Published on February 19, 2014
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
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
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
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
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
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
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
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
5 Key Financial Planning Topics • Irregular income cash flow management • Income taxes • Insurance (health, disability, LTC) • Retirement savings • Estate planning and farm succession
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
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
Ways to Increase Income • • • • • • • • • • 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?
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
“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)
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
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
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/
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
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
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?
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)
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
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
Work on Your “Bucket List”
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
Personal Finance Resources for Farm Families
Later Life Farming Home Study Course http://laterlifefarming.rutgers.edu
Investing for Farm Families Online Course http://www.extension.org/pages/Investing_for_Farm_Families Free and available 24/7/365 through eXtension
NH Take Charge of Family Farm Finances Web Site www.familyfarmfinances.org
”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
Questions? Comments? Experiences? Best wishes on your financial “voyages” Got Financial Questions? E-mail: firstname.lastname@example.org eXtension Ask an Expert: http://www.extension.org/personal_finance Twitter: @moneytalk1
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