4 Financial Wellness Tips For Real Estate Professionals

Real estate professionals do a great job helping their clients. So why do almost half neglect to plan for themselves? 

We work with quite a few real estate professionals, and were honored to contribute commentary a few weeks ago to an article in REALTOR® magazine on financial wellness.

Like many others, real estate professionals have been heavily impacted by the COVID-19 pandemic. The traditional home buying and selling market has been turned on its head due to social distancing and stay-at-home directives. How many potential sellers and buyers have postponed their relocation plans, while waiting for the pandemic to abate?

Most real estate professionals are self-employed business people. Like many of our other self-employed clients, they are experiencing dramatic swings in income, causing enormous stress as they try to match uncertain inflows to unavoidable outflows.

Even more challenging, self-employed business people are not covered by a larger employer’s pension or workplace 401(k) plan, so the responsibility to ensure their future financial independence falls squarely on their shoulders. It requires discipline and expert guidance to succeed at that task.

The numbers show it’s easier said than done.

According to National Association of REALTORS® data, 43 percent of members aren’t currently saving for retirement and 42 percent feel unprepared for a financial emergency.

Here’s 4 tips to help real estate professionals and self-employed business persons navigate today’s challenges and build a better financial future ahead.

#1 – Keep an eye on your cash flow. Make sure you set aside enough cash to pay your upcoming financial obligations, like tax payments, most of which can now be delayed up to July 15. Keep that money in a short-term money market or bank account, so you earn some interest while you wait, but the money is safely earmarked for expenses and won’t get spent by mistake. If your income looks like it’s slowing down due to the COVID-19 pandemic, start cutting back now on unnecessary expenses. Only spend on ‘”needs” and defer your “wants” until later in the year. Your tax preparer or financial advisor can offer good ideas to cut your tax bill, like funding an IRA or SEP-IRA for 2019. Those accounts can be established and funded for last year up to July 15, 2020.

#2 – The future won’t save for itself.  Today’s business climate may be tough, but start now to save for the future. We advise clients to save 15% of their annual income in a tax-deductible retirement plan, but if that’s too steep, start with 5% or 10% and work your way up. If cash is too tight right now to permit a retirement contribution, give yourself some breathing room but get back on track when business picks back up. Now is a perfect time to work out your financial road map for the future, so downturn or not, you don’t miss a beat.

#3 – Pick the right plan. If you have variable income, as many real estate and self-employed professionals do, it’s critical to pick the right type of retirement plan. You’ll want to contribute high amounts in good years, pare way back in lean years, and keep administrative expenses and paperwork to a minimum. Many plans require no administrative expenses or complicated tax reporting, so ask your Certified Financial Planner™ professional for help. A well-chosen plan can offer you thousands of dollars in tax-deductions, and fund your future financial independence at the same time.

#4 – Diversify your portfolio. It’s easy to love what you know, but when it comes to your portfolio, you’ll probably need to move beyond the world of real estate. Some of the real estate professionals we’ve worked with owned nothing but rental real estate when they first came onboard. That can be a great part of your wealth-building strategy, and may be the part you know best, but healthy diversification suggests you can do better by expanding your horizons to invest in a portfolio of stocks, bonds, and funds as well. They follow an entirely different market cycle, and offer different tax and income characteristics, all helpful in smoothing out some of the inevitable bumps in the economic cycle, and zigging while real estate may zag. Best of all, investing in stocks and bonds can offer a low-maintenance, hands-off way to generate investment income, even when sheltering-at-home, compared to hands-on ownership of real estate. After all, your investment portfolio will never call you in the middle of the night to fix a leaking toilet!

Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services.

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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