him over the last year or so, which they both enjoyed. I had envisioned Brio living another ten years and always thought that I would know the right time to have him put down and bury him on the farm. After all, we had been together twenty-two years, and he had always been there for me, through good times and bad.
But, there were other factors at play. Nine months before this awful day, the company where my husband worked had changed ownership, and two weeks later, his whole department was laid off. No warning. No severance package. The unexpectedness of the change in our joint income had to impact my decision-making. When you’re financially stretched like a rubber band that’s about to break, there is no room for error.
Brio’s age, the chance of complications, and the pain he would have to endure, combined with the financial position my husband and I were in, lead me to the decision not to go through with the surgery. In the end, I couldn’t even bring him home to bury him because a huge snowstorm was hitting the area, and there was no way for a contractor to get equipment to the farm. I was crushed. The blanket of white snow made the farm seem even more empty without him.
Did my decision not to have surgery performed benefit me? No. I miss my horse terribly.
Did my decision benefit my horse? Yes. He was in excruciating pain and the risks of complicated, possibly futile surgery were too great.
Did my decision make financial sense? Yes. Choosing to incur a liability (the surgical and follow-up medical costs) with no way of paying for it would not have been a good financial decision, especially when I was responsible for the care and well-being of family and other animals.
Looking back, I know I made the right decision, but it was not an easy one. When something becomes an integral part of your everyday life and brings you great joy, it is hard to make objective decisions where that “something” is concerned. Emotions, attachment, and pride in caring for an animal all factor in to the decisions we make as horse owners. However, as in my own experience with Brio, financial considerations need to be taken into account, as well.
CHAPTER TWO
Financial and Risk Management
Part I
PERSONAL AND HOUSEHOLD GENERAL FINANCE
It is probably safe to say you plan and prepare in order to meet your equestrian goals—such as bringing a young horse along or competing at a higher level. It is important that you give the same attention to your personal financial goals. Begin by viewing yourself and your household as a single entity, and then decide what the “goals” for that entity should be—for instance, a corporation’s goals often include maximizing profit and building shareholder wealth. Your goals may include the reduction of debt, maintenance of tangible assets (real property—real estate and improvements—and personal property such as horses, cars, and clothing), and the building of savings and retirement accounts.
DETERMINE YOUR NET WORTH
What is your net worth? You can establish this amount with a chart that lists your assets♦ and your liabilities♦. First, write down all your assets: a good estimate of the market value of your home and farm; all cash and savings; any cash value in life insurance policies; surrender values in annuities; the current balance in your retirement accounts that you could withdraw today (less income tax, plus 10 percent); the current market value of stocks, bonds, and mutual funds; the market value of your car(s); and a very conservative estimate of household goods. Don’t include any personal or family items that you would not be able to sell—you don’t want to overstate your assets. Then, list all your liabilities, which are loans or obligations of any type that may include the balance due on a mortgage, car loans, credit card debt, and home equity loans.
SO YOU KNOW…
♦An asset is something you own—real or personal, tangible or intangible—that can be assigned a monetary value.
♦A liability is a legal obligation or responsibility for an amount that can be measured and belonging to a particular entity.
♦Equity is the money value of property that has no obligations against it.
Your assets minus your liabilities is your net worth.
A balance sheet gives a picture of your net worth on a fixed date in time (fig. 2.1). In a proper balance sheet, accountants use the equation: assets = liabilities + equity♦. (“Equity” is often referred to as “net worth.”) The left side of the balance sheet represents your assets and the right side your liabilities and net worth. The total assets should equal liabilities plus net worth.
Determining what your personal balance sheet looks like can help you put your goals into perspective. If you have a negative net worth, start taking steps to improve your balance sheet. Common solutions include reducing debt load or increasing assets.
You can determine where your money comes from, and where it goes over a period of time by using a budget, an important tool for controlling expenses and realizing what areas of spending need to be curbed or increased, depending on your goals.
Your ability to manage cash (called cash flow) goes hand-in-hand with a good budget. Liquidity (the conversion of assets to cash through sale or exchange—a liquid asset is one that is easily converted) is extremely important to solvency; you need to gauge and time your cash flow so your debt obligations are met. You can have plenty of assets on your balance sheet, but if they are not liquid, they are not available at that time and you can end up falling behind on your payments, in foreclosure, or filing bankruptcy.
FINANCIAL RISK MANAGEMENT TOOLS
Brett Alexander Zwerdling, a partner in the firm of Zwerdling and Oppleman in Richmond, Virginia, specializes in bankruptcy. When asked how people end up in bankruptcy, he replies, “It is not so much because of what people do or don’t do, it is a matter of circumstance.”
You can’t always control the circumstances that can leave you vulnerable: these may include becoming unemployed, suffering a disability, or losing a spouse and corresponding income. Other factors, such as inflation and economic problems—both within the United States and globally—can have a profound impact on your financial situation. There are tools you can use to guard against financial upset, however. The most common are:
Safety nets
Budgeting and cash flow management
Debt management
