5 Bank Accounts for Realtors: Build Wealth Now!

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The 5 Bank Accounts You Need to Build Wealth

Why Just Sell Houses When You Can Build Serious Wealth?

Fellow Realtors! I get how awesome our job can be. There’s nothing like the thrill of closing a deal and making our clients happy. But I’ve got a question: are you only selling houses? Or do you want to make enough money to start building wealth? If you’re all about the second choice, then keep reading … closely.

You see, selling houses can be a great income, but if you want to achieve long-lasting wealth, having a strong financial plan and the financial resources to do so is key. You might be asking, “Do I really need FIVE bank accounts to grow my money?” The answer; no, not if you just want to sell homes, and yes, absolutely if you want to build wealth! Having multiple bank accounts isn’t just about the organization; it’s about having a solid strategy for managing your money and making sure every dollar you spend works towards your wealth-building goals.

It’s time to switch our mindset from just making more money to the attainable goal of creating wealth. So let’s outline how to allocate your commission income – specifically for Realtors like us. In this blog, we’ll check out the reasons for each account and how they all work together to set you up a wealth-building machine.

I’m also going to introduce you to the accounts in the order your money flows through them. Be sure to watch the video to get the idea; it’s a lot easier than explaining in words! 

The Power of 5 Bank Accounts for Realtors

Account #1: Your Business Account

Assuming you are in this business to run a business, you separate your business expenses from your personal expenses! You can never know the financial health of your business or your personal finances if the funds are intermingled! Moreover, there are a variety of tax-savings opportunities that come with your business set up as a separate LLC … but that is another blog topic. 

When you take your commission income through your business checking account – and pay your business expenses out of the same account – you now have the ability to run a proper income statement to know just how profitable your business is. Reviewing your monthly income statement is one of the most transformative habits for small business owners to cultivate. 

Once you have paid your business expenses from your business account, it’s time to divvy up the profits! First step: pay the tax man with Account #2.  

Account #2: The Tax Account to Save for Uncle Sam

The first account is for taxes. As independent contractors, we’ve got to be ready to pay the taxman his share. By setting aside a percentage of each commission check (usually around 25-35%; consult with your accountant), you’ll never be surprised come tax season. For example, if you close a deal and earn a $10,000 commission, immediately transfer $2,500 to $3,500 into your tax savings account. It’s not worth it to scramble at the last minute and stress yourself out. When you do this, you’ll always be prepared for tax season and you will avoid paying costly penalties or interest. If you are taking all the right deductions, you may find that you over-saved and have a little extra cash at the end of the year to invest! 

Account #3: The Personal Account: Lifestyle Budget

Once you have allocated your tax liability, the next step is to fund your monthly lifestyle expense. The important thing here is to identify what your monthly lifestyle budget is. That’s an entirely different topic and books are written on it. But the takeaway here is that you should only move enough money into this account to cover your monthly budget. As soon as you have covered your monthly budget, do not put any more money into this account! Any additional money after you have funded your monthly lifestyle budget goes to Account #4: The Safety Net Account.

Account #4: The Safety Net Account

This account is like your financial umbrella. You never know when unexpected expenses, bills, or market changes will come along, so it’s super important to have a safety net. Save at least 3-6 months’ worth of living expenses in this account. If something comes up like a car repair or you need to replace a furnace, you’ll have the money already there for you as a safety net. NOTE: If you take money out of the safety net account, you must replace it before you move money into your War Chest account (see below). This fund will give you peace of mind during slow months, letting you focus on growing your business without stressing over money.

Account #5: The War Chest Account

Last but not least, this account is for building wealth. Once you have separated your business expenses from your personal expenses, set aside money for the tax man, and have cash in the bank for challenging times and unforeseen circumstances, it’s time to build wealth! That’s the fun part. 

Any money left over after you have topped off your Safety Cushion account goes into what I lovingly refer to as the “War Chest” account. I call it the war chest because you’re done playing financial defense with accounts 1-4 and now can go out and play offense – building wealth with account #5! As funds accumulate in this account, you can use those funds to build wealth by buying assets: stocks, bonds, real estate, businesses, whatever you believe has intrinsic value and will grow your net worth over the long term. Thousands of books have been written on this subject, so I won’t go into how to invest and build wealth. I’ll leave that to the experts. What matters here is that you have the dedicated bank account to build your war chest and go on the financial offensive :) 

Dividing Your Money and Building Your Legacy

Become a pro at allocating your cash!

Now that you know which accounts you need, it’s time to learn how to split up and spend your money the right way. Each account has its purpose and needs a different chunk of your income. It’s incredibly important as real estate agents that we follow this process closely. This isn’t a 9 to 5 W-2 career where you know you’re getting a paycheck every two weeks. This is a 1099 career with highs and lows. That can be a little scary, but that same 100% commission lifestyle affords us the upside to create large incomes that fuel big War Chests! 

Visit your bank now and open these accounts … take action right away and start cultivating the right habits to build wealth!