With student loans looming and debts of the farm piling up, it can be hard to imagine there is any hope for saving for the future as a young farmer, but with a little planning and diligence it can be done.
Starting early gives you an advantage of more years to build savings and investments, said Tom Stocksdale, senior vice president-agribusiness and community banking at Farmer’s National Bank in Wooster, Ohio.
1 Understand your margins
Margin is the income left over after you have accounted for your debt service, taxes and family living expenses, Jessica Lehman writes in a Farm Credit Insights Report. Monitoring your margins will help you analyze future capital purchases, farm cash flow and family living expenses.
2 Be routine and persistent
“Be routine and persistent in your plans to be in a good financial position when you start to approach retirement,” said Stocksdale. The best time to start is with your first paycheck: “give 10 percent to the Lord, pay yourself 10 percent, and then use the rest to set your living standards,” he said.
3 Avoid credit cards
Credit cards should be saved for emergencies. “If you find yourself using them for living, then your standard of living probably needs to be adjusted to fit within your financial means,” said Stocksdale.
4 Alternative investments
You may have to consider alternative investments other than just putting cash into savings. “Savings rates are fairly low these days, but there are plenty of financial advisers who will take $25 or $50 (whatever the number may be) and put these funds into some growth kinds of investments that are safe and that will grow in value over time,” said Stocksdale.
5 Get a financial mentor
As a farmer, you wear many hats: chief executive officer, chief operating officer, chief financial officer and much more, said Lehman. Maybe you have an agronomist to assist with crop production or a nutritionist to assist with herd health, but have you considered reaching out for guidance in financial management?
A financial mentor can be anyone from a fellow farmer who runs a successful operation, to a lender or financial adviser who can offer guidance at key moments. “The earlier you can tap into an expert financial resource, the better position you will be in,” said Lehman.
6 Start early
The key is to start early. By being proactive in understanding your margins, having a financial plan, setting aside money for savings and investments and having a financial mentor, both Lehman and Stocksdale said you can set yourself up for financial success and have a happy retirement.
Source: Jessica Lehman, Farm Credit Mid-America and Tom Stocksdale, Farmers National Bank
(Farm and Dairy is featuring a series of “101” columns throughout the year to help young and beginning farmers master farm living. From finances to management to machinery repair and animal care, farmers do it all.)
More Farming 101 columns:
- 5 things young farmers should know about finances
- The farm balance sheet
- 5 items for your farm’s cash flow statement
- Personal and business records: Keep them separate
- What to include in your farm business plan
- How to approach a lender: Tips for getting a farm loan
- How to use microloans to get your farm started
- How to create a farm safety kit
- 5 tips for child safety on the farm
- 6 tips for livestock safety
- 4 tips for transporting livestock
- 5 ways to better understand tractor stability
- 6 farm equipment hacks
