As a commercial real estate broker, you can potentially make a lot of money over the course of your career. But the deals you manage can take months or even a year or more to close, resulting in inconsistent paydays for you and your business. This can mean you’re often faced with financial planning challenges—even if your annual earnings are comfortable overall.
Fluctuating income causes anxiety for many professionals, but there are ways to plan around your fluctuating income so you can live with less worry about more security. Planning around an inconsistent income requires organization and a comprehensive understanding of your average earnings, both yearly and monthly. You must also know your business and personal expenses and the amounts you need to save each month to reach future financial goals. And, most importantly, you’ll need to live within your means to make a fluctuating income work for you.
With these things in mind, here’s how you can effectively plan for the future with an income that varies from month to month, quarter to quarter, or year to year.
Protect Your Business
As a business owner, ensuring the health of your business first and foremost is essential. If your business fails, you’ll lose your income (or, at least, the income from your business). Therefore, it’s important to take care of the business’ needs as much as you take care of your own needs.
Average the typical amount of time between your commissions earnings and keep enough money in your business accounts to cover an appropriate number of monthly expenses. Each time you earn a large commission, fund your business accounts up to the threshold you’ve identified so expenses and taxes are covered until your next commission.
For added security, you might want to overestimate the number of months between your average commissions earnings. Erring on the side of caution and saving more in your business accounts now will protect the business if one or more of your real estate deals takes longer than expected.
Create a Personal Income Stream
Once the business is taken care of, develop a sustainable personal income stream for yourself that will cover your monthly expenses and allow you to save for your financial goals. You’ll need to track your expenses for at least six months to get a clear idea of your average monthly expenses. Make sure to factor in savings for future goals, including retirement.
From there, you can design a baseline personal income stream that you pay yourself each month from your business. Paying yourself a monthly “salary”—and sticking to that salary—will help curb the temptation to overspend in months when you earn large commissions and provide you more consistency month to month so you can more accurately plan for the future.
Engage in Tax Planning for Maximum Efficiency
As a business owner, you can be very creative when it comes to saving money in a tax-efficient manner. In fact, you can potentially save tens of thousands of dollars more than W-2 employees if you adopt the right combination of tax-efficient saving methods, including:
- Defined contribution plans such as a 401(k)
- Defined benefit or cash balance plans
- Taxable brokerage accounts
- Health Savings Accounts (HSAs)
Additionally, one of the upsides to owning a commercial real estate business is that you can pay yourself bonuses after large successful deals. Structuring your distributions correctly can lower the effective tax rate for some high-income real estate brokers. Lowering your tax rate means more money in your pocket—and more security for your future.
If you’ve done the above work to cover future business expenses and your own monthly salary, you’ll be in a better position to know when it’s appropriate to take distributions. After all, you deserve to enjoy the rewards of your hard work—when it’s feasible!
Work With an Advisor Who Can Help
At Envision Wealth Planners, we specialize in helping commercial real estate brokers pursue a successful financial future. We understand the challenges you face as your income fluctuates, and we know that engaging in financial planning is an important component of achieving financial success. Schedule a no-obligation introductory phone call or reach out to me at connect@envisionplanners.com or (407) 720.6535 to see how I can help.
About Sean
Sean Gerlin is founder, principal, and a financial planner at Envision Wealth Planners, an independent financial advisory firm founded on the core values of family, honesty, and a determination to be a master of the trade. With almost 10 years of experience, Sean specializes in serving affluent families and commercial real estate executives and brokers, providing comprehensive, customized financial guidance and services for their complex financial needs. Sean acts as a family CFO, managing and coordinating the many moving pieces of his clients’ financial lives. Sean is known for his commitment to building long-term relationships and paying personal attention to each client. He is passionate about helping his clients experience the relief that comes from having organized and well-planned strategies and portfolios, and he desires to help them by shouldering some of the financial burdens they face.
Sean has a bachelor’s degree from the University of Florida and holds the CERTIFIED FINANCIAL PLANNER™, Chartered Financial Consultant®, and Chartered Life Underwriter® designations. When he’s not working, you can find him cooking, eating good food, traveling, coaching his son’s baseball team, or playing golf. He loves spending time with his wife, Nicole, and their two kids, Avery and Will, and entertaining friends in their beautiful backyard. To learn more about Sean, connect with him on LinkedIn.