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A Few Critical Money Tips for Real Estate Agents

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When you’re self employed, YOU are responsible for more than you think.  As an employee, which you may have been familiar with up until the point you decided to become self employed, your employer handled your taxes and social security for you.

Now that you’re self employed, you MUST have a simple roadmap to account for what you’ll owe the government simply for doing business.

Tip #1: Taxes and Crap Like That

When you get your first commission check, or your next commission check, for those of you who have not planned well, you will apply the following formula to the check.  As an example, I’ll use a $100,000 sale with a co-broke of 3%, you being the buyer’s representative, without the broker’s cut considered in the calculations to make round numbers and .

On that $100,000 home, you earn a 3% co-broke, which is $3000.00.  You dance your way to the bank, deposit the $3000.00 and have a jolly old time at happy hour with your clients and friends.

Did you really make $3000.00?  No.  You didn’t, because you MUST set aside a portion of that money for self employment tax and income mcc4tax.  So, a basic rule of thumb for a new agent who isn’t sure what their tax bracket will be would be to put 30% of the gross income in a separate basic, plain jane savings account.  So, on your $3000.00 check, you put $900.00 away for the piper…whom you’ll pay…quarterly.  Isn’t that fun?  Look, self employment tax is 15.3% as it is, and that’s on TOP of your tax bracket.  So do yourself a favor.  Plan according to what you think you’ll make.  It’s nearly impossible to calculate exactly what you will owe, but you can get good at estimating, over time.

Tip #2:  Plan for your annual dues on a monthly basis.

You have annual fees that you pay.  You need to determine how much that annual fee costs you monthly.  Add the sum of the monthly calculation of all of your annual dues together to determine what it costs you per month to have all of the compare motor trade insurace business privileges you have.  If you can be billed monthly on anything, it’s easier to manage your monthly cash flow if you switch.  If you cannot, you need to know what an annual fee looks like monthly.  For example, Scottsdale Association of Realtors bills annually, but it can be expressed monthly.  Figure out that number.

Then, using your business checking account, set up an online transfer that happens monthly for the amount you need.  In the case of a single annual expense of $440.00, you would need to transfer roughly $37.00 per month from your business checking account (account used for business purchases) into a plain jane, separate account designated solely for annual dues expenses.  When the bill comes for the annual expense, you will no longer feel like you’re being raped by the system because you will already have grown accustomed to 1/12th of the amount every month being moved into a designated account just for this purpose…and nothing more.  You cannot borrow from your own account to pay for other crap.  This money is considered spent already.

Every year when I get an annual bill, the money is already there because I move it there in little chunks so it doesn’t seem so bad (that includes things like my annual accountant fee for doing taxes.)  And, every quarter, when I estimate that nasty tax bill, I have the money to cover it and if I’m short, it’s not by very much.

Be smart as an agent and a self-employed person and put money that you earn away or they’ll come get it from you, and that will suck.

Slave to the Lender

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There’s a relational dynamic that many people neglect or aren’t even aware exists when they consider purchasing something with debt.  It’s the master/slave dynamic.  When you borrow money from someone, regardless of the time-frame you’ve agreed upon to re-pay that debt, the debt must be repaid, or there’s risk of bad things happening.

As a consumer, I have a say in what products or services are of value simply by choosing to do business with that company.  In other words, I vote with my wallet.  If I don’t agree with something a company does, I don’t have to use their services.

When you borrow money, something is usually used to secure the loan accompanied by an evaluation of your “debt score.”  In the case of a house, the house itself becomes the security instrument that the lender uses to ensure they’ll get paid.  That is why your rates can be so low.  In the case of consumer credit cards or personal loans, since there’s usually nothing put up for security, your rates will be much higher as the lender shifts the risk to you.  They make more money that way.

Collecting payments from you can be a costly process, depending on the type of loan you’ve taken.  When you buy a house, your payments are typically handled by a company you never chose to do business with.  In 2002, I purchased my home using a mortgage broker who promptly sold the note for my house to Countrywide Financial, who was acquired by Bank Of America who subsequently released the note to Greentree Servicing.

I had no say in the matter except that when I signed my closing docs, I gave consent to this phenomenon.  Perhaps I could have retained more control over who I was choosing to do business with had I refused to these terms, but at the same time, perhaps I would not have closed on my first home.

Now, as a debtor, indebted to repay a loan serviced by a company (Greentree) with whom I would never choose to do business, I am stuck with their garbage services and practices until I either pay off the note, or they release the servicing responsibilities to yet another collection company.

This is one example of how borrowing money can put you into a situation whereby you have no control over who you choose to do business with.  Thus, the borrower is slave to the lender.

Proverbs 22:7 – The rich rule over the poor and the borrower is slave to the lender.

 

How Do I Know if I’m a Millionaire?

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Let’s first define the term Millionaire.  The term millionaire defines someone who has a net worth of at least one million dollars.  To understand this further, one needs to know how to calculate personal net worth.  This is a simple calculation.  Add up everything you owe (liabilities) and subtract it from the value of everything you own (assets) and you have your personal net worth.

If this number is $1 Million, then some would say you are a Millionaire.

Let’s say your net worth is $1 Million dollars based on the following.  You own a home, for example, that would sell today for $4 Million and you only owe $3 Million on the mortgage.  After it sells, you would have $1 Million left over.  Many wouldn’t consider this being a true millionaire because you can’t get to the money without either selling your house, or borrowing against it.

You could have a net worth of $1 Million dollars and hardly have any cash in the bank.  This is not what is meant by being a millionaire.  Many also define being a millionaire as someone who is a “cash millionaire.”

A cash millionaire, after all debts and assets are calculated, has at least $1 Million in CASH in the bank that they could get to today.  If you’re a cash millionaire, then you know that you’re really a millionaire.

Now, get out there, kill it, and drag it home.

Seeing Balance in Your Life

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There seems to be a natural balance to the universe that cannot be averted.  Although we spend many days of our lives wondering why we don’t have balance, the truth of the matter is, we do have balance, but we also have motion.  A see saw with two 50 lb children on either end is balanced, but it may not be level.  In fact, it may be moving up and down and up and down.  Given time they will slow to a stop and all motion will cease.  When one person on one end of the see saw pushes, what they’re doing is upsetting the balance by removing some of their weight just long enough for the other person’s potential energy to kick in and start moving downward.  As soon as the person on the down-side can no longer reach the ground and their full weight is restored to the see saw, then they are once again balanced, albeit in motion.

Our lives are constantly in motion, and one thing that I’ve noticed is that when we manipulate the scale of balance in our lives, whether emotionally, financially, or spiritually, the natural opposing forces will eventually cancel out our attempts and we’ll be returned to balance.

In the case of money, I experienced this first hand, today, as a result of a “push” on the see saw of my finances which happened last August.  I had forgotten about this single event, and the scale that was manipulated has finally come back to balance.  You see, I had borrowed money from myself, and had forgotten about it.

There is a consequence to every action we have which points to the fulcrum of the scale of balance in our lives.  If you borrow money from yourself, you will have to pay it back.  If you go up a staircase, you will have to come down.  You get the picture…I hope.

Eighteen Thousand Dollars to See a Movie?

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Yes, believe it or not, in order for you and your spouse to see a movie and have a soda every week, it will cost you $18,200.00.  Keep reading, and you’ll see how.

How you look at life does not determine whether or not something is wrong or right.  Although, when I consider financial matters, since money and math are synonymous with each other, and math doesn’t lie, the application of a “philosophy” to the way you manage your money doesn’t make sense to me.  I think that any philosophy that gets creative in the spirit of proving math wrong is a flawed philosophy.

One plus one is two.  That’s it.  Just two.  Math doesn’t lie.

Sometimes I like to look at things on a micro scale in order to grab hold of the big picture.  In fact, since I’m surrounded by my world and not outside of it, looking at the big picture sometimes requires an extrapolation of the micro details.

Take the concept of financial security.  In line with everything that I have ever thought, but never applied until recently, financial security means you can cover all of your living expenses using the investment income from the money you have saved.  Financial security does not mean you make enough money every year, because “enough” is relative to how much you are able to live on.  So, enough doesn’t mean anything.  It doesn’t mean that you have $100,000 or $200,000 or $1,000,000 in the bank, although that would be helpful, of course.

Financial security means you can successfully live, all expenses paid (remember, expenses being relative) on 8% of your nest egg (thanks Dave Ramsey.)  By the way, I dont consider Dave Ramsey to be another one of those financial gurus that has a “philosophy.”  I consider him down to earth, mathematically conscious, and full of uncommon sense.  Some of you might say, “old school.”  As far as I can tell, math hasn’t changed over time even though we try to make it change.

So what does living on 8% of your nest egg mean?  It means after you invest your savings in various investment vehicles, predominantly growth stock mutual funds, some of which have a proven long term performance record of around 12% annually, and you adjust for the average 4% annual inflation rate, you end up with somewhere around 8% on the average.  This is a long term plan.  There is no get rich quick without massive risk.

If you live your financial life applying basic formulas to how you manage money, it doesn’t matter whether you have a million dollars or a thousand dollars.  8% is 8% and if you can live off of 8% then you’re doing what you need to do to be financially secure.  Can someone live off of 8% of $1000.00?  Not likely.  That’s only $80.00/year.  So there is a level of realism that you need to incorporate.  But who knows, a majority of the world lives on less than a dollar a day.

On a micro scale, if you apply this nest egg rule to your money before you spend it, you can figure out how much you need to put away so you can continue your habits without needing to work.  What do you mean?  Let’s go uber micro.  Let’s say you and your wife enjoyed going to a movie once per week.  Your ticket price is $9.50 each, and you both slurp down a large, overpriced concession each time, at a cost of $4.50 each.  Your total cost to see that movie is $28.00, plus the ignored costs of time and gas to get to the movie.

So now you can ask yourself, “eight percent of what equals $28.00?”  The answer?  $350.00.  Eight percent of $350.00 is $28.00.  Since you go to the movies once per week, in order to be financially secure in this transaction, in other words, in order to see that movie “free of charge,” as your money works for you, you’d need to have a total of $18,200.00 invested in growth stock mutual funds averaging 12% over time.

It’s interesting to look at what you’re spending, then determine how much you’d need to have to cover that expense without working.  We will so often look at how much we have and then wonder what happened to it after it’s gone.  Start looking forward with your finances.  Considering that you’d need $18,200 in the bank to cover this one single activity may help you make some changes in how you spend.

Credit Scores Are For Losers

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Okay, so that’s a pretty bold statement, I’d say. It may be down right offensive to some, because of the time and effort that you may believe you need to put into making sure you have a high credit score.

But what is a credit score for, and what type of institution are you dealing with that bases your integrity and credit-worthiness on some sort of mythical imaginary manufactured number?

Lenders.

If you haven’t figured out by now, when you own someone money, you become their slave.  Proverbs 22:7 isn’t just a verse in the Bible.  If you’ve got any sense whatsoever, you’ll see it as a truth, whether you believe in God or not.

The rich rule over the poor, and the borrower is servant to the lender.

Does it have to be spelled out?  Debt is bad.  All debt is bad.  Debt represents a purchase of some sort that was made because there was no money to actually buy whatever it was.  Debt will enslave you.  Some of the world’s smartest and brightest people may try to pitch to you the idea that debt is a tool used to get ahead, but I can assure you, this makes no sense in any way, shape, or form.

In fact, it is the reason our economic awareness is where it is right now.  We are in the midst of turmoil in the economy due to DEBT!  If you have a better explanation, I’d love to hear it…so I can laugh, and point out that you’re wrong.  I apologize if I sound arrogant, but I am 36 years old, and debt has never been a source of prosperity in my life.  It has always brought me down, and most recently, it has also brought down a very large number of my friends whom I love dearly.

When Do You Need a Credit Score?

When do you need to borrow money?  That’s your answer.  If you haven’t figured out by now that saving for what you are intending to purchase is the best choice, then stop reading now and go somewhere else, because I no longer, nor will I ever camp on the side of those who believe that a credit score is important, and I will not borrow money anymore.

If I never borrow money, I’ll never need a credit score, right?  But what about buying a house?  What about it?  If you must buy a house, borrow as little as possible, and do it for the shortest period of time, and as Dave Ramsey continually preaches, don’t take on more than a 15 year fixed mortgage and don’t let your payment exceed 25% of your take-home pay.  But we won’t be able to get the house we want!  Sorry.  That’s right.  You won’t.  Start saving until you can.

The longer you go without borrowing money, the lower your credit score will fall.  Do you care?  If so, why?  Ask yourself these questions and consider how much freedom you may experience when you employ the behavioral disciplines that are required to persevere through your impatience towards a savings goal.

You will, I guarantee, come out ahead EVERY TIME when you save for what you want instead of depending on your credit score to get you into DEBT!  Debt SUCKS the life out of you.  It destroys your spirit and makes you feel trapped, but only as long as you continue to have a mindset of borrowing.  Change your ways and you’ll find that even though you’ve gotten yourself into a deep pit of shit, you’ll be on your way to digging yourself out.  Do not borrow any more money.

If you haven’t heard about or read Dave Ramsey’s The Total Money Makeover: A Proven Plan for Financial Fitness, I would recommend the best hydraulic rowing machine to you immediately.  The audio book is fantastic, and if you have iTunes, you can download it for half the price that Amazon charges for paperback, then stick it in your iPod and listen to it in your car or on your walks, rides, etc.

My life has been completely changed by these teachings and principles and I AM on the road to financial freedom.