Money Management When Your Income Fluctuates

The easiest part of being a real estate agent is the dream. The dream of having lots of repeat clients, tons of referrals to new homebuyers, large commission checks and mortgage preapproved millionaires for clients. Now for the reality — being a real estate agent is a series of ups and downs, highs and lows, problems and solutions. When you’re training to become an agent, you probably learned a ton about real estate law, home construction, how to market and how to structure a sale or purchase. But what you probably didn’t learn is how to manage the roller-coaster ride of managing your finances when they change every month. How can you possibly stick to a budget when you don’t have consistency with your earnings?

As a financial coach, I work with entrepreneurs and small business owners all the time who face this challenge. Typical budgets don’t work well when your income fluctuates each month.

The three most common challenges I see are:

1. Inability to Save: Often it seem like you have good intentions around saving but then your commission check comes and it’s eaten up by both your personal and business expenses.
2. Inability to pay off Debt: Again, your intention is to pay down your debt but something always gets in the way of this actually happening. Or you may be in a never-ending cycle of financing everything from furniture to medical bills to your car to exercise equipment. Just because you can afford the payment, doesn’t mean you can afford the purchase.
3. Inability to stick to a Budget: Most people know what their fixed expenses are each month but life is full of unexpected expenses — a major car repair, your niece’s out-of-town wedding or that giant vet bill — and you don’t have the cash on hand to pay for these. Next thing you know, you’re whipping out your credit card or applying for a payment plan.

All of these challenges actually stem from a bigger problem — not having clarity around your money. We live in a world where we charge, swipe, debit and finance everything! We pay our bills electronically, automatically and in increments and all this makes the process of managing our finances as complicated as trying to put together a Barbie Dream House on Christmas eve.

Typical budgeting apps and systems are built around the premise that you have the same amount of income each month and when you’re a real estate agent, this just isn’t your situation. And the stress and anxiety most agents feel around this inconsistent income impacts you professionally, emotionally and sometimes even physically.  You get to the end of the month and can’t figure out where all your money went!

Our grandmothers had the right idea on this. Most of them lived in an era where they paid bills with cash and in-person and financing things was rare. Each month, I’d watch my grandmother put cash in the ‘Rent’ envelope for the landlord, ‘Food’ money in the envelope for the grocer and stick a few dollars in the coffee can she kept hidden away for ‘Emergencies’. She lived a frugal life for sure but when an emergency arose, she always had the money to take care of it.

How to Create a Money Management System

As a real estate agent, here’s an easy way to create a money management system that’s simple, stress-free and takes into account your fluctuating income:

1. Make a list of all your fixed, recurring expenses. Change the due dates on these to coincide with when you get paid.  Most creditors will allow you to choose your due date. If you get paid twice a month, make sure your bills are divided proportionally between the first half and the second half of the month.  If one commission check is typically less than the other, make sure you have fewer bills due during that pay period.
2. Next, make a list of all your non-recurring and variable expenses. These are all the things you pay for annually or quarterly (taxes, for example!) or have changing amounts. Add up all these expenses then divide by twelve to come up with a monthly average that you’ll need each month to cover these expenses. Out of each commission check, you’ll need to transfer money into a separate account so eventually you’ll create a ‘fund’ to pay for these expenses when they arise. I suggest creating a fund at a separate bank so it’s ‘out of sight, out of mind’ and you won’t be tempted to tap into this to pay for drinks with friends or new shoes.
3. The third account you’ll set up is your daily spending account. Determine how much you spend each month on groceries, gas and other small incidentals. Pay for these with a debit card so you can easily keep track of how much is left in the account. No need to track each category on a complicated spreadsheet. These amounts will fluctuate each month and you can ‘borrow’ from one category to spend in another. But when the money’s gone, it’s gone!
4. Lastly, put some money away each paycheck in another separate account for your long term savings, whether that’s for retirement, your kids’ education fund or a vacation fund. The key is to be consistent so I recommend you have an automatic deduction from your main checking account twice a month. By removing this money automatically, you’ll be more likely to stick with this.

What we’ve basically created here are electronic money envelopes! Now your money is divided up into smaller amounts that each has a specific job to do for you. Psychologically, when we see we have a lot of something, we use it freely. When we have a smaller amount of something, we use it sparingly. Same with our money!

By following this system, you’ll become a Money Master, going from financial confusion to financial confidence.  You can stop constantly worrying about money and instead, make it a trusted ally that helps fund your future.