Hey there, Top Producers. This is Jordan Curnutt, your Realtor-specific CERTIFIED FINANCIAL PLANNER™ professional.
According to the U.S. Bureau of Labor Statistics, the top 10% of Realtors nationwide average $178,000 per year of annual income. That means you make $14K, $15K per month, right? I didn’t think so. Uneven income streams are a very real fact of life for Top Producers.
Today, what we’re going to dive into is two big problems that contribute to uneven income streams and then two big solutions that you can implement in your personal financial plan. Let’s dive in.
The first problem that we’re diving into is seasonality. Really take a look at the data. NAR has a really interesting study back from 2017 that stated in the Western United States, 71% of all transactions for the year occur during peak season—obviously leaving the remaining 29% of the transactions that happen outside of that time period.
As you can see, there’s a pretty disproportionate amount of activity happening during certain months of the year, and then it slows down during other times of the year. Your income is directly correlated with those transactions. So big problem number one is finding a way to overcome the seasonality of the real estate market.
Big problem number two is the commission split. Admittedly, this may not apply to everyone. I realize there are several different business models that can be in place, but pretty regularly, you see a commission split being one of them. As you know very well, there could be a break point involved, so when you have transactions that are happening and you haven’t hit that break point yet, your payout on your commission is going to be less.
If you have those same amount of transactions and total volume, total gross commission income happening after you’ve hit that payout or that break point, you feel it more in your checking account. So those dollars to you at the end of the day are larger.
This is just something that compounds on the seasonality of real estate and is just one more layer of the uneven income streams that you have to account for in your personal financial plan.
All right, so we made it to the fun part: the solutions. Solution number one is your emergency fund. Emergency funds consist of cash assets. We’re not looking at taking any risk with your emergency fund, and really, there’s just a couple of types of accounts that would fall into this category, the first one being your checking account.
We always want to make sure that we have enough money in our checking account to be able to do our daily, monthly spending and not have to worry about overdrawing our account or anything like that. But there are negatives to holding too much in your checking account.
That’s where that second account type comes into play for your emergency fund. We really love the high-yield savings account. Typically, high-yield savings accounts are via online banks—American Express, Allied Bank, Capital One, just to name a few.
These are institutions where there’s no brick-and-mortar location, and as a result, they’re able to pay you a little bit higher interest rate than you typically see at your local bank or credit union. The high-yield savings account is really the sweet spot for not taking risk with those funds in your emergency fund but still getting some interest there so taxes and inflation don’t eat away at your emergency fund over time.
Solution number two is a brokerage account. We already talked about the emergency fund. Those are strictly cash assets. We’re not taking risk. Those are in accounts that are FDIC insured, and as a result, we aren’t earning a whole lot on those accounts either.
The next step in our cash management plan would be the brokerage account. This is an account that’s not a retirement account, and it’s not cash. It falls in between on that spectrum, and so it’s something that you could get to in a very quick amount of time without penalties or anything like that. But it’s an account that would be invested.
So whether it’s ETFs, mutual funds, what have you, this is an account that is going to take more risk, and by definition, it therefore cannot be in our emergency fund. This is for dollars above and beyond whatever that target emergency fund dollar amount is for you.
One of the things that we’ve really come across, though, is we found that Top Producers tend to overweight their net worth to cash, and really, this can become a drag on your overall net worth. That’s where this brokerage account really comes into play—we never want to eat into that emergency fund and move emergency fund dollars into a brokerage account. That defeats the whole purpose of the emergency fund.
But if you have more cash on hand that isn’t working for you, or in a very limited basis, like it may be in your checking account, a brokerage account could make a lot of sense.
Again, everyone’s situation is different. You’ve got to dive into what those dollar amounts mean for you, but our second tool in the toolbox is a brokerage account for Top Producers to manage their variable income and still have the ability to get to the brokerage account assets if they need to without having any penalties like you would in a retirement account.
We tackled two big problems when it comes to variable income for Top Producers and then two big solutions that you have in your toolbox to combat that.
If you want to learn more about cash management plans and our approach to helping Top Producers battle this in their financial plan, we’d encourage you to download our ebook. It’s titled How Top Producers Can Take Control of Their Variable Income. It’s a five-step plan that we believe gives you the best opportunity to take full control over your variable income.
Schedule a complimentary insight meeting to discuss your situation and how we may be able to help.