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Managing your Family Farm Financials for Success

Abby Deppert
Educational Opportunities: 
Home > Education & Events > November 2019 > Managing your Family Farm Financials for Success

In the current environment of the agriculture industry, good financial management is as important as ever.  Although challenging, having a conversation about the farm family living budget is important to your farm financials and is a key aspect of strong farm management. It’s essential to understand what all filters into your farm operation’s budget. A study from the Illinois Farm Business Farm Management Association (FBFM) in 2017 showed the average family living expenses were $85,542. This equates to $7,128 per month – 3.7% higher than the previous year.  So what makes up family living expenses? Let’s look at a few of the components that make up this area of farm finances.

Family living expenses can include medical expenses and insurance, automobiles, school tuition, childcare, personal care, recreation, home mortgages, utility bills and more. Let’s take a closer look at medical insurance. Insurance premiums that carry high deductibles can cost a family as much as $50,000 annually.  In many cases, having a spouse working off of the farm is crucial just for the health insurance benefits. It’s a way to save the farm budget the expense of coverage. Important to note, as farm owners age, life insurance premiums have been known to increase.

According to a 2017 USDA study, raising a child from infancy to age 18 will cost $13,000 annually per child on average, or $234,000 over those 18 years. Those costs include childcare, housing, food, clothing, health care and education. The amount of extracurricular activities children are involved in the US is on the rise, along with the cost to participate. College tuition is also a contributing expense. According to the University of Illinois, on average, one year of tuition, room and board will cost approximately $32,000.

Family living expenses can be divided into two categories: fixed and flexible. Fixed expenses include rent or mortgage payments, installment debts, insurance premiums and other billed payments that stay consistent the over time. The flexible expense category is the one where the individual has a bit more control. This category includes expenses like clothing, extracurricular activities, home furnishings, shopping expenses and travel. If reducing expenses seems to be a struggle, it may be time for another family member to enter the workforce to help increase income and to take some pressure off of the farm.

Evaluate each line item of your budget. Some family living expenditures like taxes, fuel, insurance, meals and trips may come through as business expenses. Some other items such as vehicles, office equipment, machinery and travel expense are at least partially tax deductible when used for personal and business use. These items are often recorded as business expenses when they’re for personal use.

Take the time to prioritize your family expense budget in order to determine what the farm can support. Figure out where the money is being spent and define how each individual of the family impacts the budget. It’s simple. If family living expenses are higher than the income, you will need to reduce expenses or increase income. If you need to reduce in expenses, sit down with the entire family to figure out where savings can occur. Make a team effort in “tightening the belt.” One place to start is to compile a list of what expenses are nice to have, but not essential to the family. Another is to place the priorities on necessities over luxuries.

These days, it’s getting easier and easier to shop online and pay for goods and services with the click of a button. Keeping farm business and family living expenditures separate is key to tracking where the spending budget is throughout the year. You may also find it useful to start a family living expense savings account to save for times when things get tough. This will insure that money isn’t pulled from the farm unnecessarily.

According to FBFM, over a 10 year time frame, the average living costs per acre averaged $98 per acre in 2008.  In 2017 this increased to $109 per acre.  If you compare this number to the 10-year average of net farm income per acre of $172, you determine that 63% of the net farm income is family living expense.
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