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Active Rainers...Please Think About YOUR Gross & Net $$$$$s

By Kate Elim

Real Estate Agent with Dockside Realty VA 0225142975

December 07, 2008 01:45 PM

Some time ago I realized that it made sense for me to think in terms of gross income and net when I was contemplating an expenditure.

Now most of us really don't want to think about either when we want something but times have changed for many of us and for some the change has been very, very dramatic.

My suggestion is that you think of how much money you need to earn in order to pay for an item. By that I mean, if you are thinking of purchasing a plasma TV that costs $600, do not think of the cost to you as $600 but rather what you need to earn before taxes and social security in order to pay for it. That is the secret.

We often think in terms of our gross income. Say you earned $100,000 this year. Great! What did you net? Perhaps you are paying 25% in federal and state income tax after deductions. You are also paying your full social security. Well, you may have earned $100,000 but you sure have a lot less once you make your deductions.

Even if you do not deduct anything else from the $100,000, other than the taxes and social security, you will realize how much less you have.

Now, when you go to purchase something think in terms of your real dollars.

For instance, when buying that $600 TV do not think in terms of it costing you $600. It has, in fact, cost you possibly $1,000.

You must gross at least $1,000 in order to net $600*. Substantial difference. Depending on your income bracket, the difference will be less or more. (And don't forget, we have all our other business expenses!)

We must be mindful that we are paying with NET dollars, not Gross dollars.

Salaried and houly employees receive their income after these deductions are made and may be more mindful of what their income really is. For REALTORS® and other independent contractors we may receive the big bucks but they do not all belong to us. Uncle Sam wants and needs his share.

Fortunately I began thinking along these lines quite some time ago. It really does make a difference in how you approach what you do with your actual income.

Certainly I hope more prosperity is in your future but meanwhile, make the wisest choices with the real income you do have.

*I've taken the liberty of rounding up just to make the example easy.

__________________________________________________________________________________________________

If you or someone you know is thinking of buying or selling property at or near Lake Anna, Virginia please contact Kathleen "Kate" Elim, REALTOR®.

Kate lives at Lake Anna, knows Lake Anna, loves Lake Anna, and specializes in Lake Anna area real estate.

Call Kate at 540-226-1964 or by e-mail at lakeanna.kate@gmail.com. Be sure to check Kate's Web sites and blog at http://lakeannaandbeyond.com/ or http://lakeannacountry.com/

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Mike Jones

SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) - Tucson, AZ

Mike Jones NMLS 223495

Kate,

Congratulations on that gold star! I'm thinking in terms of gross and net pennies, nickels and dimes at the moment. LOL

Mike in Tucson

Dec 07, 2008 04:00 PM

Kate Elim

Dockside Realty - Spotsylvania, VA

Realtor 540-226-1964, Selling Homes & Land a

Hi Jesse...Thanks.

I'd better get to bed soon or I'll be seeing stars. Just one more comment. You know how that goes.

Kate

P.S. I counted my comments for yesterday (Sunday, 12/07) and found I had 18 of them on other people's posts and 44 responses to comments on my posts more or less. That's the first time I counted. I had a feeling I went overboard with my time on here.

Dec 07, 2008 04:16 PM

Kate Elim

Dockside Realty - Spotsylvania, VA

Realtor 540-226-1964, Selling Homes & Land a

Hi Mike...Thank goodness you are thinking. I sure hope everyone is.

Those pennies, nickels and dimes add up whether we are saving them or spending them. Better to be saving right now.

Kate

Dec 07, 2008 04:19 PM

Bob & Carolin Benjamin

Benjamin Realty LLC - Gold Canyon, AZ

East Phoenix Arizona Homes

Yes, and put money away for taxes - and not spend it all on TVs and such .

Dec 07, 2008 04:50 PM

Teri Eckholm

Boardman Realty - White Bear Lake, MN

REALTOR Serving Mpls/St Paul North & East Metro

Kate--I like your way of thinking! :) I too am a bit frugal knowing that I really get to keep only about 1/2 of any big commission check. When I started, I put several of my first checks into a savings account as a cushion and eight years later still have those $$ in the bank. Self employment takes discipline.

Dec 07, 2008 11:29 PM

Mark MacKenzie

Phoenix, AZ

Hi Kathleen,

Great post.

I first really began to look at this when I took a CRS class on business planning.

That class really opened my eyes to understanding the income and expense rations of the business and you have now reaffirmed one of the ideas behind that class. :)

Dec 07, 2008 11:45 PM

Barb Szabo, CRS

RE/MAX Above & Beyond - Cleveland, OH

E-pro Realtor, Cleveland Ohio Homes

Kate, Great reminder. I'm in this for 22 years and have a great accountant to keep me in line! But that's a great way to think of it when you are out shopping..though a bit on the depresing side!LOL

Dec 08, 2008 12:20 AM

James Wexler

wexzilla.com - Scottsdale, AZ

another way that really works to get a good handle on what you are spending is to use CASH!!, good ole American dollar bills, twenties, and hundreds, it is a lot harder to part with than using plastic or checks

Dec 08, 2008 01:58 AM

Paul Slaybaugh

Homesmart - Scottsdale, AZ

Scottsdale, AZ Real Estate

Sage advice, Kate. I stopped thinking in terms of gross after my second year in the business. That big number always sounded great in theory, but left me wondering where all the money went after rationalizing a few misguided purchases. New agents would do well to learn this lesson early, and experienced vets are served well for the reminder. One thing I do to resist the temptation of overindulgence (easier these days) is to have a percentage of my commission checks directly deposited into a tax account before I even see it. That money is not ours. You don't want to be playing catch-up to Uncle Sam come April.

Dec 08, 2008 02:37 AM

Cynthia Tilghman, Realtor® Onslow County NC Home Specialist

Kingsbridge Realty, Inc - Hubert, NC

Hi Kate,
Thinking this way could would have a big impact on the economy. Are we sure we want that to happen now?

Dec 08, 2008 10:03 PM

Kate Elim

Dockside Realty - Spotsylvania, VA

Realtor 540-226-1964, Selling Homes & Land a

Hi Bob and Carolin...My suggestion is that we think twice and think about the actual cost to us not just the price tag.

Thanks for commenting.

Kate

Dec 09, 2008 06:19 AM

Kate Elim

Dockside Realty - Spotsylvania, VA

Realtor 540-226-1964, Selling Homes & Land a

Hi Teri...You are to be commended. That is great self-discipline.

Few of us have that much and for some by the time they receive their first couple of checks they are in dire need of them.

Kate

Dec 09, 2008 06:21 AM

Kate Elim

Dockside Realty - Spotsylvania, VA

Realtor 540-226-1964, Selling Homes & Land a

Hi Mark...I haven't taken any of the CRS courses (as yet!) but I am glad to know that information such as this is being taught.

Most new agents are not aware of how much of each check really does not stay with them. There are more experienced agents that would like to forget this sometimes as well.

Kate

Dec 09, 2008 06:24 AM

Kate Elim

Dockside Realty - Spotsylvania, VA

Realtor 540-226-1964, Selling Homes & Land a

Hi Barb...Yes, it is a bit depressing but better a few minutes of depression than a real financial meltdown.

Fortunately your accountant is helping your stay solvent. We need to in order to continue in this business.

Thanks,

Kate

Dec 09, 2008 06:27 AM

Kate Elim

Dockside Realty - Spotsylvania, VA

Realtor 540-226-1964, Selling Homes & Land a

Hi James...Cash is great.

I tend to like racking up those frequent flyer miles and hope to give away a good number of Hero Miles to wounded vets and/or their families.

Kate

P.S. I've also enjoyed several trips because of them. My husband and I flew down to Puerto Rico a couple of years ago using the mileage. If you consistently pay the bill off each month it is worth it otherwise it is not.

Dec 09, 2008 06:30 AM

Kate Elim

Dockside Realty - Spotsylvania, VA

Realtor 540-226-1964, Selling Homes & Land a

Hi Paul...You have a very sensible arrangement. I like the idea of a separate account.

Easy come, easy go really comes in to play when we think in terms of the gross amount we earn. Then we realize we weren't really playing with all of the money after all.

Perhaps you could write a post about that for the Newbie REALTORS.

Kate

Dec 09, 2008 06:35 AM

Kate Elim

Dockside Realty - Spotsylvania, VA

Realtor 540-226-1964, Selling Homes & Land a

Hi Cynthia...I really think it is imperative that self-employed people think this way all of the time.

I know of agents, and I'm sure you do too, that even in the best markets are scrambling around at tax time worried about having enough to pay their taxes.

I don't advocating not shopping. Love it too much for that. I'm advocating a little more restraint and caution. Be realistic. Know exactly how much expendable money you have if you have any.

I'm still buying. In fact I have bought stocks during this crazy stock market because I intrinsically believe we will get better financially and can afford to do some modest buying. Although, like everyone else, I wish I knew when and hope I'll still be here when it happens.

As far as shopping, I'm indulging myself there also. However, I've had a very good year especially considering the housing market.

It's just so easy to think of the big number (gross) and not focus on the smaller (net) amount we earn.

Thanks for your input and I understand your concern. I want to see this economy moving forward also. Bring on those home buyers.

Kate

Dec 09, 2008 06:46 AM

Cynthia Tilghman, Realtor® Onslow County NC Home Specialist

Kingsbridge Realty, Inc - Hubert, NC

Hi Kate,
Thanks for the email and I really do agree with you. My comment was kinda off the cuff. You are very fortunate to have had a good year and to be able to take advantage of the lower stock prices--I think it is very smart.

Dec 10, 2008 12:20 AM

Kate Elim

Dockside Realty - Spotsylvania, VA

Realtor 540-226-1964, Selling Homes & Land a

Hi Cynthia...I really wish I could be buying real estate right now. I think it is a wonderful time to be in the market for that.

Hopefully there will be many looking to buy homes in 2009.

Kate

Dec 10, 2008 09:32 AM

AMBER NOBLE GARLAND - Top Real Estate Expert, Property Tax Appeal Specialist & Author

Strategic Marketing Expert & Relocation Specialist Serving New Jersey and nationwide! - Marlboro, NJ

- The Agent You Can Trust To Deliver REAL Results!

Great advice Kathleen! I actually wish more sellers thought like this.