If you buy yourself a latte every morning on the way to the office or when you head off to show a client a house, prepare to say goodbye to a good $1,000 a year in your hard-earned commission income. That’s about how much buying a latte every workday will run you. Would that money have been better spent marketing your business or getting a professional certification to help set yourself apart from the competition?
That’s the kind of question you want to ask yourself when you sit down to prepare your budget each year, says Victoria Gillespie, director of business development at REALTORS® Federal Credit Union, a division of Northwest Federal Credit Union.
As independent business people, real estate practitioners can benefit from planning their expenses at the beginning of each year just as a business does, Gillespie says in the fourth video in REALTOR® Magazine’s financial planning series, Your Money Matters. That means examining even small expenses like dry cleaning and getting your car washed, both of which are necessary expenses for maintaining a professional appearance but which can be managed through attentive planning. For example, buying clothes that don’t have to be dry cleaned and buying a light-colored car that doesn’t show dirt as much as a darker car can save hundreds of dollars a year in expenses.
One way to get a handle on your expenses is to identify the minimum expenses you need to do your job: office costs and marketing expenses are two examples. Once you have a projected dollar amount for the year, calculate how many transactions you have to close to reach that number. You can do that by identifying your total income from the previous two or three years, dividing that number by the number of transactions you had, and deriving an average commission amount for each transaction. Then divide your minimum expense number by your average commission income to get the minimum number of transactions you need to meet your expenses. Once you know that number, you’re in a good position to look at what you’re spending your money on to see if your dollars spent are getting you contacts with customers who eventually will close a deal with you.
Will the latte help you get there? If not, that might be one expense to curb. Get more on these ideas in the six-minute video above. You’ll find the previous Your Money Matters videos below.