I recently had to write to very large checks to the IRS and Oregon Dept. of Revenue on April 15. This would not have been such a big deal if I had actually set money aside for this purpose.
I had to use my marketing & emergency fund because the bill was so high. Sure I could have filed an extension and paid a penalty. I could have done installments. But I decided to bite the bullet and pay it because I had 4 deals in escrow that were supposed to close right around the end of April.
And then they all got pushed…
Sound familiar? One sale fail for financing. One postponed because the value came in low. One postponed for lender required repairs. You get the idea.
I need a better plan
I need to budget for taxes. I need to budget for marketing. I need to budget for operating expenses. I need to treat my business like a “business”. I can’t continue to look at my paycheck as income. It needs to be looked at as revenue for a business with only a certain portion set aside as income.
Breakdown of Revenue
25% to taxes
10% to retirement
10% charitble contribution
$500 per closing for listings (each listing costs me about $500 in expenses)
??% for Marketing (I am still working on my marketing budget. I may do a flat fee once I get a set budget)
What is left over is now personal income. Not much right? I will use this scarcity to create a sense of urgency around generating more revenue.
A Monthly Budget for Expenses
In addition to the mindset around setting aside revenue for the various expenses I have, I also need to have a better understanding of where my money is going each month. (So do you, I would guess)
Moving forward, I will average out expenses that are only paid out yearly like NAR dues, Dropbox, etc. That way, I don’t have to stop marketing when I have a series of annual expenses all hit in the same month. For example, NAR dues are due in December. So is a quarterly payment to my MLS, a business license renewal, and the renewal of an LLC. It will be easier to face those payments if I set aside 1/12 of them each month and then have a ledger showing this so I don’t go and spend the money just because its in my account.
The main point to take away from this episode is this: Run your real estate career like a business. You have to know where you money is going and you have to plan for expenses that will happen in advance. You have to be consistent with your marketing efforts if you are going to be successful. If you don’t have a plan for those expenses then you won’t have the funds available to maintain that consistency.
Make a budget. Track your expenses. Get an emergency fund for when those closings don’t happen as planned. Plan where your money is going. Be consistent. And for goodness sakes, set aside money for taxes.