Seven Financial Habits of Highly Successful Real Estate Professionals
Successful real estate professionals provide impeccable service to clients during the transaction and beyond. These dynamic professionals take it one step further by developing solid financial habits for both themselves and their families.
Habits can have both positive and negative connotations depending on how they impact your life and welfare. Implement these seven habits of successful real estate professionals to improve the flow, structure, success and longevity for both your personal and business financial well being.
Habit 1: Separate Business and Personal Finances.
The number one reason that real estate professionals do not maximize their itemized deductions is that they do not keep accurate records of expenses. Open a business account for all of your real estate income and expenses. Each month, review your business statement to summarize all business expenses. This practice will help protect and prepare you in case of an audit. *REALTORS® Federal Credit Union, a Division of Northwest Federal Credit Union, provides a variety of accounts to REALTORS® which makes separating personal and business accounts a breeze.
Habit 2: Develop and Use a Budget.
Keep a detailed schedule of your expenses, and know in advance what you plan to spend in the coming year. Allocate dollars for marketing expenses and professional development. The old adage, "you must spend money to make money," is absolutely true. Invest in yourself and pursue education and designations that will help you distinguish yourself and create a defining value proposition.
Also, ensure that you have a component for savings. You must save on a consistent, systematic basis to ensure adequate funds for retirement.
Habit 3: Develop and Use a Business Plan.
First, determine how much you want to earn. Using last year's numbers, determine your average sales price. How many transactions will you need to generate your income goal?
Remember that your transactions generate gross income. You must then allow for taxes and all other expenses to determine your net income. Always keep in mind where most of your clients come from. Which expenses lead to the most transactions? Those are your expenses with a high ROI. It is important to determine which expenses are not effective in generating business and then redistribute those dollars.
Habit 4: Hire a Tax Advisor.
This is will be the greatest investment that you can make in your business. A tax advisor will help you maximize your deductions and create quarterly withholdings to avoid any tax surprises. They will assist you in establishing the optimal business entity (Sub S, C Corp or LLC), and they will aid you in the event of an audit.
Habit 5: Manage Risk.
Conduct a complete review of all of your insurance to ensure appropriate coverage is in place. Are you putting away enough money to ensure that you will not outlive your savings? Are your investment choices outpacing inflation? Are you protected against professional liability?
*We can schedule a free review of all your insurance coverage at REALTORS® Federal Credit Union.
Habit 6: Save for Retirement.
With the current state of the Social Security system, it is more important than ever to have a solid, proactive retirement plan. With life expectancy increasing, retirement savings must increase to ensure we do not outlive our savings. With fluctuating incomes, it is imperative to have a consistent, systematic savings plan in place.
How long do you intend to work? What amount of savings do you need to retire at your target goal? How are you saving for retirement? How much are you saving each month? Will that get you to your goal? If you cannot answer these questions with confidence, I recommend you work with a well-trained, trusted financial advisor.
Habit 7: Create an Estate Plan.
I often hear, "I do not have enough assets to need an estate plan." All individuals, regardless of net worth, need a minimum of three basic estate-planning documents:
- Will – states your final wishes and how you would like your assets distributed.
- Power of Attorney – Allows someone to act on your behalf in legal and financial matters should you become ill and incapacitated. This document terminates at death.
- Medical Directives – Defines your medical wishes and tell doctors what life-extending measures you want taken, or not taken, if you are unable to communicate.
Your tax advisor or investment advisor will be able to assist you in determining if a more complex plan is required.
Creating new financial habits can seem tedious at first, but the long-term benefits will ensure that both you and your business have more staying power than ever before. The key to achieving these habits is recognizing which ones you are missing and then attaining the tools to implement those habits.
Victoria Gillespie, MBA, is a licensed REALTOR® in Maryland and VP & National Director of Business Development for REALTORS® Federal Credit Union. For more information on the Credit Union, visit www.realtorsfcu.org.
*REALTORS® Federal Credit Union, a division of Northwest Federal Credit Union, includes a team of financial advisors available to provide real estate professionals with a free consultative review of investments or a starting point for long-term savings.
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