In this four-part series, learn to manage your finances so you can achieve your goals as a trainer and business owner.
By Katie Navarra
You work every day to advance a horse’s level of training to his highest potential. Schooling and maintenance are necessary to achieve such an outcome. A horse’s training progression is a good analogy for the long-term development of your business. Like a horse, a business cannot grow, let alone thrive, without regular work.
“It’s important to manage your personal and business finances so that you can achieve your short- and long-term goals,” says Bette Brand, chief sales officer/external affairs for Farm Credit of the Virginias.
A financial plan can drive your business and enable you to achieve your objectives. Financial planning can help you find the delicate balance of bringing in enough income to support your lifestyle (and family), while covering all expenses associated with running the business, and growing a savings account to carry you through unplanned events. But the nature of the horse business can make it difficult to execute such a plan. Income fluctuates as horses come and go, and costly expenses add up. Tight margins and the greater economy create a source of income that’s less predictable than a traditional 9-to-5 office job.
The process of developing a financial plan can be overwhelming, and that’s the No. 1 reason most people never create one. Here, Brand and NRHA non pro rider and attorney Sally Piskun offer simple steps for getting started. Once you take the first step to begin the process, you’ll find the momentum to keep it going flows more easily.
Here are the four parts we’ll cover in this series:
Part 1: Mapping Out a Plan
Part 2: Expect the Unexpected
Part 3: Start Saving
Part 4: Find a Financial Planner
Start Saving
Creating a safety net in the form of a savings account significantly supports your long- and short-term goals. You can start off saving as little as $5 or $10 a week. Start by skipping the daily coffee run or breakfast drive-thru, and instead put that money into a savings account. Automatic banking makes it easy to set aside money in a separate account. Set up a weekly, bi-weekly, or monthly transfer of a set figure from your main account into a secondary account. When the money is “taken off the top,” you’ll be less likely to miss it.
“Even if you don’t have enough to start an IRA, put the money somewhere it can earn interest,” Brand said. “Don’t look at it every week or every month. Look at it once a year and see how it grows.”
Another option for kick-starting a savings fund is to invest in a piece of property that can be sold later down the road for a profit. Or consider selling a valuable horse or two to generate funds to establish savings.
“The starting momentum is what trips people up,” Piskun echoed. “Once they have momentum, it’s easier to keep going.”
Sometimes your savings can bail you out from an unplanned expense. If you need to use the money for such an expense, don’t beat yourself up; instead, move on and start saving again. Paying cash for an unexpected expense can save you hundreds of dollars down the road compared to using credit cards with high interest rates.
“Don’t let a blown transmission in your truck derail you,” Piskun offered. “If you use the $3,000 you have in savings to pay for the repair, think about how much better it is to have the repair paid for rather than putting it on a credit card.”
Savings planning includes retirement, even if it’s years down the road. Financial experts predict that individuals will require 75% to 85% of pre-retirement income during retirement years. Determining which type of retirement plan is right for you depends on your age, target retirement date, and risk tolerance.
Think your finances are too strapped to set aside money for retirement? Consider this: Assume that on January 1 of each year, a $5,000 contribution is made to a retirement savings plan. If implemented at age 25 and continued to age 70, retirement savings would total $1,641,122. If implemented at age 35 and continued to age 70, the retirement savings would total $796,687. In this scenario, it’s assumed that the plan is tax-deferred (tax is paid when withdrawn) and the plan earns a 7% rate of return every year.
Why the staggering difference? Compounding. Over time, a retirement savings plan that’s well invested generates earnings from previous earnings. Prioritizing financial responsibilities such as paying off debt, saving for a home, starting a business or a family, and contributing to a retirement plan can be difficult. Tightening your wallet and saving today can mean a significant lifestyle difference during retirement.
Still think you don’t have the cash to save for retirement?
For the younger demographic, getting started must be priority No. 1, even if it is only $25 a week. Treat it like a bill. If it comes out of your paycheck automatically, you won’t miss it as much and you won’t be able to put it off.
Don’t despair if retirement savings hasn’t been a priority. It’s never too late to begin saving. For individuals age 50 and over, additional savings opportunities known as “catch-up contributions” are available. For the older demographic, the emphasis is on controlling or eliminating debt. If you wait until you’re 45 to set aside savings for retirement, you aren’t in dire straits. You have a few things working for you. You’re likely in your peak earning years, closer to paying off a mortgage, and may not be burdened with student debt. If you control spending and debt, then you have the opportunity to move that part of your budget to max out your retirement savings plans.
Read the rest of this article at the links at the beginning of this post.
