Trimming household expenses a must, bankers say

Controlling household expenses takes a family effort and that also includes farmers and ranchers.

Producers can also help themselves by not carrying any credit card debt and taking care of their family living expenses income, said Dan Coup, president of First National Bank of Hope, Kansas.

With younger producers with families they need to be aware and avoid the mindset of “keeping up with the Joneses,” said Jeff Torluemke, a northwest Kansas grain producer with an extensive banking background. Taking too much out for family living in an operation that cannot afford is a death blow.

“Thirty years ago, families lived well on less than $30,000 annually,” he said. “In the past few years when I was still in the bank, I heard way too often ‘we hardly take anything out for family living.’ When you do the math, it is a huge amount.”

Torluemke added up the real cost of family living, and it ran into seven digits. Most people don’t consider that to spend $70,000 or $80,000 a year, it takes an in-town job that pays over a $100,000 a year. Plus, people don’t consider the consequences of payroll taxes.

The best way to survive tough times is to cut back on expenses or inputs that have no return on your investment. Cut back on family living expenses and don’t borrow money for “things” he said. However, don’t be afraid to borrow money for valid, necessary inputs that provide value whether or not it is immediate.

When he was a banker, he told customers that they should only borrow money to make money. People need basic transportation, shelter, food and clothing. However, borrow the least amount that is absolutely necessary for basic necessities. Boats, motorcycles and campers, for example, have no return on investment and they depreciate every day. A good rule is never borrow money on things that have the potential to depreciate faster than you can pay for them, he said.

“On the other hand, don’t cut your farming and ranching operation short even in bad times,” Torluemke said. “I have seen people cut back on fertilizer and chemicals and feed for their cow herd. Cutting back on fertilizer, even in dry years, is a mistake. Most of the fertilizer will be there next year if the crop doesn’t use it this year.”

Cutting back on herbicides and insecticides in one year can have detrimental implications over several years. Successful operators always prepare as though they are going to raise a bumper crop, he added.

Borrowed money is a tool, no different than tractors, combines, a cowherd, or any other asset on the farm, Torluemke said. Producers should make sure their money works as hard as any other asset on your farm and also not be a slave to the money they have borrowed. Borrowing money is as valuable as hard work and exceptional management when the goal is grow the operation.

Torluemke recalled when he was in the bank, the most common mistake producers made was not acknowledging they were facing difficult times. The belief that the ensuing year has to be better than the past years is an unrealistic and unsustainable business plan.

“One of my landladies told me that farming is and always has been a feast or famine lifestyle, she’s 100% correct,” he said. She helped mitigate the highs and lows by being a schoolteacher to have a steady source of family living necessities.

He also recalled a few years ago, after corn had been in the $5- to $7-a-bushel range in previous years and then fell back to break-even prices, he had a father and son operation come into his office to renew their operating loans and review the previous year.

“The son started farming after high school in the early 2000s with his father and basically saw nothing but good times since he began. After going through the next year’s numbers the father realizing how tight the cash flow was going to be made his son cancel the order for a new Suburban stating, ‘I’ve been farming my whole life for the past seven years, all you have seen is the last seven years and that is not what farming is.’”

Sense of optimism, purpose

Having a sense of balance helps a producer to have a more fulfilled life.

“Time is the great equalizer; the good Lord gave everyone the same number of minutes in each day. Old or young, rich or poor, smart or challenged, male or female, we all have the same amount,” he said. “It is how we choose to use those minutes that distinguish us from each other. The worst excuse I hear from people is ‘I don’t have time.’ Free will, the ability to choose makes us who we are. Spend your minutes each day wisely.”

Finding a balance between work and the other things in life is an ongoing challenge; it is cliché but true, no one on their deathbed has lamented while wishing they could spend another hour at work, Torluemke said.

Optimism helps and sometimes looking back in tougher times is a reminder of the how hard the economy can be on farm families.

When Torluemke started banking in the early 1980s, he had a front-row seat for the biggest agricultural crisis since the 1930s. Nine banks in northwest Kansas failed from 1983 to 1989, putting a lot of stress on families and entire communities.

“Producers need a way to escape from the day-to-day pressures of the farm or ranch. Not having to live it every minute of every day is crucial to maintain optimism, not to mention sanity. This varies from person to person. I observe people who have enormous emotional and financial weight and responsibilities that are always in a good mood,” he said. “There are other people that, on the outside looking in, have little to no trouble in their life but seem to have a perpetual rain cloud over them emotionally.”

Optimism does help raise the bar of confidence.

“Even in the darkest time financially there are reasons to be excited about the future,” Torluemke said. “Concentrate on immediate and small successes and build on them. Communicate with friends and family to spread your emotional load. In tough financial times, other people are experiencing the same things. It is important to know you’re not alone.”