It can be the silent profit robber, and it may be one of the most challenging to tackle on the farm. No, I’m not talking about soybean cyst nematode or tar spot. I’m talking about your own family living expenses on the farm.

In a recent University of Nebraska Center for Agricultural Profitability webinar on the topic, Nebraska Extension educator Anastasia Meyer tackled that issue and offered tips for adding family living into the operation’s regular cost of production calculations.

“We are projecting a sharp drop of net farm income for 2024,” Meyer said. “The year 2023 was a record, with $9.2 billion in the form of net farm income in Nebraska. But we are predicting that will go down to $7.69 billion in 2024.” This comes from lower crop receipts for corn and soybeans. Livestock prices, particularly beef, are up, so the farm income will depend on the enterprises within the operation, she added.

Decline from record highs

Although this represents a sharp decline, Nebraska’s farm economy is still strong, Meyer said, coming off a record income year. “We expect 2025 to be about the same as 2024,” she said. That leads to the question: Do you know how much you are spending each year on family living expenditures and how these play into the overall financial health of your operation?

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“Living standards may change for families on farms depending upon the operation’s net farm income,” Nebraska Extension economist Jim Jansen said in a separate interview with Farm Progress. “Some may get accustomed to higher levels of family living expenses during higher-income times, whereas others may moderate their spending habits and pay down personal debt.” He said some operations may choose to pursue additional employment as a way to generate new income to help pay for the needs of the family.

Meyer said that knowing what family living costs are and understanding the cost of production will help families know if their operation is sustainable financially and if it is supporting the family living costs. “By knowing this, you can make better financial decisions and work toward long-term sustainability, and maybe work toward long goals like purchasing land,” she said.

Knowing your numbers

“A lot of times you don’t really know unless you calculate it all out,” Meyer said. “If you have it down, great, but it’s important to really think about how much we are spending on the family living and then to incorporate that into cost of production budgets.”

Fixed costs within your household expenditures are difficult to adjust. Those would include utilities, housing, health care, education and groceries, for instance. Variable costs are much easier to adjust and cut, including vacations and travel, eating out at restaurants and other expenses in that category, Meyer said.

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She suggested choosing two rather average months out of the year to track — perhaps months that do not normally include high air conditioning or heating bills or gigantic household repairs. “Keep track of all of your family living costs during those months,” she said. “Include health insurance, household repairs, medication expenses, gifts like for birthdays, online shopping, the cost of your pets, life insurance and real estate taxes on just your home, for instance. Think about how much you spend and how much you need to adjust.”

It may be useful to compare your family living expenses on an annual basis to the average farm family. Several Nebraska and regional-based farm business agencies put the average farm family household ranging in size from 2.9 to 3.2 people per household, and an average family living expenditure annually at anywhere from $80,000 to $116,000, depending on the operation and size of the family. “Some families may come in lower or higher,” Meyer said. “But be realistic about what you are actually spending.”

To incorporate your family living expenses into your cost of production on the farm, using enterprise budgeting, you add up your annual family living costs and allocate a portion of those to each enterprise, whether it is crops or livestock. You need to adjust your per-unit cost of production using the numbers that are compiled from your actual farm cost of production plus your family living expenses allocated to that enterprise.

As an example

Meyer used the example of a farm family where one spouse had an off-farm job that paid for health insurance and some family living costs. For the sake of the example, this family needed the farm to pick up $40,000 of the family living expenses to make ends meet.

If the annual crop production from that farm is 100,000 bushels of corn, then you simply divide $40,000 needed by the production total of 100,000 bushels. The result means that you need an extra 40 cents per bushel to cover the farm’s portion of your family living.

Meyer added that this illustrates the importance of knowing your actual cost of production on a unit basis, and adding in the family living costs may help you in understanding the market price you need per bushel to pay for farming operations and family living.

Learn more online at cap.unl.edu. You can use the Nebraska Agricultural Budget Calculator to help with determining cost of production and projected cash and economic returns. Learn more at cap.unl.edu/abc.

Challenges in understanding family living costs

There are many challenges in covering family living expenses with farm income in general, Meyer said. These include the following: