1. Family Resource Management Field Specialist
Women and Money
Presented by
Joyce Lash
Family Resource Management Field Specialist
The expenses that are traditionally under your control and how they should be factored into the Family Farm Financial Picture
Some of the things you should consider when building wealth

2. Understanding Family Living Costs
Integrated into the Farm Spending Plan
Realistic
Based on actual spending
Unique feature of family farming operation is the inclusion of family living expenses into the total picture. Unless a small business owner uses their home and personal assets as collateral to operate a business the two worlds never meet. In farming that is not the case. FSA= no longer request an itemized accounting of family expenses. Lenders take different looks at family living costs. Some will expect them to cover the bare essentials and may even expect part of the off-farm income to be used to pay for operating costs or investments. Most financial lenders use the big picture approach Family Farming Cash Flows and Balance Sheets will include Family Living Expenses.
Farming may allow for lower housing costs because the house is part of the farm mortgage payment on the other hand medical costs for privately purchased insurance is one of the highest expenses for farm families and one of the reasons for off-farm employment. Transportation costs for those living in rural areas is higher. Raising your own food?????
Needs to be on target. The cash-flow statement submitted to a lender is in trouble if it shows a family can survive on $20,000!
Be sure you know what is being written on the line, what is included.

3. How do you compare? Region 18 2007 - $30,084
State of Iowa $34,916
ISU Extension – Economic Profiles
Illinois $60,294
Minnesota $80,728
Nebraska $66,126
Ask participants to share what their total family living expenses are or to write it on a piece of paper.
These amounts are for a typical family with 3.?? People.
The Iowa family living expenses are those reported by farms with annual sales of $100,000
The highest amount reported in Iowa was $47,166 for farms with annual sales of $500,000 or more
Illinois figure is increased to $66,412 if capital expenditures are added = personal vehicle, home improvements, etc. A low was stated at $45,517 and a high at $103,668
Minnesota reported their family living costs by areas of the state. This was the lowest figure given with one area reporting family living expenses of $99,366 and another showing $89,147.

4. Non-Farm Families Iowa 2008 - $48,108 Bureau of Labor Statistics 2009
Midwest $46,551
US Average $49,067
Cedar Rapids area. Housing costs were reported at $800 reducing the figure to $38,448 for a dual income family with two children. Iowa Policy Project
Refer to handout with % of spending midwest= $47, = national $50,486

5. Budget Suggestions
ISU - 10% of farm income be allocated for family living expenses
10-15% of the profit be set aside for non-essential purchases
Amount may be 7% if the farm is engaged in high imput production such as operation of a feed lot.
Interest on farm purchases is sometimes lower than consumer interest and it is deductible. Can you convince the banker?

6. Monitor Family Living Costs
Record and stay current on expenses
Account for cash as well as recorded spending
Compare actual costs to projected costs and make adjustments early!
Build in cost of replacing major household items
Ask about record keeping methods
You should be able to produce records and a monthly or yearly summary and comparison is recommended. Lets say you budget $100 a month for clothing but during a recent shopping trip you spent $200 because the price was right and it addressed a need. Then for the next month or next several months you need to reduce the amount spent. At the end of the year extra costs in several categories can make your family living expenses turn out to be a train wreck.
If the refrigerator dies in July and it wasn’t factored in then the $1000 spent may raise questions from a lender.
Appliances that are more than 10 years old should be replaced. New ones are more energy efficient- cost less to operate

7. Impact of Inflation In 2008 the cost of goods rose 3.8%
Clothing costing $1,200 in 2007 would cost you $1,246 in 2008
In 2009 the cost of goods rose .25%
In 2010 the cost of goods rose 1.6%
Financial Planners typically use 3.5% to reflect the increase in cost of expenses
Family spending is not stagnate. The general price of an item can be more or less over a year’s time. If you are leaving the families living expenses the same for the coming year then you may have to make adjustments in spending to hold the line and end with the same money spent at the end of the year. You would buy one less pairs of shoes or cheaper blue jeans to keep under the budget.
The cost of food and energy have been significantly more volatile during the past few years, so much so that the Consumer Price Index now shows inflation with and without these categories.

8. Wealth Management Balancing Farm Investments with Non-Farm Investments
Farm Families in the early years will usually be highly leveraged and have a large amount of debt in land, equipment, livestock. Their main objective is to meet the payments obligations and slowly reduce debt.
A major focus of the operation is to expand in agriculture investments –buying more land, replacing old equipment with new, putting up grain storage or farm buildings, buying more livestock. The best financial step to take during this time period is to repay high interest debts and build an emergency account of 3-6 months income.
But families should also consider including other forms of non-farm investments to ensure a diversified distribution of assets. The time to start those investments may be when there is off-farm income and access to 401(K) accounts or the first time you hear a farmer state that they need to buy a new piece of equipment before the first of the year to reduce their income taxes! Many investment options will also lower your tax liability and offer less overall risk through diversification.

9. Organize Your Financial Information Laying the Groundwork
Debt Management and Credit Considerations
Finding Money to Invest
Determine Your Asset Allocation and Risk Tolerance
Evaluation Investment Products and Agricultural Oriented Alternatives
Evaluating Financial Service Providers and Information Services
Investing for Retirement and Estate Planning
11 Supplemental Units
Lets look at what some of the content in the program will help you to understand.

10. Asset Allocation

11. Family Financial Snapshot
Farm Assets
Personal Assets
Crops
Livestock
Prepaid Expenses
Feed on Hand
Supplies-Tools
Accounts Receivable
Machinery
Farm Land
Buildings and Improvements
Contracts and Loans
Securities, Certificates
Checking
Savings
Money Market Accounts
CD’s
Home and Household Items
Personal Accounts
401(k)
Stocks and Bonds
Insurance
Jewelry and collectibles
Personal Vehicle
To determine your current allocation – find the total value, subtract debt. Add together and divide by the individual amounts to determine allocation. Farm may be 75% and Personal may be 25% of your wealth. Are you okay with this amount? Most of the items found on the Farm side are considered high risk investments.

12. Asset Allocation High Risk Low Risk Checking Savings
Crops
Livestock
Prepaid Expenses
Feed on Hand
Supplies-Tools
Accounts Receivable
Machinery
Farm Land
Buildings and Improvements
Contracts and Loans
Securities, Certificates
Home and Household Items
Personal Accounts
401(k)
Stocks and Bonds
Jewelry and collectibles
Personal Vehicle
Checking
Savings
Money Market Accounts
CD’s
Insurance
So are some of the items that you consider personal. If your retirement account at work has a high allocation to stocks it also would be high risk. A general guide is to subtract your age from 100 for the amount of high risk assets that you hold. But that guideline is for individuals who plan to retire at age 66 and most farmers don’t. All of those elements should be considered by farm families as they determine their investments. Land values have historically had the same rate of return as stocks, but are also just as volatile. At some point you should reduce the overall family risk by adding more to the low risk side of the equation because you have some of the more conservative investments available.

13. The Three Legged Stool
Social Security is projected to cover approximately 60% of your income needs
Farm Income?
Retirement Accounts
Social Security—need 40 quarters and 35 years are included in the calculation. Each year you contribute more you erase a year of 0 or low income. Men typically miss 1.6 years of employment. Women 14.7
3 options to increase benefits –Borrow and invest, claim and suspend, claim now and claim more later
Full retirement age you have no limitations on what you can earn.

14. Retirement Accounts Work -401(k) or Pension Simple, Keogh, SEP
Traditional IRA or Roth IRA
Annuities
CD’s
Money Market Account
Keogh—20% of earned income must cover all employees fiduciary responsibilities
SEP Simplified Employee Plan operates like a IRA
SIMPLE Employer/Employee contributions Employer provides 3% match or flat 2% contribution maximum amounts are set

15. Credit Reports Check annually www.annualcreditreport.com
Monitor and make corrections
Experian, TransUnion, and Equifax

16. Questions/ Thoughts

17. Family Resource Management
Women and Money
Thanks You!
Joyce Lash
Family Resource Management