People who postpone their annual dental check-up often pay the price down the road. Problems that go untreated get worse, more painful (physically as well as psychologically) and more expensive to correct. Much the same applies to personal finances as they relate to your lifestyle farming operation. They should be reviewed annually, as well. Procrastination can be financially very painful. An annual checkup allows you to be proactive rather than reactive in developing a plan for corrective action. The result is financial success, and independence now and in the future.
Lifestyle farm operations are defined as farms under $100,000 in gross revenue with dependence on off-farm revenue in managing the household budget. The major challenge is balancing the pleasures of the farm and rural lifestyles with commitments of off-farm employment. This requires an astute management of business and personal financing and investments.
An extensive financial analysis of a lifestyle farm includes examining a wide spectrum of criteria, ranging from the cash emergency fund, credit usage, debt levels, investments, insurance, long-term estate planning, and even time management. Following is a 10-point checklist to evaluate your current status. Age, personal and family circumstances, and goals can influence the interpretation of the results.
The analysis of each criterion is analogous to a stoplight. A green light, which represents a score between eight and 10, indicates strength or progress. A yellow light represents a range from four to seven, and denotes some weakness and the need for corrective action. A score of zero to three (a red light) suggests major weakness and the need for immediate corrective attention.
While general guidance in ranges is provided, it is up to you to determine the specific score. The following is an overview of the criteria and components of the personal financial scorecard.
What you need to complete this tool?
- Complete up-to-date balance sheet
- Farm/ranch tax or accountant records
- Wage and earnings statements