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October 26, 2022

Managing Farm Family Living Expenses 

Farm family living expenses are closely intertwined with operational finances—and are an important part of the ag loan process.   

Rising input costs and inflation in the U.S. economy continue to strain farm operations across the U.S. This makes managing the balance between farm family living expenses and business expenses even more important, as costs in both categories are increasing. In 2020, the average farm family living expenses totaled $71,900 per family compared to under $40,000 in 2000. Strategically managing both personal and operational expenses can prevent financial strain and confusion.  

Along with making sure both your operational and personal costs are covered, monitoring farm family living expenses plays an integral role in making sure the ag loan process goes smoothly.  

Farm Family Income Sources 

As a farmer or rural landowner, you understand that your income is both irregular and uncertain. It can vary by year, season, and commodity and is subject to the fluctuating market.  

In 2022, net farm income is projected to reach $147.7 billion. However, the rate of increase is slowing down due to higher production costs and reduced government payments. While the farm economy remains strong, it is more important than ever to stay on top of your cash flow.  

“In some cases, the family living line-item of the budget could be negative, representing subsidization by off-farm income or investment in the farming operations.”

It’s no surprise that the majority of family farms rely on off-farm income to support their operation. As of 2019, 96 percent of farm households had off-farm income. In addition, 82 percent of total income on average is off-farm income for family farms.  

“Differences between farm and non-farm families can be found in the investment required and risks managed to create farm income. This potential for irregular and uncertain income complicates family living expenses in agriculture.”

As we’ll explain in the next section, being able to identify your different income sources and how they are distributed among expenses plays a critical role in the farm loan application process. 

The Role of Farm Family Living Expenses in the Loan Application Process 

When applying for a loan, some of the documents we’ll ask for include federal tax returns, balance sheets, and income statements. That’s why having your family and business living expenses readily available will help expedite the loan approval process.  

Providing up-to-date income information also ensures an accurate underwriting process. Having these numbers readily accessible helps facilitate a more transparent conversation that helps us ensure that we provide you with the best solution possible for your particular needs. 

How to Track and Evaluate Farm Family Living Expenses 

With any farm operation, there is a unique dynamic between family living expenses and business expenses that should be decided upon and controlled. While the lines can often blur between family and business expenses, it’s important to differentiate these expenses in order to track them properly. Keeping these expenses separate can prevent confusion and stress when planning for the future and applying for ag loans. A good way to do this is to create separate bank accounts for both family and farm expenses.  

Not only is keeping these expenses separate important, but so is analyzing expenses in each category. Examining farm family living expenses can help to ensure you have enough cash flow to service debt, pay for farm expenses, and provide for family needs and wants. 

Before developing a budget, it’s a good idea to establish goals together as a family. According to the University of Nebraska Lincoln, financial goals should include the following: 

  • Timeline 
  • Money needed to achieve goal 
  • Amount of money that needs to be saved monthly to achieve goal 

After you’ve set your goals, an effective place to start is to designate how much of your farm income you want to set aside for family expenses. You may also need to consider allocating some of your off-farm income to farm expenses if necessary. 

The last step is to build out a budget to monitor and control spending. Family living expenses often include: 

List of farm family living expenses, including food, housing, transportation, healthcare, education, apparel and services, entertainment, and cash contributions.

Set Your Family Operation up for Success with AgAmerica 

There’s a lot of pressure placed on family farms as they work to provide for others. But with those challenges come opportunities to increase cash flow, support agricultural innovation, and spend more time with your family while you do it.  

Tapping into additional cash flow can help ease some of the strain between family expenses and business expenses—and can support the financial longevity of your operation.  

Boost your operational liquidity with AgAmerica’s working capital loans. 

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