Cost Saving Tip: Pay Your Family a Salary

July 6, 2016 02:09 PM
 

Untracked, small withdrawals can leave a big dent on your balance sheet

By: Vince Bailey, Vice President Credit Agribusiness| Farm Credit Mid-America

With the ag economy facing challenges and many operations seeing their working capital positions tighten, there is no better time to examine all expenditures. One of the biggest hits a balance sheet can take is untracked family living expenses.

Families tend to keep an eye on large expenses, like home mortgages and car payments, but all costs of living should be tracked. Smaller withdrawals for everyday expenses can easily balloon if not properly controlled. Before you know it, your operating loan could actually be financing your family purchases. Over time, seemingly inconsequential costs can make a dent in your balance sheet; but are invisible, because they aren’t stated on the farm’s tax forms or income statement.

A better method for controlling the cost of family living is to think of your family budget as a salary or stipend paid out from the operation. The best way to do this is to cut a single monthly check to the family and put it in an account separate from all operational expenses. This way, the cash your family has on hand is finite and it’s also easier to track how much your family spends annually.

Small expenses add up over time and become problematic if they aren’t tracked appropriately. Taking the relatively simple step of cutting your family a monthly check can have a big impact on both controlling your budget and on your operation’s balance sheet.

For additional financial tips, insights and perspectives, visit the Farm Credit Mid-America website.

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