by Alignable , an online network for small business owners. Real estate professionals, along with other American workers, may not be feeling particularly rich: About six in 10 consumers say they’re living paycheck to paycheck, and about 45% of those consumers earn more than $100,000 per year, according to a late November poll from PYMNTS and LendingClub.
In 2021, Realtors’ median gross income was $54,330, according to NAR data, and incomes tend to grow with more years of experience.
To weather potential business hiccups, financial experts offer 10 money-saving tips:
> Beef up reserves. A reserve account consists of savings to cover unforeseen expenses, which can be crucial during tough financial periods. For the self-employed, a good rule of thumb is to put enough savings to cover six months of expenses into a cash or stable value-type account, says Brian Wiley, founder of Tree City Advisors in Boise, Idaho, and host of “The Real Money Pros” radio show.
Revisit spending habits. Scrutinize your expenses to find ways to reduce or eliminate excess. “This is a good practice in any economy, but it’s even more important when cashflow is limited,” Wiley says. “You might be surprised how much you can save by eliminating extra television services, daily lattes and memberships.” Pay special attention to items like your car or homeowner’s insurance. Drivers who comparison shop on auto insurance, for example, can save an average $1,127 a year, according to a study from CarInsurance.com.
Michael Soon Lee, CRS, GRI, associate broker at Realty ONE Group Future in Dublin, Calif., advises cutting at least $1,000 a month in personal expenses, particularly if you lack three or six months’ worth of savings. Cut back on non-critical spending, such as dining out, gym memberships, coffee shop visits and cable TV, and find more ways to save at sites like AmericaSaves.org , he suggests.
Re-evaluate where you’re investing money. Assess the value of all your accounts like checking, savings, investments, retirement, etc. “Each of these may become critical resources and should be prepared ahead of a need,” Wiley says. “The best practice is to have any money, which might be needed in the next three years, set aside as a ‘cash-like’ investment, such as a CD, money market or short-term government bond.”
On the other hand, stocks are often volatile in an economic slowdown and often require a more long-term growth strategy. So, if you have an important savings goal to fund within a year, choose a more stable investment, like CDs or bonds. “Be sure risk investments are purposeful and are given the amount of time needed to recover before the value is needed,” Wiley notes.
Get smarter about taxes. Work with a qualified tax adviser to ensure you’ve taken advantage of every tax-reducing method available to you and that your business is structured appropriately, Wiley suggests. For example, how much of your income should be designated as W-2 pay (self-employment income)? In some cases, the answer may be all of it, Wiley says. “But in many other cases, the answer is some of it, which leaves the balance to be distributed as a dividend if you are filing as an S-Corporation,” he adds. “This type of strategy could save you lots of tax dollars.”
Wiley says the top financial mistake real estate professionals make is not saving enough for taxes and missing out on savings. “If you do not have a good tax plan, then you are likely paying much more in taxes than necessary,” he says. “I have seen many cases where independent contractors pay 50% more in taxes than they should.”
Create a budget. You’ve heard it before, but now is a good time to have a budget. Too often, “many people discount the concept of making a budget until they find themselves living in lean times,” Wiley says. […]
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