Harness the power of Fintech to whip your wallet into shape

by James · August 6, 2022

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Seasonality is a fact of life in the real estate industry, and your work schedule likely reflects this cyclical trend. Actual, NAR data has shown that 40 percent of an agent’s annual sales volume occurs within a four-month period (May, June, July and August).

So, what does this have to do with your personal finances? Well, there is a chain reaction of events that makes it important that you make effective financial decisions in the midst of the heaviest workload of the year.

Table of Contents

Chain reaction

Since 40 percent of sales transactions occur during the summer months, that means 40 percent of your annual revenue is generated during that time. This leads to your need to decide how best to distribute your hard-earned commission income in the middle of the busiest time of the year.

This is the biggest financial hurdle realtors face, and these are the two biggest pitfalls I see realtors fall into:

The most common scenario: You spend so much time on your business, serving your customers at the highest level, that you simply neglect decision-making around your personal finances. You pile up a mountain of cash in the bank, but never put it to work.
Less common, but we see it: Same work ethic and business operation as scenario #1, except instead of accumulating money in the bank, you end up spending in line with what comes in.

Remember that none of these scenarios happen on purpose. Rather, they arise from a lack of information available to help agents make informed decisions about how to manage their hard-earned commission income.

This is where your ability to leverage fintech steps in to give you the information and tools you need to make real-time financial choices. Let’s dive into the fintech tools that will have the biggest impact on your ability to successfully manage your finances.

The ability to see your net worth on demand

To make a tactical financial decision about how to distribute your commission income, you need to know where you stand today. It is not unusual to have many financial relationships with banks, credit cards, credit unions and securities firms, so that your values are spread over a multitude of account logins.

The solution? Data aggregation software, which allows you to connect a read-only data stream to a central hub so you can see the balances of all your assets and liabilities in one place.

The result of data aggregation is a real-time indication that can quickly show you the landscape of your financial life. With this information in hand, you can quickly determine whether you meet benchmarks for various areas of your financial life and which categories you should add. A good example of this is your emergency fund.

Let’s assume your emergency fund goal is 12 months of living expenses held in cash, but you use a couple of banks for various checking accounts and a high-yield savings account to maximize your interest.

Data aggregation software will add up the sum of all your cash accounts, giving you the ability to quickly determine if you are overweight cash in your net worth and would benefit from distributing that money to other areas.

If data aggregation sounds like a tool you could take advantage of, here are a couple of the most popular options:

Or, if you’re working with a financial advisor, they’ll have their own software that takes data aggregation a step further by giving them access to collaborate with you on your data. RightCapital is a leading supplier of this technology.

The ability to manage your cash flows

The ideal strategy, and corresponding technical tools, for managing cash flow depends greatly on the stage of your real estate career.

For top producers

If you’re a top producer, I 100 percent believe you don’t need a budget, and here’s why: It takes way too much time, and your time is way too valuable. But here’s what you need: a backward budget. As the name suggests, backward budgeting takes the traditional concept of a budget (setting forward-looking spending limits for various categories in your life) and turns it on its head.

Instead of planning where your consumption happens, you plan where your investment happens, and you do this systematically first. As a result, where your spending happens becomes irrelevant because you know you’re already on track to reach your financial goals based on your investing habits.

Now this is where fintech comes in for top producers: knowledge. Just because you’re not forced to use a certain way to make ends meet doesn’t mean your spending habits don’t affect your quality of life. The more consistent your spending habits are with your values, the greater happiness you will experience in life.

Here are some examples:

Do you enjoy travelling? Use the money to see the world.
Are children the first priority? Fully fund their college costs.
Is it a goal to impact your community? Maximize your giving to the organizations you love.
Fortunately, the same technology that allows you to see your net worth on demand will also aggregate your spending across all accounts (banks, credit cards, etc.).
With the overview of where all your money goes to your fingertips, you can direct your capital to what matters most in your life.
But without knowing where it’s going in the first place, your ability to fully fund the areas of highest value in your life will be a guess at best.

For new agents

If you are a new agent, first of all, congratulations! You are in for a very fulfilling and potentially lucrative career. But getting started in the real estate industry is not for the faint of heart, especially when it comes to personal finances.

For this reason, you must take the opposite approach to budgeting when building your business, as each commission check must be maximized. Remember, a budget is forward-looking, meaning you tell your money where to go when each commission check comes in.

There are a couple of good technological tools for the approach to budgeting going forward:

Both tools offer mobile apps that allow you to plan on the go—but know that you’ll get out of these apps for the effort you put in. They cannot be put on autopilot as the backward budgeting method allows. Using both apps gives you the structure to succeed with your budget, but you need to take an active role in adjusting and monitoring to stay on track.

That said, with the right tools in hand and your will to succeed, you’re on your way to financial success. The opportunity to switch to the backward budgeting strategy will present itself as your business grows.

The ability to automate money movements

Now that you know exactly where you stand in your finances and how you manage your cash flow, it’s time to automate your cash flow. Although this is not a flashy new technology, it is largely underutilized.

Systematic investment plans are an important part of a backward budgeting strategy. They ensure that while your attention is being spent on your business, your personal financial goals are still being achieved in the background. Almost all financial institutions allow you to set up a recurring transaction to occur simultaneously at a number of intervals.

Say the success of your financial plan requires you to invest $24,000 in your Solo 401(k) for the year. You can simply select the date of the month you want this transaction to occur and $2,000 can be automatically invested into your retirement account each month.

This simple technology helps level the playing field between self-employed real estate agents and their friends in the corporate world who enjoy this equivalent via payroll deductions in the company’s 401(k) plan.

Knowledge and systems

As you can see, fintech has come a long way from excel spreadsheets that require manual entry to track every penny. Top producers can instead utilize the next generation of financial technology to increase knowledge of their own personal finances and automate the busy work through systems.

Because just earning a high GCI is not enough to build wealth; it’s how you deploy GCI that determines your financial success. So while the onus is ultimately on the agent to take action, don’t sleep on these financial apps that let you delegate the heavy lifting and spend more time focusing on landing the next transaction.

Jordan Curnutt, CFP, is a certified financial planner for top-producing real estate agents who want to strategically manage their wealth, optimize variable income, build a balanced net worth and reduce what is likely their biggest personal expense, taxes. Reach out to Jordan further Facebook, Instagram and LinkedIn.