Salespeople have a unique challenge when it comes to managing their finances. Commission. It’s no surprise that the compensation structure for sales can be feast or famine – with huge accelerated commissions if you’re over quota or trying to get by on base salary alone if deals slip. That means that good financial habits are key to working toward your financial goals in both good times and bad, and they’ll also keep you focused on doing what you do best.
With higher compensation comes greater responsibility, greater volatility, and higher complexity.
Be able to live off your base salary alone
The first step to effective financial planning is knowing how much money is going out the door vs. how much money is coming in. While what comes in is going to be variable depending on your commissions, having a good handle on your expenses will allow you to plan for both good and bad quarters.
In the same context that startups keep an eye on their burn rate (the cash costs of operating the business), it’s important to have a clear understanding of what your expenses are. That’s everything from housing to taxes to the loosely defined “all other” (aka discretionary spending).
It isn’t always easy, especially early on, but a good practice is to be able to live on your salary alone so you can set aside bonuses and large commission checks for achieving other financial goals. This way, if you happen to have a bad quarter or two (which happens to the best of us), then you have a lot less to worry about. While you may not be able to save as much during a bad quarter, knowing that you can comfortably cover all of your living expenses (and periodically much more) is an important comfort.
Reward yourself, and then save, save, save
When that big commission check comes, there’s no doubt you’ll want to celebrate. Don’t deprive yourself of a reward – after all, those deals didn’t close themselves. But once you’ve celebrated, try to allocate the rest (ideally the majority) towards accelerating your longer-term financial goals. That could be building an emergency fund if you don’t have one yet, paying down a chunk of outstanding debt, or making a large contribution to savings or investment accounts.
Pro-tip: Some employers limit 401(k) contributions to base salary. Using your base salary alone, consider how long it would take to meet the annual contribution limit. If pay tends to be especially volatile, you can contribute more once you have more clarity on pay for the year.
It’s a lot easier to achieve your financial goals over time than to try to crash diet your way to financial success. So even though it may be tempting to splurge that whole commission check, contributing to your longer-term financial goals will be a lot more fulfilling in the end.
Don’t let money become a distraction
If you feel like your financial situation is disproportionately adding to your stress level, it may be time to engage with a financial advisor. Whether that’s not having enough time to manage your investments outside of work, not being sure if you’re striking the right balance of paying down debt vs. saving with those commission checks, or anything else, going it alone with your personal finances may not be the best bet.
After all, managing your pipeline is about building momentum, and closing deals is stressful enough as it is without worrying about being in a bad position if that deal doesn’t close. Once you’ve got a solid financial plan in place, you’ll be laser focused on what motivates salespeople most; the upside you’ll reap from crushing your sales numbers.
Contact Paceline today for a free consultation.
This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.