Field Notes Blog > 2014 > Budgeting For Family Living Expenses

  • Budgeting For Family Living Expenses

    December 10, 2018

    Featured Guest Writer: Emme Rickabaugh, senior loan officer.


    We spend many precious hours developing, evaluating and adjusting budgets for our businesses..We narrow down our input costs and figure out ways to use good risk management strategies to support our projected income numbers. We look at ways to best structure our business debts and determine strategies to put our businesses and ourselves in the best possible situation so that we can take advantage of the next opportunity that presents itself. Many times in this process we often neglect to consider one of the most costly draws to our business: family living expenses or personal draws.

    Family living expenses are generally composed of food, fuel, shelter, clothing, charitable contributions, childcare, entertainment, health care, personal taxes and personal debt payments. A budget for family living expenses is just as important to an operation and to the bottom line profit as a business plan is to the business.

    According to Dr. David Kohl, “When starting a business, be modest in living withdrawals or salary. No, you do not need to live like a pauper, but conservative living can be a quick way to gain a competitive edge. Recent data shows a difference of approximately $60,000 between the top one-third and low one-third of farm family living costs. That is a considerable amount of cash that could be used for debt service, capital expenditures and growth of the business. It is important to develop a personal living budget along with your farm budget to determine these costs, which can give you the competitive edge.” (Corn and Soybean Digest, Road Warrior: Points of Advice for Young Producers: Part 1, August 6, 2013 David Kohl)

    Steps to separate family living expenses from the farm/business:

    1. First and foremost, your family living expenses should be tracked separately from your farm expenses. Ideally, it is best suited if these living expenses are in a separate checking account.
    2. You should determine the amount of draw that you need to take out of the business, and then take that amount out on a regular basis. This will help you monitor the amount being withdrawn, and it will help you to balance what you have to spend on family living.
    3. Create a personal plan to spend each dollar before it is even generated. Be realistic and create a section for savings. Savings will help you to be disciplined with your funds. It will also provide an emergency fund in case something comes up that was not in the budget. (This could differ if you have high interest rate debt to pay back.)
    4. Stick to it! If you want to make a personal purchase, make sure you have planned for it. Do not just write out an additional check from the business account.

    Family living expenses can vary widely from physical location, religious affiliation, type of operation and many other aspects. However, the take home message is that these expenses should be managed and tracked just like business expenses. Tracking family living expenses can be beneficial in future personal and business planning, tax planning and overall financial health.

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