Page 128 - Speedhorse April 2021

FINANCIAL PLANNING
HALTERING YOUR FINANCIAL PLAN
by Cade Peterson, Financial Planning Associate
Ithink it’s safe to say that owning a race horse is one of the most exciting endeavors one can have. There is a rather formidable
price in exchange for the thrill and enjoy- ment. Factoring in entry fees, training fees,
vet bills, shoeing costs, etc. can add up to a serious chunk of change. Feeling overwhelmed with such a long list of fees and out of pocket expenses is not uncommon. If you have three or more horses in training, you could be looking at over $10,000 a month to stay in the game. Here are five tips to get an idea of what is safe to spend on your horse racing business/hobby and how it fits into your overall financial plan.
TOTAL UP EXPENSES
What are your needs, wants, and wishes? Your needs are going to consist of your basic living expenses (for you, your family, and your animals), car payments, groceries, utilities, healthcare, training fees, etc. Get detailed with this list. Try to be as accurate as possible so you have a good estimate of what your expenses are each month. If you save/invest each month, include it as an expense. After you have the basic quantitative totals you can begin to itemize your wants and wishes. Are you thinking about a major financial purchase? If so, add it as an expense. It’s preferable to list monthly expenses but certain expenses only occur once or during particular times of the year such as breeding expenses or a vacation. After you’ve acquired an expense column, compare it to your monthly income column to determine what you can afford when it comes to racing.
THE 28% RULE
This rule is often referred to when figuring the mortgage that an individual can afford on a house. Here’s how it works: 28% or less of your monthly gross income is the recommended spending allowance, including all of your fixed fees such
as property taxes, interest, insurance, etc. How does this relate to the horse industry? Well, if you look to spend less than 28% of your gross income on your horse expenses then you will have some breathing room financially. Although horses are enjoyable and exciting, often times they don’t pay the bills. And if you’re fortunate enough to win some purse money with one, the others in your stable could very well eat up all the profits.
KNOW YOUR LIMITS
Horses are an addiction. I love them. You love them. That’s not going to change. However, you have to know your limits. Many people retire or even sell their business and find themselves sitting on a large amount of cash so they enter the horse racing business to have some fun. Lack of proper planning and careful budgeting leads an alarming percentage of these people into financial ruin. Let’s talk numbers. We’ll say hypothetically that as a household, you gross $200,000 annually. $10,000 per month or $120,000 per year in racing expenses equates to approximately 60% of your income on horse expenses, which is well over the proposed allowance of 28% of your income. Now obviously we can’t control our horses running into medical problems and we definitely can’t force our horses to win races. What I’m suggesting is a happy medium that will keep you financially involved in the horse industry for as long as possible. We find that medium by closely watching expenses and determining the difference between a good expense and a bad expense.
UTILIZE TECHNOLOGY AND SOFTWARE
The technology sector is what drove
returns in equity markets in 2020 despite the economic turmoil and uncertainty caused by the COVID-19 pandemic. It may seem confusing or difficult to understand at times but technology can usually make our lives much easier, especially when dealing with finances. I would encourage you to keep a budget and track your monthly spending in an app or a computer software program. Some of the more popular apps to
track your budget are Mint, Pocket Guard, and Personal Capital. Equineline also provides a tool for managing farm or ranch expenses. If you have the app that your bank provides, you can usually find details on everything for which you’ve swiped your card during that month and even that tax year. There’s also software like Excel and Quicken that can do math for you easily if you input the numbers. With these software systems, you are able to create your own column titles to keep track of certain areas of spending. For example, I keep a spreadsheet in Excel that details out a list of race payments and expenses for each individual horse. This way it’s easy to keep track of where your money is going, allowing you to make adjustments to tidy up your outflow.
SAVE/INVEST A PERCENTAGE OF YOUR INCOME
Saving or investing your money might not help you with your horse expenses right now, but it will be instrumental for your involvement in the horse industry longer term or when
you retire. No matter what your hobbies are, your basic living expenses will come first when you’re no longer working. It would, of course, be nice if your horses could replace your income by winning races but you can’t bank
on that becoming a reality. Your typical horse ownership costs are going to be added to your basic expenses. Keep in mind that unforeseen expenses are always a factor with horses, so keep something back in an emergency fund. Putting money away now will allow you to keep anteing up at the track in pursuit of that big payday. That’s the goal, right?
As a loving fan and supporter of the horse racing industry, I want everyone involved to succeed. I’m saddened to see good people fall short financially because of the bad advice they received or the inability to know what they can and can’t afford. Working in financial services, I’ve learned that some of the best people to work with are those who are involved with horses. By and large, most are down to earth folks who enjoy the little things in life, like winning a maiden race. I hope you found these tips helpful.
Cade Peterson, Financial Planning Associate
126 SPEEDHORSE April 2021