The farm family living budget is one of the most misunderstood elements of cash flow on farm and ranch businesses. What constitutes family living expenses? What is divided between business and personal use? Many agricultural lenders want to know what the average family living cost is across the country and specific trends in individual items. Let’s examine some of the trends and direction of this important component of farm finances. 

We will use the Nebraska farm record database for family living cost information. Although the data may be specific to the Cornhusker State, other farm record summaries such as FINBIN, Kansas, Illinois and Kentucky exhibit similar information.

The latest summary of farm family living finds the average was $99,320, up nearly $16,000 from the prior year and almost equal to its peak in 2012.

Health insurance and medical expenses are the drivers of the increase in family living budgets. These expense items are up over 40 percent on average since 2015. This is evidence that the healthcare system is in dire need of adjustments for farms, ranches and small-business owners. In my travels, it's common to hear annual health insurance premiums cost farm families between $24,000 to $36,000 annually. Many of these policies have limited coverage and large deductibles. The number-one reason businesses file bankruptcy or have financial problems is the result of medical expenses and medical issues. This is not only a risk to farms and ranches, but to agricultural lenders that provide borrowed capital.

A few other noticeable expense increases in the trend analysis were childcare, personal care, life insurance premiums and the catchall category of miscellaneous. As farm owners age, life insurance premiums have increased. Others are using life insurance policies as a strategy in transition planning.

Another noticeable expense item was recreation. In recent years, this cost ranged between 5 and 8 percent of total expenses. This is one item of the farm family living budget that is discretionary.

When total family living expenses, non-farm vehicle costs, real estate purchases, savings and investments, income taxes and FICA taxes were summed up, the total withdrawals from cash flow was $147,387. When all is said and done, the farm family living section of the cash flow should be a high priority item!