From the time a little jingle gets a child’s attention until we depart this wonderful planet, money and finances, by association, are important to us all.
Money, in all its forms, affects and impacts our daily lives. Therefore, it’s a good idea to discuss and revisit some basic areas of money management.
Sometimes it’s helpful to go back to some basic principles of saving, investing, spending and financial planning to keep money in perspective.
Budgeting: This is an important, albeit not always popular, aspect of money management. An effective budget allows us to know and direct where we spend. It offers peace of mind knowing we’ve covered the basics. I recommend a budget be completed for one month; then you can change and update the numbers as needed. A simple Excel-based format will work. It’s amazing how many things touch our wallets over the course of a month. Keeping your spouse or business partners involved in this process really enhances the communication piece that’s so necessary with effective budgeting.
Saving & Investing: A long-standing recommendation regarding savings stipulates that we save at least 10 percent of our income. If practiced from our early earning years and sustained over time, the benefits are great. A dedicated savings plan, whether a 401k/403b as an employee or other plans for the self-employed, is an effective way to save. Benefits can include tax-deferred earnings, professional management, payroll withholding and possible company matching funds, compounding and more.
A 30-year-old starting with $1,000 and saving $500 a month at a 10 percent growth level would attain a balance exceeding $1 million over a 30-year period. Increase these numbers over time as earning increases and the retirement benefits will grow at impressive levels.
Whether you’re working for a company or are self-employed, find a trusted financial advisor that is also a fiduciary and utilize their expertise at a high level. Even though this is a long-term investment plan, it’s OK to adjust and change the plan’s direction when needed. Ask questions and stay informed – it’s your money.
Finance and Borrowing: Using borrowed money as a tool is a time-tested approach to add value to your operation. If the benefits exceed your perception of the risk involved, go forward and use the borrowed funds for your benefit. One word of caution, it generally makes sense to borrow strictly for tax purposes or because it’s deductible. Ensure the use of funds will benefit your farm or family.
It’s still a great interest rate market. If you choose to borrow, know your good credit rating should be rewarded through some level of preferred interest rates and other incentives. Again, don’t be afraid to ask. Lending, like so many other disciplines, is a competitive business. Every banker and lender appreciates those excellent, credit worthy deals.
Ken W. Knies is an agricultural and rural consultant. He holds a bachelor’s of science and arts from the University of Arkansas and a master’s of business administration from Webster University in St. Louis, Mo. He formed Ag Strategies, LLC as a business unit focused on quality borrowers and lenders.