December 16, 2016
One thing is clear in my conversations with farmers: the biggest challenge they face is making their debt payments.
Part three of our series on the financial principles of ancient Babylon pulls from The Richest Man in Babylon. Today’s lesson is about managing your debt and working with the holders of your debt to have a realistic plan in place.
Debt can just pile up. Have you ever had credit card debt? If you make the minimum payment on $5,000, it takes something like 40 years to pay off. Interest rates can really crush a person.
Thankfully, a story from ancient Babylon can help us today.
The story of Dabasir the camel trader
Dabasir, a man recently married, was living over his means and had a lot of debt. He sent his wife back to live with her father and tried to figure out how to hide.
He fell in with the wrong crowd, a group of robbers who robbed merchants. One day, they robbed the wrong merchant, one who had a local tribe protecting him. Several of Dabasir’s fellow robbers were killed, and he himself was enslaved.
He was sold to a tribe, where one of the four wives of the tribesman soon had mercy on him.
He told her he was not born a slave but a free man. She asked, “Do you have the heart of a slave or a free man? Because you’re a slave now.” That question troubled him.
She gave him a chance to escape, and he took that chance, trekking across the desert back to Babylon. He had decided that the will of a free man was to face his debt like a challenge and overcome rather than collapse under its weight.
After almost dying in the desert, he made it back. He met with all his debt holders and laid out a plan. He would live off 70% of his income, use 20% to pay off the debt, and keep the final 10%. (Remember, the first cure for a lean purse is to pay yourself 10% of what you earn.)
That’s what he did. He divvied out his 20% proportionally. As a camel trader his income fluctuated, but he paid more when he could and less when he couldn’t. In that way, he paid off the debt in three years.
What this means for farmers
Debt plagues many farmers and business people who aggressively grow their business during high prices and live high on the hog. Eventually, they feel buried.
But you can get all your debtors together and say, “This year is going to be a hard year for me, but I’m going to live off of rice and beans and minimize my personal expenses. Don’t increase my interest rate; don’t kill my credit.”
A lot of farmers did this in the ‘80s. I’ve met them. They told me they went in with their bankers, made deals, then made good on those deals. On the Cash Cow Farmer Podcast, my co-host James even told the story of a friend who negotiated his student loan debt down from $120,000 to $40,000 by paying more in a shorter amount of time.
Also, it’s not popular, but bankruptcy is a financial reorganization. If you’ve watched The Big Short, you know how people got crushed by adjustable rate mortgages.
As a farmer, you might have a closer relationship with the holders of your debt and have an opportunity to make due on it. Many farmers still work with small banks, and they’re a lot more flexible than larger institutions.
Remember Dabasir’s breakdown: live off 70%, pay debts with 20%, and keep 10%. Even if you’re living in your car, keep that 10%.
Meet with holders of your debt to have a realistic payment plan in which you don't get harassed if your income is down. If you present a solid plan and hold yourself to it, your debt holders will be happy to receive a timely payoff.
Scott is a South Dakota farmer who formerly worked in investment banking on Wall Street. After the commodity markets crashed, Scott took his financial know-how and built a software program for farmers called Cash Cow Farmer, which empowers farmers to master the business side of farming by knowing real-time field-by-field productivity and profitability. Scott consults with farmers all over the United States on risk and financial management, farm strategy and strategic growth. Contact him at [email protected]The opinions of the author are not necessarily those of Farm Futures or Penton Agriculture.
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