How much does your lifestyle cost?
What is a reasonable amount of income for lifestyle needs after you’ve left the farm and “moved to town”? I have seen huge family debates over the issue of how much money the farm can afford to pay the founders when they leave the operation.
I define lifestyle needs as the amount of money you need to live on to cover all your family’s living expenses. This includes travel, vehicles, hydro, phone, and all the other perks that the farm account may have paid for in the past, but will not cover when you have moved to town or changed your management/ownership role.
How much is enough is a really personal question. David Kohl’s rule is a range of $40,000 to $70,000 for a living allowance, based on what the farm can afford. Nebraska research Dave Goeller suggests the average family farm in his state seeks $60,000. Quebec chartered accountant Mario Dumas uses a figure of $45,500 as a typical income-stream planning figure.
Whatever the number you have in your head, you owe it to everyone in the transition process to have a realistic number the farm can plan for. I suggest you take a computer program such as Quickbooks or whatever Ag software you have to keep very close track of all personal living expenses for a year. I have done this for 25 years, and know exactly what our family spends on family living. You also have to be clear about what your list doesn’t include. Ask your bank or credit union for living expense forms to get you started.
Many farm dads want an active role on the farm for as long as they are able. Even if they move, they still would like a pick-up truck to drive to the farm, and I think, preserve their identity as a farmer. “Am I still a farmer if I can use purple diesel in my truck?”
Experts recommend that the older generation have at least 50 percent of their retirement income from OUTSIDE investments, non-farm related income. This is where I see a great need for the use of financial planners for all ages to make sure you are aware of investment opportunities and your lifestyle needs. If you are a young farm family, get a financial planner soon so you’ll have non-farm income streams later on.
Kohl says it is “critical to share the farm books, as everyone in the business team needs to know the income stream potential of the farm or ranch.” I also recommend clients to sign up for the Canadian Farm Business Advisory Service (CFBAS) consultation that will give you an excellent financial snapshot to use as a foundation for planning. The CFBAS program will cost you $100. This program was rumored to be changing at the end of March, so call today at 1-866-452-5558 to see if you can get some number crunching consulting done.
What will be the trigger event that motivates your family to do the work of keeping track of lifestyle income needs? Some farm women can earn a great wage off the farm, but they are tired and want the farm to make the money so they can focus their energy at home and on the farm. Heart attacks and cancer are not the best triggers for making sound financial plans, so I urge you to understand your family’s living expenses and know what you need.
“People have to live until they die. In the preservation (retirement) stage you have to manage the unmanageable,” says Kohl. I agree. We spend a lot of time on making a living, and planning for the estate, but don’t forget to plan well for the two decades or more you will live when you move to town, and leave the main management of the farm.
Consider this saying “He is rich who needs the least.” Now make that call to find a financial advisor for your lifestyle needs.
Elaine Froese is a certified farm family business coach and amazing speaker who facilitates courageous conversations with families in transition. Ask her those nagging farm succession questions.