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by Matt Miner

The shortline farm equipment business has never been easy, but since 2014 life has been a bumpy ride through a historic trough in the industry’s business cycle. The ag boom of the start of the new millennium is a distant memory. Low crop prices are crippling farm income. Challenging weather makes everything more difficult for producers. Tariffs raise manufacturers’ input costs and hurt demand for commodities. This downturn feels like the brother-in-law who needed a place to crash for the weekend but has been living in your basement since before you had gray hair.

Times like these remind us—in the factory and on the farm—of the importance of planning in our businesses and in our lives.

In personal finance, the key to winning is to do the big things right, again and again, for a long time, and to avoid spectacular mistakes.

The goal of this article is to share good habits to cultivate and unhelpful habits to avoid. It lays out a roadmap that works in good times and bad and leaves people prepared to cope with the vagaries of this business.

Advice for Founders, Owners

Company founders and owners have the most opportunities from a financial planning perspective.

Owners often have much of their wealth tied up in a very specific asset—their business. On the one hand, founders must heed Andrew Carnegie’s classic investment advice to “put all your eggs in one basket, and then watch that basket.” On the other hand, it is wise to find tactics to take a little risk off the table so that if your company stumbles for any reason, you have the softest possible landing.

As a business owner, you do yourself a favor to set your lifestyle as low as possible—at 50 to 70 percent of your realized income—or less! Don’t let the big net worth number on your balance sheet drive your spending choices when that net worth is all tied up in the value of the company.

Second, as a shareholder, you have all the regular wealth-building tactics available to you, like your 401(k), health savings accounts, backdoor Roth IRAs, real estate and taxable investments. And, you also have special tax planning opportunities as the business owner.

For example, if your spouse is a marketing consultant and you have marketing work to be done, you can create a contract and pay your spouse $200,000 on a 1099. Your spouse’s consulting company can contribute $37,500 to the 401(k) as matching and profit sharing, and she can defer another $19,500 for a total of $57,000 in 2020 (more if your spouse is over 50). Your spouse’s company will owe income and self-employment tax on only $145,000 less other “ordinary and necessary” business expenses. Your family will have socked away a good chunk of money for the future, all while avoiding tax on $57,000.  That tax savings could easily amount to between $15,000 and $25,000, depending on your state income tax rates and your federal tax bracket.

Another great tactic as the owner is to use income timing, creating high-and-low income years to maximize a given tax bracket for the year. You can do this through managing the timing of your charitable giving and your state income tax payments (this opportunity is reduced by the $10,000 cap on SALT tax deductions), and possibly by timing your personal compensation.

These are just two examples of special tax planning opportunities that may be available to you as the company’s owner. You should seek professional advice for your situation from a knowledgeable CPA, financial advisor or your attorney regarding these and other tactics at your disposal.

Advice for Managers and Employees

If you’re a manager or employee, much of your financial security may be tied to your employment. At the same time your bonus or overtime hours come under pressure, your job itself may be in jeopardy! Employees have compensation and career volatility related to the financial health of their employers and industry.

The challenge of employment volatility can be mitigated in a few ways. Keeping an above-average emergency fund is desirable. At minimum, six-months of expenses is recommended in this scenario.

If you are a manager whose salary is above the median for your industry, then another metric to consider is an emergency fund equal to one month of expenses for each $10,000 in salary you’ll need to replace in a new job. It is not unusual for senior-level employees to search more than a year for their next gig. Remember, your emergency fund is based on your household expenses, not income, so the higher your savings rate (), the lower your emergency fund can be.

In my experience as an advisor, many families feel good with a large chunk of cash sitting in the bank. For some clients, this is $10,000. For many it’s $30,000. And for highly compensated and high net worth families, this amount may be $100,000 or more. Cash is comfy when storm clouds gather on the horizon—or during a squall!

Some folks prefer the lean-and-mean feeling of a smaller cash emergency fund because it keeps them intensely focused on achieving their other goals. The decision on how big this pile of money should be is personal to you and your family, but if you’re ever faced with an unexpected interruption in your work, you will be glad you erred on the larger side of emergency funds.

When much of your pay, and possibly a considerable portion of your net worth is tied up in company stock awards of whatever kind, you’ll want to be alert to de-risking your wealth by diversifying at least some of this money away from company stock. With your career already joined at the hip to the fortunes of your employer, having an excessive amount of your wealth in the same spot is not good (remember Enron?), if you can avoid it.

I worked at Intel Corporation early in my career. Back then, the company was loaded with employees who lived through Intel’s massive stock runup in the 1990s. On a split-adjusted basis, Intel’s stock traded at about $1.10 per share on January 1, 1990. The stock peaked at about $74 per share on a comparable basis on September 1, 2000, returning 6,636 percent over a little more than 10 years.

Wow.  Who wants to sell that investment?

By September 2002, the stock was trading just under $15 per share, and bounced around between $15 and $25 per share over the next 10 years. Managers watched their paper net worth skyrocket, only to see the stock price drop by 80 percent from 2000 to 2002, and then to go sideways for a decade—in a highly profitable, established company!

Keep your CPA and financial advisor on speed-dial as you plan to sell company stock and reinvest the proceeds to make sure you are managing this process in the most tax-efficient way.

As a manager or employee, set your lifestyle way below your income. Keep your relationships fresh. Build your investments. If your spouse works, that helps too.

Your financial plan begins with your beliefs which fuel your values. Your values drive your goals. Your goals often cost money, so it’s important to live on less than you make so you have some money. If you’ve got big goals, live on a lot less than you make. Beliefs, values, and goals are your strategy. Your tactics are the usual stuff: Tax planning, health savings accounts, 401(k)s, Roth IRAs, and other investing opportunities.

Keep your strategy and tactics front-of-mind in your financial journey. You’ll keep more of the fruits of your labors and be ready to ride the farm equipment business roller-coaster. Then, when your business or work change—whether because of an exciting new opportunity, a business disruption, a layoff, or at your retirement—you are as prepared as possible.

Matt Miner is a CERTIFIED FINANCIAL PLANNER ™ and earned his MBA from Duke University. He works as a Wealth Planner with PLC Wealth Management, an independent investment advisory firm. He was previously an equipment industry consultant and author with five years of experience leading sales for a 14-store Deere dealership, and an additional five years of experience in a variety of management roles inside Deere. Today, he works with families and individuals on any topic where life and business meet money. Miner lives in Raleigh, N.C., and serves clients throughout the U.S. Contact him at matt@plcwealth.com.