Woman buying milk.
November 28, 2018

Family Living Costs Can Create a Burden on Farm Finances

 |  By: Jim Dickrell

Family living costs continue to escalate, sometimes forcing farmers to refinance operating losses onto term debt.


Dave Kohl, a professor emeritus with Virginia Tech, recently posted a blog on Compeer Financial’s website, outlining real world examples of family living expenses.


“I just finished up teaching a farm financial literacy course to about 30 agricultural producers and one of the things that we had them do was a family living budget,” he says. “They thought that was kind of elementary, but helped the reality check kick in.


“One of the things that I'm finding is agricultural lenders are saying [family living costs] are the number one reason for refinance of operating losses onto term debt. So carefully watching this critical factor in cash flow is going to be very important for your farm operation,” says Kohl


One of the perks of farming is that about 25 to 30% of family living costs typically are run through the farm business. Expenses such as insurance, fuel and taxes are often run through the farm, he notes. Running through the farm ledger is fine, but that can mask the true total of family expenditures.


It also comes as no surprise that insurance costs—health, disability and liability—are skyrocketing. Farmers are reporting they can total up to $50,000 per year. In the past two years, health insurance has jumped anywhere from 30 to 50%, with some farmers saying it has doubled and even tripled in cost. “Sometimes we need to unravel those insurance costs to see where some of our money is going and what types of coverages we have,” he says.


Producing an annual family living budget is also warranted to unveil hidden expenses. One of the producers in a recent farm literacy class Kohl taught reported his family was spending $30,000 to $40,000 at a local convenience store, going to restaurants and so on. Simply knowing what those annual expenditures are is critical to controlling them. “These all add to the cost of production,” says Kohl.