1-hour personal finance presentation for farm business operators

1. What Women in Agriculture
Need to Know About
Personal Finance
Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

2. A Great Quote That Says It All
No matter how much women prefer
to lean, to be protected and supported,
nor how much men prefer to have them do so,
they must make the voyage of life alone,
and for safety in an emergency
they must know something
of the laws of navigation.
Elizabeth Cady Stanton, 1892

3. A Financial Resource For Women
Second edition
published in 2009
Updated and made
available for FREE
online in 2013:
http://njaes.rutgers.edu/money/
Print copies available
for $20 from author
or from the publisher:
http://palspublishing.cals.cornell.edu/
nra_order.taf?_function=detail&pr_id=
19&_UserReference=51382EE440EC2
CE852DE8CE4

4. Women Have Unique Financial Needs
• We live longer, on average
• We earn less, on average
• We may have gaps in employment that impact future
retirement benefits (e.g., Social Security)
• We are impacted more severely than most men by events
like divorce and widowhood
• Many women lack financial experience
Approximately 14% of U.S. farm operators are women
and the percentage is growing (29% increase from 20022007 Census of Ag!!)… there were 306,209 female U.S.
principal farm operators in 2007

5. It’s Only a Matter of Time...
An estimated 85% to 90% of American
women will be on their own financially
at some point in their lives
– Some will never marry
– Some will see their marriage(s) end in divorce
– Some will outlive their husbands

6. First, The Good News...
• Narrowing of the “wage gap” (now 77 cents vs. $1)
• Federal credit and pension laws
• Federal estate tax laws allow portability of exclusion amount
between spouses:
http://www.360financialliteracy.org/Topics/RetirementPlanning/Estate-Planning-Basics/Portability-of-ApplicableExclusion-Amount-between-Spouses
• Increasing emphasis on “financial literacy”
• Increased purchase of insurance and investments by women

7. Still, Problems Exist...
• “Financial Illiteracy” (men & women)
• The “elderly poor” (more women)
• Inadequate retirement income due to lack of a pension
and/or service gaps
• Displaced homemakers
• “The White Knight Syndrome”
7

8. Reasons Why Women (and Men)
Fail to Achieve Financial Security
• Procrastination
• Failure to establish specific goals
• Ignorance of the time value of money
• Inadequate insurance (e.g., disability, liability)
• Failure to understand and apply tax laws
• Failure to develop a positive mental attitude

9. 5 Key Financial Planning Topics
• Irregular income cash flow management
• Income taxes
• Insurance (health, disability, LTC)
• Retirement savings
• Estate planning and farm succession

10. 1. Irregular Income Cash Flow
• Can’t do a “typical” spending plan (budget)
– Need to adapt http://njaes.rutgers.edu/money/pdfs/fs421worksheet.pdf
• Estimate baseline monthly expenses
– Include 1/12 of annual cost of periodic expenses
• Project farm business income
• Identify “peak” and “lean” months (if applicable)
– If so, save money from peak months for lean months
• Build a substantial emergency fund (6 to 12 months
expenses) to tide yourself over during lean months
– Also consider getting a bank line of credit

11. Managing Household Cash Flow
• Relationship between income and expenses
– Positive cash flow
– Negative cash flow
• Three ways to improve cash flow
– Increase household income
– Decrease household expenses
– Do both

12. Ways to Increase Income
•
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•
•
•
•
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Adjust tax withholding/tax benefits (EITC)
Add a second job or work overtime
Start a small business
Increase/collect child support/alimony
Access public benefits
Sell assets
Upgrade job skills
Charge adult children room & board
Bartering
Other?

13. Ways to Reduce Expenses
• Housing
• Food
• Transportation
• Clothing
• Utilities
• Other expenses
http://pubs.ext.vt.edu/354/354-155/354-155.html
http://njaes.rutgers.edu/sshw/message/message.asp?p=Finance
&m=110
http://edis.ifas.ufl.edu/he153

14. “Pay Yourself First”
(Automated Savings)
• 401(k)s, 403(b)s, Section 457 tax-deferred
retirement plans (through off-farm employment)
• Automatic checking to savings deposits
• Mutual fund automatic savings programs that
regularly debit a bank account for deposits
• DRIP accounts for stock purchases
• Savings deposits from a large lump sum earned
during crop season
Try to give savings the same “respect” as major
household bills (e.g., car payment)

15. Business Planning
• Defines where a business is going and progress toward
business goals
• Helps “reality test” business goals and make logical
decisions
• Outlines strategies to follow to reach business goals
(e.g., a timeline of benchmarks for action)
• Provides potential lenders and suppliers with data
about the condition and direction of a business

16. Business Structures
• Sole Proprietorship- One person operating a business;
easiest form to set up; owner responsible for business debts
• Partnership- Two or more people operating and managing
business; easier to set up than a corporation; all partners
responsible for business debts; formal agreement advisable
• C Corporation- May shield personal assets from business
debts; can be complicated to establish and maintain
• S Corporation- Permits a corporation to be taxed as a
partnership (to partners), must meet IRS requirements
• Limited Liability Company (LLC)- Provides benefits of
corporations but less complicated to set up and maintain

17. Parts of a Business Plan
• Executive Summary: (appears first but write LAST)
• Business Objectives and Goals: (i.e., success metrics)
• Business Description: (mission, vision, locale, uniqueness)
• Market Analysis and Strategy: (need for business product
or service and planned marketing methods)
• Financial Information: (cash flow projections, balance
sheet, pricing methodology, break-even analysis, marketing
and supply costs, depository institution, contingency fund)
• Management and Organization: (business structure, title
and duties of principal personnel, insurance needs)
• See https://www.agplan.umn.edu/

18. 2. Income Taxes
• Schedule F (Profit or Loss From Farming):
http://www.irs.gov/pub/irs-pdf/f1040sf.pdf
• Schedule SE (Self-Employment Tax); > $400 earned
– Get tax deduction for one-half of SE tax
• Quarterly Estimated Tax Payments
– 4/15, 6/15, 9/15, and 1/15 of following year
– Set aside at least 30% of self-employment income for taxes
– Another option: over-withholding on “day job” taxes
– Safe harbor for withholding: Amount of tax (100%) paid the
previous year; 110% with an AGI > $150,000

19. Tax-Avoidance Strategies
• Legal tax-reduction strategies
– Not the same as “tax evasion” (a crime)
• Off-farm tax-deferred savings plans
• Small business tax-deferred savings plans
• IRAs
• Tax-exempt securities (e.g., municipal bonds and
tax-free bond mutual funds)
– Know your marginal tax bracket and compare taxable and
tax-free investments
– http://njaes.rutgers.edu/money/taxinfo/
19

20. 3. Insurance
• Pay attention to Affordable Care Act implementation
– http://www.healthcare.gov
• Resource for employers: What Health Care Reform Means
For Your Business
http://www.newkirk.com/healthcare_hrb.htm
• Purchase disability insurance: farming is a dangerous
occupation:
http://disability.about.com/od/DisabilitiesInTheWorkpl
ace/a/Disabled-Agriculture-Workers.htm
• Consider LTC insurance; have adult children pay
premiums?

21. Other Farm Business
Insurance
• Umbrella liability coverage
• Worker’s compensation if you hire workers
• Key person life insurance for partnerships
• Business interruption insurance
• Crop insurance
Cover risks with largest potential losses (e.g., liability,
disability, crop damage, death of farm operator)

22. 4. Retirement Savings Plans
• Simplified Employee Pension (SEP): Easiest plan to
set up; can contribute up to 20% of net selfemployment income by 4/15 of following year
• IRAs: Up to $5,500 ($6,500 catch-up) in 2014
– Roth and/or Traditional IRAs
• SIMPLE Plan (Savings Incentive Match Plan for
Employees): Up to $12,000 ($15,500 catch-up) in 2014
• Keogh Plan: Must set up by 12/31 of tax year;
maximum contribution limit of $52,000 in 2014

23. 5. Estate and Farm
Succession Planning
• Calculate your net worth to measure your financial progress:
http://njaes.rutgers.edu/money/pdfs/networthcalcworksheet.pdf
– Calculate the % of your net worth in farm-related assets
• Review your beneficiary and personal representative
designations:
http://njaes.rutgers.edu/money/pdfs/beneficiarydesignations.pdf
• Get professional advice with will, trusts, PoA, gifts, etc.
• Don’t “decide by not deciding”; See Who Will Get Grandpa’s Farm?
https://ag.purdue.edu/programs/areyouprepared/grandpafarm/Pages/Def
ault.aspx

24. Work on Your “Bucket List”

25. Turn Dreams Into Financial
Goals
• Include a specific date (e.g., 2018)
• Include a specific cost (e.g., $8,000)
• Develop an action plan to achieve the goal (e.g., “I
will save $8,000 for a new car in 2018”; “I will
contribute $200 monthly to an IRA [or SEP]”)
• Measure your progress periodically

26. Personal Finance
Resources for
Farm Families

27. Later Life Farming Home
Study Course
http://laterlifefarming.rutgers.edu

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39. Investing for Farm
Families Online Course
http://www.extension.org/pages/Investing_for_Farm_Families
Free and available 24/7/365 through eXtension

40. NH Take Charge of Family Farm
Finances Web Site
www.familyfarmfinances.org

41. ”If it is to Be, It is Up to Me”
• Achieving your financial goals
• Providing for your family
• Being able to afford to retire
• Being self-sufficient and not burdening others
• Doing what you want to do
• Supporting worthwhile organizations and causes

42. Questions? Comments?
Experiences?
Best wishes on your financial “voyages”
Got Financial Questions?
E-mail: oneill@aesop.rutgers.edu
eXtension Ask an Expert:
http://www.extension.org/personal_finance
Twitter: @moneytalk1