The average monthly Social Security payment in 2017 is $1,350. You know that’s not going to cut it for your retirement.

You need other sources of funds. Here’s how to create a workable savings plan that builds wealth.

Earn more than you spend

Financial advisers often say that you have to spend less than you earn to have an effective savings program. This approach puts the emphasis in the wrong place. The key to beginning an effective savings program is actually to earn more than you spend. Changing the order of that statement recognizes that most of us have a great deal of control over both sides of the saving equation.

You, as a REALTOR®, have several advantages for increasing the income side of the savings equation:

• No cap on earnings. Someone in a salaried profession earns $X per month. While an excellent performer may get a raise in the future, extra results this month don’t produce more earnings this month. On the other hand, outstanding professionalism and effective work habits by REALTORS® have an immediate payoff.
• No cap on effort. A salaried profession is based on 40 hours per work week. Voluntarily working extra hours doesn’t create extra pay. Professions paid on an hourly basis may work overtime for more pay, but only if demanded by the employer. REALTORS®, however, can choose to put in extra time generating leads that result in extra earnings. Also, putting in time and effort to earn professional designations is a proven way for REALTORS® to elevate their earnings potential.
• Flexibility of schedule. You set your own schedule, and 9 to 5 rarely applies. This flexibility allows you to work longer at client service, but it also provides the opportunity to expand your earnings through other avenues. For example, you can learn about and work at real estate investing. Or you might take a second job. In short, you have the flexibility to use your creativity and schedule for earning more.
• No age limit. Some professions “age out” people at 60, 62, or 65. For example, airline pilots and partners in major accounting firms know that they have an age-related deadline on their careers. Many REALTORS® remain active and earning well past those arbitrary retirement ages.

You also have some disadvantages on the income side of the savings equation:

• As an independent contractor, you’re responsible for all of the 15.3% F.I.C.A. (Social Security) charges against earned income. Salaried or hourly employees share these charges equally with their employer, so each dollar they earn is worth 7.5% more.
• As independent contractors, you receive no employee benefits, such as vacation time or sick leave. You must earn enough to cover any time off from productive work. And of course, you have no employer-paid health insurance, which is nothing but non-taxable additional income for salaried employees.
• You must pay dues and fees to the government and other organizations that enable you to perform your duties as a REALTOR®. The benefits from these dues and fees are numerous, but our income doesn’t begin until these costs are covered.

Look at predictable expenses

You have recurring expenses that are predictable, such as a mortgage, car payment, phone bill, insurance, utilities, food, clothes, IRS estimated payments, charitable pledges, and credit card debt. All of these are examples of “in and out” expenses—income already committed before it is received.

Every single one of these expenses, with the exception of the IRS, is to some extent under your control. Do you need a new car every three years? And won’t the insurance cost less on that five-year-old vehicle? Is that new iPhone a necessity or a toy to impress our colleagues? Will you sell more real estate if you’re wearing more expensive clothes?

Some expenses are foreseeable but occasional, such as vacations, REALTOR® dues, and annual property taxes.

Carefully examine these expenses, because if you’re not even meeting your “in and out” expenses, you shouldn’t take a vacation. If you’re not planning for the annual property tax bill, you’re setting up an avoidable crisis.

These foreseeable special-purpose expenses must be covered by increasing income, cutting expenses, or both.

Set up savings “buckets” for all your expenses. Envision your income being divided into different buckets. So far, you’ve set up a bucket for recurring monthly expenses and a bucket for special purpose expenses. The alternative to setting up buckets to plan for these foreseeable items is to borrow on the credit card. This choice is easy but disastrous because it undermines your financial foundation. If you borrow $3,000 using standard credit card terms and repay it through minimum monthly payments, it’ll take six years and cost over $5,000! Does the joy of a $3,000 family vacation last six years, and is it worth almost twice as much as you “paid” for it?

How about emergencies?

The final group of expenses to consider is emergencies. Major car repairs, HVAC failures, medical procedures, natural disasters, and unexpected rental-property repairs or vacancies are examples that fall into this category.

Planning for these emergencies is another important step in establishing a sound financial foundation. After “in and out” expenses are met and special-purpose buckets are set up for foreseeable expenses, it is important to establish and fund an emergency bucket. How much is enough? The amount varies, just as choosing what items are going to be in your “in and out” expenses and foreseeable expenses varies from person to person. The dollar amount that gives you the comfort that life’s unforeseen calamities are covered is a personal choice.

Most financial planners suggest three to six months of expenses, but that is a simple guideline that makes no sense if, for example, you have five children or a disabled spouse.

Your foundation is built. Now what?

It is a great accomplishment to plan for all current expenses, assure an income more than adequate to cover them, set aside money for foreseeable expenses, and have an emergency bucket ready for life’s curveballs.

But once these tasks are accomplished, what next? Now it is time to start investing.

Now that the foundation is laid, it is time to build. And building only comes with investing and the risk involved.

Consider this: At today’s rates, $1,000 placed safely in a bank CD takes 72 years to double.

The same $1,000 invested at a 7% compounded return doubles to $2,000 in 10 years. Then that $2,000 doubles again in the 10 years. Then that $4,000 doubles again—so in 30 years, you have $8,000, while the CD saver has less than $1,200 in his account.

Investment options are numerous and require careful consideration. You have several advantages in the investing world once you do your homework.

• The nature of the real estate business exposes you to risk—it is not a foreign concept.
• You work with financial concepts every day when completing CMAs, analyzing loan amortization options, and other tasks.
• Real estate itself is a great investment opportunity, and you certainly know more about that subject than most people.

So here’s the summary: Earn more than you spend. Minimize recurring expenses. Plan for foreseeable special-purpose needs. Avoid debt—especially on credit cards. Prepare for unforeseen emergencies. And once the financial foundation is built, start investing.

Welcome to a future with unlimited potential!