The family living budget is just as important as the farm budget. For businesses carrying considerable amounts of debt or young and beginning farmers and ranchers, a family living budget is critical to balance scarce resources and funds to service debt. The summaries for 2020 family living costs are now starting to be released from the various nationwide farm record systems. The Nebraska farm record system is one of the most comprehensive summaries of family living costs for agricultural businesses. With the pandemic, 2020 was a very different year for producers resulting in many paradigm shifts. Let's see how family living costs were affected by the black swan event known as COVID-19 that swept across the globe.
The average annual family living costs for 2020 was $96,225, down slightly when compared to the past three years. It is impressive that the nonfarm savings and investments were $27,412, which was over five times higher than the 2017 numbers. This shift to savings by agricultural producers was very similar to the general population, as the national savings rate exceeded 15 percent in 2020. This increase in savings was a result of people setting aside stimulus checks and other government payments as a nest egg.
When observing individual expense categories, personal care expenses for individuals declined by more than half when compared to the three-year average. People closed their pocketbooks due to the uncertainty created by the pandemic. In addition, clothing and gifts expenses were both down 50 percent.
Similar to the general economy, household repairs doubled when compared to the previous four years. Nonfarm vehicle purchases were over three times higher than the average as people upgraded the personal fleet, when vehicles were available.
Something scary from the business summary of family living expenses was the famous column of miscellaneous expenses. This “catch all” category totaled $19,444, which is the highest amount reported in a decade. The old rule of thumb in personal finance is when miscellaneous expenses exceed 10 percent of total expenses, it is a dangerous sign. In 2020, the miscellaneous expense category exceeded 20 percent!
Another perspective worth noting was that the total annual family living costs were almost back to the high watermark of $100,000 reached during the peak of the great commodity super cycle. However, one positive when comparing the two periods is that in 2012 non-farm capital purchases totaled $120,000. In 2020, non-farm capital expenditures were slightly higher than $4,000.
I cannot wait to see how expenses in 2021 will pan out, particularly with inflation running hot through business budgets and personal households.
Source: Dr. David Kohl, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.