Saturday, July 4, 2015

Budget Triage

January 1999

When the dust had settled from 1998, I wearily began the plan 1999. I had a cashflow projection from several months ago, and when it updated from the final figures from 98, and was modified for changes that had happened on the farm, I saw to my horror a less than satisfactory margin.

Since raising income, always a good idea but very hard to accomplish, was not going to solve the whole problem, Jan and I took the knife to our expenses, amputating in an effort to save the patient.

This is not easy to do either. Most expenses tend to look reasonable, or “appropriate” as we say today. We do not squander money on frivolous luxuries. We invest in needed goods and services. Soon the discussion became pretty defensive.

There is a strange tendency in farm budget decisions to look at “family living” as the evil demon that causes all the problems. In fact, when farmers talk about cutting back, they usually start by making a pronouncement about living expenses. 

This prejudice offends my mathematical sensibilities. Looking for savings is best accomplished by looking at large expenses, and household expenses are not  at the top of the list compared to many farm expenses. Too often, in my opinion, the wife is expected to make up for inefficiencies in the farm. There also seems to be some sense of justification for overspending if the expense is tax-deductible. Those dollars, despite their IRS status must be generated the same way, however.

Our budget cuts:
      1. Major capital improvements:  This is pretty obvious.  Cancel the newer truck and truck shed. 
      2. Interest:  I pay a load of interest to my bank. To reduce that outlay, I am refinancing several parcels of land into a much easier to underwrite package. I have proposed, after some research, a scheme to my lender that has been approved and will cut my interest about $4000 this year.
      3. Fertilizer:  Prepare for agronomic blasphemy: I am making a withdrawal from the “soil bank”. For many years we have been in a buildup program on fertilizer. Dropping back to maintenance or even sub-maintenance levels for one year will have minimal, if any impact. Using a straight-spread instead of VRT saves about $3500 on top of the  $5500 materials savings. This sends a clear market signal to my supplier as well.
      4. Repair: The great mystery category.  Detailed analysis of my spending in this category produced the following decision - no new power toys - er, tools, period. Also, my tendency to replace the whole assembly when one small part shows wear (sickles, sweeps, rasp bars, etc.) can take a one-year vacation. Savings goal: $3500
      5. Chemicals: Based on totally unscientific research of my own, I have decided to cut back on first-year rootworm insecticide in the middle of large (80+ A.) fields, since egg-laying seems to be concentrated in the edges. (Yes, I realize the guarantee is void.)  Savings of about $4000 
      6. Insurance: Recheck my farmowners/vehicle for deductibles as high as effective. Eliminate all “first dollar” coverage. Make sure the inventories covered are accurate and reasonable. Surf Internet for auto coverage quotes. Target savings $500
      7. Office:  Several areas of fertile budget cutting. Subscriptions - eliminate duplicate sources of information. One source is getting me most of what I need.  Lose other services this year. Office expenses - stop upgrading every computer program just because version x.0 is out. No hardware upgrades. (Ouch!) Lose computer mags.
      8. Capital equipment: Sell my excavator. (sob!) I wanted to get a different kind anyway, and a 2-3 year hiatus won’t be a big sacrifice. Also sell some wagons and never-used tools at a consignment auction. Capital freed: $15,000
      9. Taxes: I have always tried to resist frontloading expenses, but paying some operating interest early could save $4000-5000. I’ll hate myself years from now, of course.
      10. Household expenses
        • Insurance: Stop term insurance on Jan. Our boys are grown, and their education was the rationale for the coverage. (We replaced my term insurance last year and saved $1200) $500
        • Food: If you track it, it is amazing what you can spend on alcohol, even one drink at a time. I don’t vist the tavern, but do enjoy wine with dinner. Cutting back our wine consumption is a good thing for many reasons. If you drink, keep track for a month what it costs - could be  a surprise.) $400
        • Rigorous vacation planning: new Internet techniques for travel can cut our vacation costs, if we plan better. $500
        • Clothing: Keep my weight down so my old pants and suits fit. Throw out Lands’ End/Speigel catalog. $800
        • Home: Moratorium on kitchen investments, magazines $300
      11. Miscellaneous
        • Change bill paying date from monthly to weekly to eliminate the credit cards that come due right on the wrong day so I keep getting a late payment charge, even though we always pay in full. Also I’ve noticed they are starting to squeeze the traditional 30-day grace period. $100
        • Scale back Christmas (easy for us - no grandchildren yet) $500
        • As a last resort, consider paying the minimum principal due on long term debts. We have always tried to pay at least at little more than required. Possible savings: $3000-5000
It wasn’t fun, but we both feel better.

I think.

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