[EDITOR’S NOTE – Our Ag Finance column is written monthly by Rhonda L. Uzzolino, Marketing Manager, AgSouth Farm Credit. She welcomes your questions about financial matters, business or personal – just address them to firstname.lastname@example.org and look for the answers here or request a private reply.]
Creating a family budget you can stick to is challenging for most people. If you’re in agriculture, varying income can make the process even more daunting.
“There’s no reason to be afraid, though. Budgeting is just a tool that can help you,” says Will Peeler, a regional credit administrator for AgSouth Farm Credit, who works out of the Spartanburg, SC, office.
With the right tools, any family can create a realistic budget. And sticking to it comes with a range of benefits – from reducing wasteful spending to having money to do the things you enjoy. The first step is to simply start budgeting.
Peeler’s top tips for family budget planning include:
Keep it simple. Make it a budget that you can work with. If it becomes too complex and you’re measuring everything down to the penny, it will become so frustrating and overwhelming that you’ll most likely give up.
Be honest with yourself. It can be hard to face reality when it comes to budgeting. But if you look at a true picture of your budget, it will be easier to track and monitor. You can set realistic goals, and you’ll be much more likely to improve your current situation.
Look back to move forward. When building your budget, take a look at at least six months’ worth of income and expenses. Gather bank statements, credit card statements and any other documents that will show what a typical month looks like. This will help you more accurately project what a typical year will look like going forward. For ag operations, you might need to look at several years’ worth of statements to establish a trend.
Consider your cash flows. With a true ag operation, you’re not getting paid a set salary on a regular basis. Think about how often you get paid and how much of a line of credit you need in between. Knowing your cash flow can help your lender match you with the perfect loan product for your situation.
Look for wiggle room. You have expenses that you have to pay every month – mortgage, debt, utility payments. Then, there are the discretionary categories where you can really make a difference – eating out, cable TV, paying for a car that is not often used. You can make little lifestyle changes that aren’t too drastic but can add up over the long term.
Separate business and personal expenses. You probably have more control over household expenses than business expenses. Keeping two sets of books, showing which expenses are for the farm and which are for the household, will help you more easily track your budget.
Track your budget regularly. Track your budget at least on a monthly basis. Or consider reconciling the books weekly, maybe Sunday evening before the week starts. If you wait to do it at the end of the year, there is less room to make informed adjustments as you go.
Consider using a third party. If you’re tracking with a spouse or business partner and can’t agree on some sticking points, consider a third party who can offer practical answers and unbiased opinions. That could be a financial planner, accountant or relationship lender – anyone who can sit down with you and help you think through important decisions.
Do what works for you. There are a range of methods for tracking your budget, from free online templates to pen and paper to an app linking a budget tracker with your credit cards and checking account. No one system works for everyone.
Budgeting doesn’t have to be complicated. It just has to work for you. Try different methods until you find the right one that works for your family.
“If it doesn’t go as planned, don’t give up. If you fail one month, that’s OK,” Peeler says. “Have some flexibility and stick with it.”
To find out about the Farm Credit association that serves you and get information on financing for everything from land purchases to home construction to farm improvements and operating expenses, visit FarmCredit.com.