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Corn+Soybean Digest

Individual Components of Farm Family Living Expenses

In the last column, discussion focused on total family living withdrawals from farm businesses. In this column, individual components of the total living expense will be analyzed and interpreted.

The largest expense for farm families – without surprise – was medical expenses including health insurance premiums. The average amount was $10,320, which is more than double a decade ago.

Another major expense was food. More farm families are eating out once or twice a week or eating a quick meal at the diner during the noon hour rather than cooking at home. The old days of growing a large garden and killing a hog or beef for family consumption have largely gone by the wayside.

Surprisingly, educational expense was under $2,000 annually. With the cost of college tuition and private school sky rocketing, this area can be a major cash flow drain on any family. As a former university professor, one piece of advice is to require your children to pay at least half of the cost of their college education. Buy-in, performance and class attendance usually increase dramatically.

A glaring expense was the column “miscellaneous.” The amount was over $10,000. In most budgeting exercises, whether family or farm, when miscellaneous expense exceeds 5-7% of the total, it is a red flag. Miscellaneous expense is where “budget creep” or “budget busters” are placed. It is better to be specific and list these expenses separately in a budget so they can be monitored and tracked.

The amount of personal interest expense on credit card debt listed in the family living expense summary would suggest at least a $10,000 credit card balance, which is slightly higher than the national average. A sign of living beyond your means is the slow growth of credit card debt. Most lenders like to see this below 5% of net earnings or family living cost.

Perspective from the past:

  • Average farm family living cost in 1986 was $20,000 annually.
  • Average farm family living cost in 1967 was $4,000 annually.

There is no wonder why intergenerational transfer of farm and ranch businesses is such an issue. Each generation has different perceptions regarding expenses, and their outlook is shaped by the events of the time period in which they grew up.

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected].

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