A major component in farm cash flow analysis is the amount withdrawn for management salary or the family living expense. This is a variable that elicits much discussion at banker and lending schools, with a variety of estimates and ranges. Producers need to be aware that lenders are taking a closer look at family living expense when reviewing loan renewals and requests.
Many of the major farm record systems develop summary data concerning personal family living withdrawals. The professionals at the Nebraskaland Farm and Ranch Management Education Program and the NFBA have it broken down into expense categories, which is useful when producers are developing estimates.
This year the average family living cost for a family of 3.3 was $65,213. If one includes income and Social Security taxes the amount is $93,057. It is interesting to note that taxes and Social Security have doubled in recent years, indicative of a growing trend in profitability. Observation of the FINBIN data from the Center for Farm Financial Management at the University of Minnesota finds similar amounts. However, when grain producers are segmented out, their average living expense is nearly $90,000 annually, not including income and Social Security taxes. The next time we will discuss some of the major changes in individual expenses.
Side Note: In our recent Farm Credit University class some lenders used the following guidelines to help estimate living cost:
- $15,000/adult and $5,000/child as a bare minimum
- $4,000/month plus 25% expense overrun as an average
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@example.com.