I'm a farmer. Here's how I budget
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Douglas Anderson has a 2,000-acre farm in eastern South Dakota. We asked him how he budgets.
The amount of income after expenses is relatively small, Anderson said.
"Probably less than a teacher, even," he said. "If you can make $50,000 that would be wonderful for a farm."
Every year, Anderson applies for a line of credit to cover all his expenses.
"Most people don't have a million dollars," Anderson said. "Unless you have that kind of money just sitting around, in farming you're going to have to borrow money against your land."
The money goes toward input costs: seeds, fertilizer, pesticides, insurance, equipment and fuel. Ideally, the harvest is successful enough to make the investment worthwhile.
Anderson does a lot of budgeting in his head. He also works with an accountant.
He estimates his costs for a typical acre of land and sets a goal of making around $120 per acre above those costs. But that math is easily upended.
"There's always stuff going on," Anderson said. "Your combine can break down. There's always unexpected things. It's really tricky."
Depending on grain prices, in some some years, like this one, it makes more sense to rent his land to a larger farm to work.
"I make more in cash rent than that $120 an acre," Anderson said. "Without even touching anything I can have a bigger farm come in, bring in absolutely modern equipment and really specialize to try to make some money. It's getting more normal for farmers to say, 'I'm not going to take this risk and just rent out to someone bigger.'"
Many farmers work off the farm to supplement their income.
"I can't strictly 100% farm because you can't make those numbers work," Anderson said. "So you have to have off-farm income. That's normal."
In many farm families, wives work day jobs while husbands tend to the farm. As for Anderson, he picks up work as a contractor in the nuclear industry. His work sometimes taking him as far as New York.
Anderson buys liability insurance for his buildings and land. The federal government provides subsidized crop insurance to protect against losses.
The Affordable Care Act exchange in South Dakota only has two health insurers, so Anderson's family buys private health insurance.
"Saver," Anderson said. "I'm not a shopper. I just don't go out and buy things."
"I have a business relationship with my family," Anderson said. "I look back and it's easy to say, 'All they do is spend money,' but through the years, there's been a couple of decisions that really helped our family because of that."
Anderson has learned to recognize everyone in his family brings different skills to the business.
"You want to use each other's skills," Anderson said. "You have to recognize, 'OK, that person's more skilled in an area.' You have to be able to see that and work with that."
Anderson wants to eliminate his outstanding debt, including his credit line and real estate loans. Many farmers retire on the value of their land, but Anderson hopes to get a 401(k) through his job to supplement his nest egg.
"I want to diversify," he said.
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