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Real Estate Agents Don’t Need a Budget

By Jordan Curnutt, CFP®

Let’s begin by addressing a common misconception – the idea that real estate agents need a strict traditional budget to thrive financially. While budgets can be useful tools, especially early in your career, they may not be necessary for top-producing real estate professionals. In this article, we’ll explore why traditional budgeting might not suit your needs and introduce a more effective approach to managing your finances.

Traditional Budgeting

There is nothing wrong with having a budget. In fact, according to Dave Ramsey, the king of all things budgeting-related, a budget is simply defined as “a written plan for your money.”As a CERTIFIED FINANCIAL PLANNER™ professional, I understand the value of budgeting, especially during my early years when student loan debt was a concern. However, as your income grows, traditional budgeting and tracking every dollar spent might take a back seat.

According to a recent study, 65% of Americans have absolutely no idea how much they spent last month. As a Top Producing Real Estate Professional, you no longer need to budget in the traditional sense to be financially successful.

Backwards Budgeting

With a substantial commission income, you can shift to a concept known as “backwards budgeting.” This approach focuses on achieving long-term financial goals first. Identify your financial priorities, such as maximizing retirement contributions, funding education accounts, and paying off debt. With the time you freed up by ditching your traditional budget, you can shift your focus to building your business and managing the complex intricacies of your financial life that come with high commission income.

Lastly, we recommend implementing data aggregation software to track your spending over time. This gives you the information you need to make confident and informed decisions about your spending habits and allows you to live life with intentionality in your spending.

At its highest level, backwards budgeting suggests that as long as you are accomplishing all of your financial goals, how you spend the rest is irrelevant.

Focusing on Long-Term Financial Goals

Given this definition, the first step of the backwards-budgeting process would be evaluating what actions are needed today to put yourself in a place in the future where your long-term financial goals are achieved. Here are a few examples:

With your goals on track, you are free to release yourself from the stress of tracking the movement of every dollar in a traditional budget because how you spend the rest is irrelevant.

Shift Your Focus

The biggest reason Top Producers shouldn’t be budgeting is the sheer amount of time and bandwidth it takes to complete a proper monthly budget. Time is precious in the competitive real estate industry. Instead of spending hours on detailed budgeting, concentrate on your core business activities.

Prioritize tasks like marketing, nurturing relationships, and optimizing your business processes. Your time is best spent on building your business, not building a budget. 

Now, this doesn’t mean you should ignore your finances altogether. As a Top Producer, here are a few items you should focus on in your finances:

  • Managing your cash balances vs. investment balances
  • Accruing tax savings through small business retirement plan contributions
  • Evaluating your future tax status and planning accordingly
  • Managing your risk by purchasing only the insurance policies that you need
  • Incorporating your rental income into your personal financial plan
  • Verifying that your debt usage is optimized and in line with your goals
  • Reviewing your estate planning for tax-efficient asset transfer at your death

High commission income introduces complex financial considerations. While you may not need a traditional budget, we recommend addressing the aforementioned areas. 

Intentional Spending

While you may not track every dollar meticulously, it’s crucial to understand where your discretionary income goes. Although the individual categories of where your residual money is being spent are “irrelevant” to the probability of your financial plan’s overall success, they certainly are not “irrelevant” for how you live your life.

I remember as a teenager my dad telling me: “If you want to know what is important to someone, look where they spend their time and their money.”

So, what is important to you? Where do you want your money to go?

We recommend using data aggregation software in tandem with your backwards budgeting strategy to gain insights into your spending patterns. With this knowledge you can align them with your values and goals.

Thankfully, technology has allowed for a way to track your spending without all of the headaches that come with building out a detailed budget each month. Data aggregation software provides the knowledge of how much of your money is going where. It also gives you the ability to act intentionally in your spending.The solution to the knowledge problem is to run data aggregation software in tandem with your backwards-budgeting strategy.

Quantum’s Financial Planning Software

At Quantum, we have our own financial planning software that allows us to track spending into categories over time while still allowing our Top Producer clients the ability to keep individual transaction details private. And with the backwards-budgeting strategy in place, we come alongside our clients without them experiencing guilt over where their money is being spent. Instead, we help guide them to keep their spending habits in line with their goals and values.

The Role of Data Aggregation Software

Data aggregation software helps you track spending without the complexity of traditional budgeting. It offers retrospective insights into your expenses, enabling you to make informed decisions and live intentionally. Consider using tools like Mint or EveryDollar if you’re not working with a financial planner.

Conclusion

As a top-producing real estate professional, you can adopt a more flexible approach to budgeting. Traditional budgeting and tracking every dollar spent may not align with your high commission income and demanding schedule. Instead, embrace backwards budgeting to secure your financial future. Focus your time and energy on growing your business while utilizing data aggregation software to make informed financial choices. This combination allows you to maintain control over your finances without the constraints of a traditional budget.

At Quantum Financial Planning we advocate for living intentionally with your finances. We believe the only way to live with intentionality in your spending is to have the data available for you to make confident and informed decisions about your consumer habits.

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