10 Personal Financial Tips Farmers Should Know
Deciding to farm as a career is undoubtedly rewarding, but like any entrepreneurship, it involves financial risk – risk that typical employment doesn’t involve. Unpredictable weather patterns and volatile markets mean a farmer puts their livelihood on the line every year when they plant a crop. Because of the inherent risk of entrepreneurship and the additional risk involved with farming, a full-time farmer or rancher must manage their finances well.
Personal Finance for the Farmer
Check out this list of personal finance tips tailored for the farmer.
Track your family’s living expenses.
This will help you stay on top of your finances and ensure you are not spending more than your farm can afford. Dr. Dave Kohl, Virginia Tech Professor Emeritus, emphasizes the importance of regularly examining personal living withdrawals for farmers. He estimates that 40% of farm debt restructures are due in some part to an imbalance of family living expenses.
Make a budget and then stick to it.
Most farmers don’t have monthly paychecks – payment comes just once or twice a year, so keeping the budget is even more critical. If you use a budgeted operating line on your farm, add a line item for family living expenses. Within that expense, create a personal budget. This is the best way to know you are managing your family’s living expenses.
Invest in yourself.
Look to improve your financial acumen, skills, and knowledge. Attend seminars held by your lender, take marketing classes held by the county extension, enroll in courses about new farming practices, and speak to experts like your agronomists on the latest research. The more you know, the better farmer you can become. Just because that’s how you’ve always done it doesn’t mean that is how you should always do it.
Invest in your farm.
When it comes to your farm, don’t be afraid to invest in productive assets. Don’t wait until your tractor breaks down before you look to purchase a new one. Be proactive and plan for regular capex on your operation. Investing in your farm also means hiring help when you need it.
Have an emergency fund.
Use it for unforeseen expenses, like medical bills, or a month/year with insufficient profit from the farm. Agriculture is volatile. Even if you budget and track your expenses closely, your crop may sell for less than expected. Rather than carrying a balance on your operating line or, worse, your credit card for family living, an emergency fund gives you a cushion. Aim to save enough money to cover at least three months of living expenses.
Create a retirement plan.
Farmers need to plan for retirement. Don’t make the mistake of putting everything into farm assets – believing you can sell the land or assets when you retire. There is a myriad of reasons why that plans may not be sustainable. As a self-employed farmer, you are eligible for a Roth or a Traditional IRA (individual retirement account). They two have different tax implications. Open the one that makes the most sense and contribute to it regularly.
Keep consumer debt to a minimum.
Farming already creates enough debt without adding consumer debt into the picture. Operating lines, land loans, and tractor payments are often part of the bargain to get started in agriculture. One of the best things you can do for your financial health is to pay off your consumer debt as early as possible – things like credit card debt, student loans, and car loans. Then, avoid accumulating more. Too much consumer debt will lower the repayment capacity for farm relating financing.
Be properly insured.
Consider all types of insurance. Farming is risky and often dangerous – have health insurance for accidents and a life insurance policy to protect your family.
Diversify your income.
If possible, diversify your income or add another income, especially if your standard of living is higher than your farm can afford. You may need another job to support your family as you grow your farm. Or your spouse may need to work off the farm to create financial stability. Additional income can pay for things like health insurance and retirement savings.
Prioritize your mental health.
Farming is stressful, and years of that stress can lead to burnout or even chronic disease – neither will help your financial health. Find a hobby you love, take breaks, and get away from the farm.
