If you control your debt, you control your life. Not all debt is bad, like a lot of gurus will have you believe, especially when you’re running a small business. Sometimes, you have some stuff called good debt, but you just have to be able to control it.

According to a 2018 report from the Federal Reserve System Board of Governors, 40% of adults in the United States don’t have enough savings to cover a $400 emergency bill. I was the guy who got myself into trouble. I always thought, “I’ve got credit cards. I can run up my credit card if I have to.” That’s not a good savings plan. Putting money into savings is pretty important. Emergencies come up.

Control Debt

The best way to control your debt is to stay out of debt in the first place. Have a plan and stick to that plan. It’s not hard to do.

Number one, don’t spend more than you earn. Simple but not simple. We want to grow our businesses and we want to upgrade our tools and our rigs. That’s important, but there is a time for it and you shouldn’t do it too early.

Credit cards and loans can get you into trouble in a hurry. It feels like your money, but it’s not. You’re spending somebody else’s money at great expense. There are strategies to do it so it can work to your advantage.

When you look into buying a $70,000 truck, the dealer might tell you, “We looked at your numbers. You can afford that truck.” What they’re really saying is you can probably afford to take it off the lot and you’re going to get in a big hole. I’ve argued with these guys and said, “The reason I can afford this is because I’m not going to spend that much. Now show me the $25,000 truck because that will get me there just as fast.”

Minimize your expensive impulse indulgences. I do the same thing as everyone else does. “Oh, that fuller feels nice.” I have four in my shop that I just need to tune.

You can make things last. If you buy an item of quality and take care of it, many things will last a long time. You don’t need to upgrade all the time. When it came time for me to buy a new truck, I bought one. I sold that truck only because I took the job as farrier of the large animal hospital at UC Davis and I don’t need it. I had owned that truck for 15 years and it had been paid off for 12 of those 15 years. That truck paid for itself. I sold it for $10,000 less than I bought it for.

It’s important to track your spending and know your cash flow. Murillo, Ontario, farrier Luke Farmer said something during a roundtable at the 2019 International Hoof-Care Summit that has stuck with me and it’s going to be part of my everyday language. He said that we are not farriers, we are not horseshoers. We are small business owners. If someone asks you what you do, you’re a small business owner first and foremost. That is brilliant. It changed my way of thinking. Get your mindset in that you’re a small business owner. It’s about cash flow. You should know how to look at a profit and loss report, know where your expenses are and know your budget.

Credit Score

Pay attention and improve your credit score. Financial coach Dave Ramsey says you don’t need a credit score. I love a lot of what Ramsey says, but I disagree with him on this point. Credit score affects so many things in life. When you’re buying insurance, a car, or when you’re trying to get a rental, the rates you pay can be based on your credit score in some states. If you live in California, Massachusetts or Hawaii, state laws don’t allow the use of credit histories as a factor for setting vehicle insurance rates. If you live in a state that allows the use of your credit history, you should check your credit reports before shopping.

It’s easy to maintain your credit scores with strategies that won’t get you into debt. When buying a house, the interest rate you’re going to pay is equally important as how much house you can buy. A seemingly small decrease in an interest rate over the life of a 30-year loan can add up to $100,000 or more.

Most insurances do not reward loyalty, but there is a strategy to ensure you receive the best rate. The Consumer Federation of America warns that consumers who keep the same insurance policy year after year are more likely to be charged higher rates than if they periodically changed carriers. They not only keep you at the same level, but they also don’t discount.

The value of your vehicle depreciates. Two years after it is purchased, your truck is no longer worth $30,000. It’s worth $20,000 or even $15,000. You’re not insuring as much truck, so the rates will go down based on that. But your rates don’t trickle down.

Roadmap for Your Business

Small business owners need a business plan. Business plans don’t have to be complicated. It’s a roadmap for your business. If you’re a new farrier, you might want to be looking 3, 6, 12 months down the road. You don’t know where you’re going to live. You don’t know what your clientele is going to look like. You don’t know what you’re going to specialize in. But that’s part of your plan. I want to do reining horses. I want to make $200 a day after I pay my bills. Have a plan. It points you where you want to go and how you want to get there.

It seems like a daunting task, but it’s not. Now, I’ve always had a 1-, 3-, 5-, 10-, and 20-year plan. Just thinking about it enough to write it down gets you there. Your plan changes while you’re planning. You don’t have to have a well-thought-out, complicated plan. You can write down your goal on a napkin.

How do you get there? Set goals in different areas. When I started, in one year, I wanted to make $100 a day. If I bring in $100 a day, I can pay my rent and I can eat. Then my 3-year plan was to have enough clients to where I could quit that other job I was doing. Then in 5 years, I wanted to have a closed book. What I learned is that everything moved up. My 5-year plan happened in 3, my 10-year plan happened in 7. When that happened, I just made a new plan.

Your goals for your plan need to be clearly defined and attainable. I wanted to make $100 a day. That’s easy to obtain. Once I attained it, anything above that was gravy. I put it away into savings. They’re subject to change. If you find your plan is not on track, make a new plan. This is your plan. It’s your small business. It helps keep you on track when you’re making big choices. Do I need a new truck? What will I be paying on the truck for 5 years? What’s my plan in 5 years? Does it keep me on track?

Budgeting Plans

It’s important to know your cash flow. You have to know how much cash is coming in, how much is going out and how much you’re putting away. It’s a simple process.

Make a plan and execute it. It’s going to go off the rails, so don’t be discouraged when it does. Everybody’s plan goes off the rails. Adjust accordingly and do it again.

Track the money coming in and out of your business with small business or farrier specific software. There is a ton of apps out there. I used QuickBooks during my whole career. It’s not hard to set up, even when you don’t have any financial experience. A lot of the farrier programs out there do it well, too. I was advised by a farrier software company that I needed QuickBooks, which makes it easy to track your incoming invoices, any outstanding money you might need and where your expenses are going. QuickBooks had a ton of great reports. How much did I spend on tools? Bam, it would tell me in an instant.

Have a budgeting plan. Once again, it doesn’t need to be complicated. There are a lot of different ways you can go.

Envelope system. This is a cash-based system for those who are not good at budgeting. These are people who don’t know where their money goes. If they have it, they spend it.

In the envelope system, write down your budget categories. For example, I want to spend $400 a month on groceries. Track your spending for a month or 2 before you set down a budget. See what you’re spending and then how much you want to spend.

Put cash for each of your categories in envelopes. You’re pulling out of the bank for your envelope-based system. When you need groceries, you have a grocery envelope. You have a clothing budget envelope for the family. It’s not just you, it’s for the family. When it’s gone, it’s gone. The hard part about this budget is you have to stick to it for it to work.

50/20/30 system. In this system, 50% of your income is for your essentials — the stuff you have to pay for such as living, eating, transportation and utilities. Those are generally set expenses. They’re going to be the same month-to-month, so it’s easy to know what you’re spending. Half of what you make in a month. Now, being a farrier is a little harder. It’s not the same month-to-month. You look back at your numbers for say the last year and break it down and come up with your monthly budget.

Next, 20% will go into savings, which is the hardest money to put away. But savings is your safety net. You have to save. It’s not if you get hurt, it’s when you’re going to get hurt. You’re going to be out of income. Ramsey advises that $1,000 should be put away in savings to start. It can also go toward lowering debt.

Personal items and other things you want but don’t need are earmarked for the 30% level. Don’t budget yourself until you’re not having any fun. You have to have fun. If not, it becomes a burden. It’s like those hardcore diets. Everybody fails at those. It’s the same thing with your budget. It’s a diet plan for your pocketbook.