Money Tips: Are You Saving Enough?

Don’t let holiday bills and longer transaction times leave you in a financial hole. Start the new year right by having enough money in the bank to keep your business running smoothly even if a transaction falls through.

January 1, 2007

Working in the real estate business is a lot like riding a roller coaster. Even in a hot market, there are unexpected twists, turns, ups, and downs that keep you on your toes. To keep your stomach from getting that awful drop when a transaction suddenly falls through, you must have a financial safety net in place. Plus, when times are slow, you’ll need extra money for all the critical marketing, prospecting, and customer service a tougher environment demands.

“During the tough times, the salespeople who’ve saved will fare the best,” says Nate Sachs, founder of Blueprints for Tomorrow, a financial advisory company in Scottsdale, Ariz.

By tracking your spending behavior, fine-tuning your budget, and diligently saving, you’ll be on firm ground to grow your business in any type of market. Here’s how to get started.

First, Look at Your Expenses

Before you can determine whether you have enough saved, you must know how much you spend.
Dieters quickly learn that pounds don’t disappear if calories consumed are greater than those burned. Budgeting works the same way.

Know where your money goes. The first step to smart budgeting is to be aware of your spending habits. Track expenses for at least one month — although several months of data will give you a clearer picture, says Brad Stroh, co-CEO of, an online consumer finance portal. Gather and organize receipts and add up the numbers in two categories: Fixed costs—expenses that remain the same each month, such as your mortgage, desk fees, car payment, Internet service, education loans, and insurance premiums; and variable costs—expenses that change from month-to-month, such as groceries, clothing, gas and electric bills, entertainment, marketing, and gifts.

Determine earnings. This can be tough since your commission checks vary, but it’s a necessary step to achieve a balanced budget. Record your income for several months to a year to get the most accurate figure, says Stroh. Then calculate your monthly average. The gap between income and your monthly expenses will tell if you need to cut costs, says Tara-Nicholle Nelson, a broker-owner of Tara Nelson Real Estate in Oakland, Calif. If you have money left over, you’re in the black. If your expenses are greater than your earnings, it’s time to pare back your spending.

Budget for business. At least 25 percent and as much as 50 percent of your gross revenue should go toward business-operating costs, Sachs says. This includes advertising, marketing, technology, business equipment, and other overhead. Then, divide your remaining income into the following categories:

  • Housing — 35 percent or less
  • Transportation — 10 percent to 15 percent
  • Debt and medical — Under 15 percent
  • Variable expenses — Below 25 percent
  • Savings — 10 percent to 15 percent

Set, Revise Goals. Seeing your goals on paper will deter impulse purchases and keep you focused, says Frank Congemi, a financial planner in Deerfield Beach, Fla. Whether you’re saving to fix up a bathroom in your own home, to open your own office, or to jet off to Paris for a romantic celebration, stay focused on the ultimate reward. Write down your goals, periodically revise them, and refer to them if you’re tempted to buy something not on the list.

Use online budgeting tools. There are many free tools online that can help you develop a budget. For example, offers an array of budget templates that leave little room for error., a nonprofit group supported by major corporations, provides free budgeting tips and worksheets.

Save with Discipline

Once you have a firm grasp on your average monthly income and expenses, you can begin to concentrate on increasing your savings.

Pay off credit-card debt. Are you still paying for last year’s vacation? High interest rates take a huge bite out of earnings and potential savings. A credit-card purchase that you don’t pay back immediately may cost three times or more of its original price, says Stroh.

Develop an emergency fund. You need a cushion of liquid funds to cover business and personal expenses for three to six months, says Sachs. This money will come to the rescue if a health problem prevents you from working or if transactions fall through. “Unfortunately because you don’t know when this rainy day may happen, you need to prepare long in advance,” Sachs says. “You can’t harvest what you haven’t planted.”

Make it a monthly habit. In addition to your emergency fund, develop a savings account that you contribute to on at least a monthly basis. Every year, 10 percent to 15 percent of your after-tax dollars should go into a savings account or money-market fund. Have a bank automatically deduct this percentage from your deposited commission checks. Unlike your emergency fund, the savings account goes toward long-term personal finance goals, what Sachs categorizes as “opportunities, contingencies, and investments.”

“You’d use it to buy rental property or a house, take a trip, or open a second office if you’re a broker,” Sachs says. If you’re lucky enough to come into any windfalls — a huge transaction or inheritance, sock away those funds, too, rather than splurge on something you don’t really need, says Stroh.

Anticipate taxes. You don’t want to see your savings disappear after tax season. Calculate how much money you’ll owe in property and income taxes every year. Then set aside funds every month to equal the total amount. That way, you won’t be scrambling when your quarterly tax payments come due.

Follow Smart Spending Guidelines

Think twice before you make a purchase, and think three times before putting a purchase on a credit card. Whenever possible, use cash, check, or a debit card to pay for an expense, says Stroh. The more money that’s left at the end of the month, the more you can squirrel away for your savings or emergency fund. To spend wisely, follow these guidelines for personal and business expenses.

Marketing. Study past results to see what methods are showing the best return on investment, says Patricia Wyrod with Sotheby’s International Realty in San Francisco. To find out what’s working best, ask clients and prospects how they found you, says Nelson Zide, CRB, CRS®, a salesperson with ERA Key Realty Services in Framingham, Mass. Other tips: Consider devoting more time to getting referrals, which involves more time than money, says Zide. Invest in your online presence, and perhaps scale back on print media since more buyer and sellers are flocking to the Web, says Jennifer D. Ames, with Coldwell Banker Residential Brokerage, Chicago.

Transportation. If you need a car, don’t overestimate the importance of a luxury vehicle, Nelson says. Think midsize, clean, comfortable, and good mileage, Zide says.

Wardrobe. Cleanliness and professionalism are key, says Pam Beard, broker-owner, BrokerSouth Properties, ABR®, CRB, Vicksburg, Miss. Nix fancy jewelry and stiletto heels — which are impractical for business and can be pricey, says Zide.

Office space. While it’s fine to pare square footage, don’t give up an office. If you need to cut costs, temporarily rent one on a space-needed basis, says Zide. “You don’t meet your doctor or CPA at Starbucks, do you?” he says.

Technology. Focus on tech tools that bring high returns. Regularly ask providers if you’re receiving their lowest rates. Shop around, and take advantage of membership discounts from NAR.

Client gifts. Get creative with lower-cost thank-yous — lunch rather than dinner, or a cake rather than lunch, says Sachs.

Pat Yourself on the Back

It’s very rewarding to see your savings grow. Just make sure you don’t splurge once the money is there. If you want to reward yourself, forgo an expensive gift for yourself and instead take a friend out for a nice meal and bottle of wine, Stroh suggests. “You never want to reward yourself for doing something right by doing something wrong,” he says.

Barbara Ballinger

Barbara Ballinger is a freelance writer and the author of several books on real estate, architecture, and remodeling, including The Kitchen Bible: Designing the Perfect Culinary Space (Images Publishing, 2014). Barbara’s most recent book is The Garden Bible: Designing Your Perfect Outdoor Space, co-authored with Michael Glassman (Images, 2015).