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Breakdown of family living costs
Road warrior: Beware of the miscellaneous category in your family budget!
2 Min Read
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In the last article, our discussion focused on family living costs as a cash flow nightmare. Lower prices, elevated costs, and higher interest rates contribute to higher balances and less payment activity on operating lines of credit. The family living withdrawals from these loans only compound the cash flow struggles.
Family living budgets
What are the drivers of family living budgets? Analysis of the Nebraska Farm Business, Inc. farm record data illustrates some of the largest expenditures in 2023. Food, household supplies, gifts, insurance, personal expenses, medical care, and health insurance are the big drivers of almost 50 percent of total expenditures.
However, the largest item was the category called miscellaneous, which was almost $18,000 or 12 percent of the total budget! Whether it is the personal or the farm and ranch budget, the miscellaneous category is often the budget buster. The miscellaneous category includes cash withdrawals, trips to the convenience store, and those everyday feel-good purchases. The old rule of thumb is that when these expenses exceed 8 percent of the budget, careful scrutiny is needed in order for corrective action.
In recent years, the data illustrates that non-farm vehicle purchases and non-farm real estate purchases have been much lower. During the pandemic years, non-farm savings and investments nearly doubled, which was a very positive attribute as more family households built personal liquidity.
Economics in ag
Given the economic times facing the agriculture industry, what are some of the tips and techniques to navigate the family living cost challenge?
When developing your family living budget, I suggest using a monthly budget rather than an annual budget.
To test financial sensitivity, add 10 to 25 percent to your projected amount.
Separate your farm and personal family living budgets and be careful of commingling expenses such as cell phones, fuel, insurances, and other expenses to really get a good idea of family living costs.
Miscellaneous expenditures should not exceed 8 percent of total costs. If so, break down the specific miscellaneous expenditures to better understand the costs.
Child and adult care expenses are becoming very prevalent in today's budgets. This is not only a financial cost, but can be time consuming and emotionally draining.
The number of individual families or generations living out of the business must be considered. Adult children living at home, elderly parents, and grandparents can add complexity to the withdrawals.
If operating lines of credit must be refinanced, determine how family living costs impact the refinancing strategy. Remember, refinancing lines of credit for agricultural producers is analogous to the home equity loan in the general public.
Be careful of increasing credit card balances. Remember, it is expensive and easy to do!
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