Farm Ireland
Independent.ie

Monday 5 December 2016

How to balance the books

Household budgeting should be the cornerstone of farm financial planning

Michael Culloty

Published 16/12/2015 | 02:30

Household budgeting is vital for any farm financial planning.
Household budgeting is vital for any farm financial planning.

It is so easy, when running a farm business where cash flow is uneven or seasonal, to neglect looking at the basic costs for the running of the family home and funding long-term costs such as pensions and education.

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The household budget can be neglected because of the financial pressures of keeping the farm business up and running. There are also often external pressures to grow the business and invest.

With so many pressures it can be difficult to forward plan or budget or to discuss and make decisions on lifestyle choices.

The MABS experience of working with people who are self-employed - particularly small farmers - is that the costs of running a family home are very often not factored into the financial planning of the business.

To be viable, a farm needs to generate a profit that can sustain the household.

Otherwise farmers can end up 'borrowing from Peter to pay Paul' in an effort to make ends meet and to keep the show on the road.

This approach will, of course, ultimately, end in failure and take a considerable toll on all concerned.

So the important questions that need to be asked are:

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what is the business plan for your farm and how is it impacting on your family finances?

what does it actually cost to run your home each week, each month, each year?

how much money does the farm need to generate to sustain that?

Not answering these questions can, and does, have serious consequences often leading to family tensions, misunderstandings, arguments and a breakdown in communications.

Farm Household Budget

In the farming context there are all kinds of budgets. There is grass budgeting, fodder budgeting, dairy budgeting, nutrient budgeting. There should also be a family budget - after all, the primary focus of the farm business is to provide sufficient resources for you and your family.

There is nothing mysterious about drawing up a household budget.

It is simply a plan for the money you have allocated from the business to support your family in the short, medium and the long term and how you intend to allocate it for food, utilities, education, social life etc.

A household budget is important as it will show you and your family:

how much money you have allocated from the business for household expenditure

how much money is going out each week/month/year

how much money you can put aside for pensions, education etc.

how much you can put aside for a rainy day fund.

how much you can offer to those you owe money to

Having worked out a household budget you may realise that you are spending more than you have allocated, www.budgets.ie has some useful examples of budgets for different types of household.

Once you have developed a realistic budget for your household see whether your income from the farm is enough to sustain it.

If it isn't and you find you are struggling to make ends meet, you can:

see if you can allocate more resources from the farm business towards your household expenses

see if you can cut down on any areas of household expenditure without cutting down on basic items such as food, light and heat, social life etc. - unless you feel, in consultation with other family members, that you are spending excessively in these areas.

check that you are getting all that you are entitled to from the tax man, welfare, and other sources in order to increase your income to the business and so have more to allocate to your living expenses.

A great place to get this kind of information is on the Citizens Information website www.citizensinformation.ie

On the MABS website - www.mabs.ie - there is an interactive household budgeting sheet, a spending diary and much more information to assist you in drawing up a budget that is affordable and sustainable.

If you already find yourselves in financial trouble, the panel opposite shows that, with quick action, there are manageable solutions for all situations.

Michael Culloty is the National Development Officer with MABS

Case study...

John and his wife Mary farm 80 acres in the midlands. They have four children still in full time education.

John borrowed over €150,000 a few years ago for farm development. They also have a mortgage of €100,000 on the family home and debts to the co-op and credit union.

John and Mary came to MABS because they were finding it increasingly difficult to make ends meet.

The MABS adviser helped them to draw up a household budget which looked at their income and outgoings and their priorities were identified. The mortgage arrears was the most urgent priority so the advisor wrote to their lender seeking an affordable resolution of the arrears.

The adviser has also contacted their energy supplier to reach agreement on the repayment of arrears over time as well as writing to the co-op, credit union and other creditors to negotiate affordable and sustainable agreements.

The MABS adviser is also helping John and Mary to decide if any of the voluntary or statutory debt resolution solutions now available would assist them in resolving their financial difficulties.

Dealing with debt

Denial is one of the greatest problems that people face when dealing with debt. The 'putting your head in the sand' approach often leads to bigger problems.

Making contact with those you owe money to and making offers that you can afford are the most important steps in achieving a resolution. On the MABS website there is a step by step guide to dealing with debt. Sample letters to creditors are also on the MABS website (www.mabs.ie).

If you are in mortgage difficulty, MABS now has a dedicated mortgage arrears service to assist you if you have not reached a final settlement with your lenders. This service can be accessed by calling the MABS national Helpline at 0761 07 2000, Monday to Friday from 9am to 8pm.

Debt Solutions

People who are over-indebted or insolvent now have more options than ever before.

Voluntary Debt Settlement Arrangements

These cover debts settled within a seven year timeframe for relevant unsecured debt, under a protocol agreement MABS has with the major banks operating in Ireland, for people who do not qualify or do not want to use the statutory resolution route.

Debt Relief Notice (DRN)

These deal with unsecured debts under €35,000 for people on a low income with little or no assets. If terms and conditions are met these debts may be wiped out. This is a free service and is available from your local MABS.

Debt Settlement Arrangement (DSA)

These apply to unsecured debts of any amount. These include credit card loans, personal loans and store cards.

Personal Insolvency Arrangement (PIA)

These cover both secured debts (such as mortgages) and unsecured debts (such as credit card and personal loans).

Bankruptcy

This is now a 'more fit for purpose' solution that is being availed of by growing numbers.

While the insolvency options aren't for everyone there is merit in considering if they can assist in removing the heavy debt burden being carried by so many at such a great cost.

The Money Advice and Budgeting service is particularly well placed to assist people in over indebted situations. MABS is free, independent, confidential and non-judgemental. MABS has over 60 offices nationwide.

More information www.mabs.ie

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