The #1 Mistake New Agents Make With Finances (And How to Avoid It)

Let's talk about REALTOR® money management. And yes, I know this is not something you people like to talk about because you are excellent with other people's money, with your own, not so much. However, in the market we're in right now, there are lean months and there are great months, which is frankly every year that you'll be in real estate. So I'm going to give you some Leigh Thomas Brown advice on how to organize your money in a way that's not perfect,, but will be a framework you can figure out your best plan in. Spoiler alert, those of y'all who already have a plan, I know you're about to tell me all the ways I'm wrong in the comments. So make your own video. Hey, that's an answer for everybody. Okay, so you're new to real estate. I want you to do the following. We're going to open up 4 accounts. All right, so 1, 2, 3, 4. Now if you're asking me, how do I open up 4 bank accounts, Leigh Thomas Brown? All right, you don't go to a Bank of America or you don't go to a Wells Fargo. Go to your small national bank, go to your credit union, you will find they love working with you as a small business owner. Because never forget, when you are in real estate, you are a small business owner. So the first account is your biz account, business, B-I-Z-Z-N-I-S, or however you want to think about it. This is where you're going to pay for websites, marketing, yard signs, lockboxes, open house snacks, postcards, whatever you choose to do to build your business is going to come out of this account. Now, we're going to go ahead and break up what the accounts look like, then I'm going to tell you how much to put in each one. The second one is your P account, that's your personal account. That is your private account. That's your house, your car, your RPAC dollars, because those are personal dollars. That is your pocketbooks and fingernails and whatever it is you want to spend your money on. That's that second account. The third account is the big T for taxes. That is because in real estate, one of the biggest mistakes new people make when they get in this business is forgetting you don't have a W-2 anymore. So you are going to be in charge of your own taxes. Because we are 1099s, you pay quarterly taxes. So every quarter, you're going to have to send some estimated money to the government. And then at the end of the year, when you file, you'll be either adding to it for what you didn't do enough or getting back what you put in. But you better put some money in. Remember as well here too, if you live in Tennessee or Florida, you can start laughing at all of us who pay state income tax because you don't have a state income tax. And we're jealous. We know it. North Carolina, like many other states, is a state income tax. So this account would be your federal and your state. And then the last one, we're going to call that the G, the giving account. For me, that's a tithe account. For you, that might be the battered women's shelter. It might be the homeless shelter. It's just where you're going to do something good, something expansive with your dollars. Because I will tell you a little secret about life here. If you want your money to grow, you have to think in that term of abundance and know that if you turn it loose, it will come back to you with friends. But if you hold it tight, it will be like an angry teenager who runs away and you never hear from again. So now we've got a commission check coming in 'cause you sold something. Woo-hoo! So here's how that works. This business account is 40% of your dollars. So that imaginary commission check, let's say it was for $10,000, $4,000 goes into this account. What that's gonna do is stop you from overspending. Because in real estate, a lot of y'all, and I love you, you see a $10,000 account come in, check come in, and you say, "Oh, I have $10,000 to spend." No, no, no, no, no, no, no, no. We don't spend every dollar we bring in. No, we don't. We are going to be really smart and very thoughtfully conservative with our dollars. So 40% of that commission check goes in here. By the way, this is every check that comes in. That second account, that personal account, gets 30% of your dollars. Now you're thinking, "But Leigh Brown, that means I'm living pretty tight." Mm-hmm, yes, if you're in real estate, because we're a cyclical business, you're going to have lean times and you're going to have plenty times. So we're going to keep that personal account always in a lean space. And I will tell you this, ask somebody who came through the Great Recession. When our phone stopped ringing in 2007, I did not have a whole heck ton of money saved up. I was not sitting liquid. And by grannies, I sure wish I had been, because all the opportunities that came up, I wasn't able to take care of them. Now, we had our house paid for, didn't lose my house, but I watched a lot of great investments go by. And my goodness, if I look back at 2008, '09, '10, '11, oh, if I'd have bought all those $25,000 houses now, I'd be sitting pretty and probably not making videos for y'all. But here we are. That tax account, I'm putting 20% in it. Now, as I mentioned, I may owe something to the government at the end of the year, but that's going to allow me to at least budget for the ups and downs of real estate. The reason I stick with 20%, you'll find this as a 1099, you want to talk to your tax attorney or your tax advisor, your CPA, ask them about whether or not your business should be set up as an S corp, C corp, or LLC. I am not qualified to answer that for you. But I'll just tell you, ask the question, because whenever you are a business owner, there are ways that you can be set up that are within the of the tax law that might benefit you and might not. So go check into it. But that's going to have me in the ballpark. Now, I'm going to give you a little secret here. So lean in. If your money is tight, and you have to choose between Peter and Paul, and Peter is the federal government, and Paul is the state government, pay the state DOR first and then pay the feds. The feds will do a payment plan for you. The state DOR is not. And so make sure that you're always thinking in terms of how do you stay in business, Because we know that in real estate, if you get behind on an account like this, the only way out is to sell your way out of it. But every time you sell a property, you're accumulating more tax exposure. So you're going to have to keep going until you get back to the good and then stay there, which is why we're building accounts. Now, the fourth account, this good account, which I've already mentioned, is 10%. So what you want to think about is when that check comes in, that $10,000 check, that imaginary one, how about we do $1,000 first to the giving account, and then we put our money in the tax account. So we've got them filled up first before you get distracted by your personal account. And then you'll have your business account. Now, many of y'all, you are so soft, and I love you for it. You just have a big heart, and you want to give money to everybody who calls. You want to give to every nonprofit. You want to give to every Little League team that needs a sponsor. I get it. However, you got to ask yourself where your budget falls. And so if it's related to your nonprofit strategy, then you just need to ask yourself if you've maxed this out. And if you have, you could say, golly gee, I have maxed it out, please come back in the next budget quarter. And maybe they're asking you to buy leads on some wonderful new coaching program, but you've already spent your 40%. You can say, my budget has been expended, please come back in the future. Let your bank accounts give you some parameters so that you can survive. And by the way, whenever you're watching this, your next big month is coming. So the sooner you get this set up, the better off you'll be. And then you won't be tap, tap, tapping on your broker's door asking where your dollars went, because your dollars will will be exactly where you wanted them to go. For more information about getting your business set up well, you can check out these links over here. Come look at Leigh Thomas Brown University, where I'll give you all the tips and tricks from somebody who survived just a couple of decades in this business, because we need you to survive so you can take care of our neighbors into the future.