How Living Expenses, Taxes, and Nonfarm Income Will Affect Your 2017 Budget
As you start to put together a budget for next year, take a look at your family living expenses to see if there is potential to cut back.
“Family living costs are going to have to come down in order for farms to avoid significant losses in net worth in the coming years,” says Tina Barrett, executive director of Nebraska Farm Business, Inc. (NFB). “Because families sometimes burn up so much money for family living, the spending can cut into the money needed to service farm cash flow needs and the farm’s working capital needs – the money needed to pay current debt. A farm can be profitable and still have a net worth loss if the nonfarm costs are higher than the combined farm and nonfarm income.” (Get more advice from Barrett in Managing Living Costs.)
To better understand how family living expenses compare to the net farm and nonfarm income, the University of Illinois analyzed data from 1,377 farm families enrolled in the Illinois Farm Business Farm Management Association (FBFM). These findings will give you an idea of how your living expenses compare to other farmers and how much per bushel goes toward living expenses.
A Look at the Numbers
In 2015, the total family living expenses (expendables and capital) per farm family was $84,779. If this is divided by operator acres, that comes out to $109 per acre.
In 2006, family living costs per acre were only $82. The 10-year average from then until last year comes out to $104 per acre. The 10-year average of net-farm income during that same time frame is $179 per acre.
There is also nonfarm income to consider. Last year, the total family living expenses minus net nonfarm income was $57 per acre. In other words, $52 of the $109 total living expenses per acre was covered by income made outside of the farming operation.
Two more factors will help complete this picture: social security and income taxes. On average, farmers in the Illinois survey paid $42 per acre for social security and income taxes last year. Add it all together and farmers paid $151 per acre for social security, income taxes, and living expenses.
Zooming in to these numbers even further will give you an idea of how they compare to the price of corn per bushel.
Let’s assume that your corn yield average per acre is 200 bushels. In this scenario: 55¢ for each bushel would go toward living expenses, and 29¢ of that would come from your farm income. Another 21¢ per bushel would cover social security and income taxes. With these numbers, 76¢ per bushel goes toward living expenses, social security, and income taxes.