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 AllNo 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 somethingof the laws of navigation.

Elizabeth Cady Stanton, 1892

A Financial Resource For WomenSecond 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=51382EE440EC2CE852DE8CE4

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 2002-2007 Census of Ag!!)… there were 306,209 female U.S. principal farm operators in 2007

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)

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

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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/

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/DisabilitiesInTheWorkplace/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 self-employment 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/beneficiary-designations.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/Default.aspx

Work on Your “Bucket List”

Personal Finance Resources for Farm Families

Later Life Farming Home Study Coursehttp://laterlifefarming.rutgers.edu

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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 Sitewww.familyfarmfinances.org

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