Now is the time to prep finances for the coming year
Well, we made it through 2020. I am glad to be ushering in the New Year with everyone else. Work on the farm is always busy. I know many are trying to finish off-season projects before the spring “green up.” However, just as we prep a field for planting, this is also time to prep our finances for the coming year. Here are a few thoughts that may benefit you as we head into 2021.
Let’s talk about government assistance programs
The last minute COVID-19 relief package recently passed by Congress included some much-needed assistance for American farmers. This is in addition to the two separate COVID-19 relief payment programs that took place last year. With everything that happened last year, it is easy to forget we had a very dry period in many areas going into August/September. In addition to the COVID-19 assistance programs, many areas of Southwest Missouri were also declared drought zones and there have been relief programs established for that as well. There may be additional relief packages as we start the New Year and head into spring. Be sure to visit with your local FSA office about eligibility and necessary paperwork.
Let’s discuss the low rate environment
If COVID had a silver lining, it would be the low interest rate environment. If you haven’t looked at your agricultural financing lately, now is the time to do so. Talk with your loan officer about the possibility of refinancing. Rates are at historic lows. There are many benefits when it comes to refinancing and it could lead to significant savings down the road. Some potential benefits include:
Lower interest rates: A drop in rates could lead to less out-of-pocket costs over the life of the loan.
Shorter Loan Term or Lower Monthly Payment: Lower interest rates may give you flexibility to finance a shorter term at a similar payment. Or, you may elect to keep your current term but lower your monthly payment.
Building equity faster: By keeping a similar payment more money goes towards the principal thus building equity faster.
Reach out to your lender for advice on your specific situation on whether a refinance makes sense.
What about your emergency fund?
Typically, I recommend you have three to six months worth of expenses set aside in a checking or savings account. This is money you will want to use for unexpected events, such as a surprise medical bill, costly equipment repair or perhaps a pandemic. An emergency fund is vital to keeping you afloat during turbulent times and goes a long way toward keeping you out of unnecessary debt.
Have you considered retirement?
Many farmers get to retirement and are asset rich, but cash poor. They have a lot of equity in land, livestock, equipment, etc. However, these assets can have a lack of liquidity. Land has proven to be an appreciating investment over time, but it doesn’t give you a monthly paycheck unless you are continually farming it either through livestock or crop cultivation. At some point, you may not have the desire or the ability to work as hard on the farm as you did when you were younger. We encourage you to look to diversify their assets by looking at additional investment options. These assets can help generate income in retirement and give you liquidity that you may not have with your land.
Brian Drane is a financial advisor, LPL assistant vice president at Central Investment Advisors. He can be reached at (417) 841-4386.
