This past year, I had the pleasure of facilitating an intensive financial literacy course for a group of producers. After each class, participants were given assignments to apply the concepts and principles learned to their own farm situations. One of the assigned tasks was to develop a family living budget. After conducting this exercise, they were asked what surprises they uncovered in the process. I received some great responses and feedback from the group!

Perks

One family indicated that they were surprised by all the perks that were absorbed by the farm business. Over the years, it has been found that up to 30 percent of family living expenses are expensed through farm businesses. Items such as fuel, utilities, and insurances are frequently observed. In some cases, the cost of vacations, vehicles, and hunting and fishing trips are uncovered in business financials. The teachable moment is that these expenses go into the total cost of production. If too many individuals are invoking this strategy the total costs can quickly add up.

Cost of Eating Out

Without a doubt, many listed the cost of eating outside of the home surprised them. In one case, a producer indicated that the total cost of McDonald’s, convenience stores, and all other food vendors added up to $30,000 a year. Yes, I am guilty of these pleasures as well as a few Little Debbie snack cakes at the convenience store! However, moderation in everything is the key.

Insurances

Another surprise from our class was the total cost of insurance. This expense includes life, disability, auto, liability, health, and long-term care insurance. In some cases, the total cost summed up to over $50,000 annually! Sometimes unbundling the insurances and prioritizing policies can be a valuable exercise. Insurance is an important risk management tool for producers and should be evaluated periodically.

Other Costs

The cost of cell phones and other technologies was a big surprise to this group. Some producers indicated that the amount of income and employment taxes was a major discovery. Many producers were surprised at how much these items detracted from cash flow.

Overall, the group concluded that developing family living budgets was a powerful tool in managing cash flows in these times of tight margins and high volatility.