5 Reasons Every Farmer Needs to Know About Financial Freedom

Most farmers have either never heard of Financial Freedom, or think that it just doesn’t relate to them.

If I asked my Dad, who by the way is a farmer, what Financial Freedom is, I reckon the conversation would go a little like this:

Me:       “Dad, do you know what Financial Freedom is?”

Dad:     “What the bloody hell is that? Never heard of it …” or

            “Why would I worry about that? I’ll work until they carry me off in a box son……” or

            “I’ll worry about that later”, or

            “The farm is my superannuation…”

If I asked my Mum, who has spent her adult life farming with Dad, it would probably go a little different:

Me:       “Mum, do you know what Financial Freedom is?”

Mum:    “No, what’s that?”

Me:      This is where I go into my big,’ this is what financial freedom is’ spiel……….

Mum:    “I don’t want to keep working this hard forever, so that sounds like my cup of tea”

For most farmers, thinking about being financially free (or retirement) is as far from their train of thought as thinking about what the city folk are having in their decaffeinated almond milk latte’s right now!

For you, this might be the case (hopefully not if you are reading this), however I can tell you right now, Financial Freedom is something you’d better start thinking about. Stay with me and keep reading.

Where do we start? Firstly, we need to start with a definition:

Financial Freedom means having enough “off-farm” (or “non-business”) assets, generating enough income, indexed to inflation, to cover your annual costs of living, without having to work, for as long as you live!

Now that mouthful is out of the way and before you hit the snooze button and zone out, just take a moment to reread that.

If you missed them, there are 5 key points you need to consider:

• … enough off farm assets
• … enough income
• … indexed to inflation
• … without having to work
• … for as long as you live

Why is it important for you to build “off-farm” assets and work towards Financial Freedom you ask? Great question!!!

Here’s are 5 reasons it’s VERY important: 

Reason #1: If you build enough “off-farm” assets, you will have a much higher chance of handing on a VIABLE business to the next generation.

When you (or Mum and/or Dad) retire, someone has to pay the bills. You still have to eat, pay the electricity, put fuel in the car, pay for medical insurance etc and you must have enough assets to generate the required income to cover all your bills.

Selling the farm might allow you to do that but if you want to hand on the farm, leave an estate or just help your kids out, then you need to be very interested in achieving financial freedom.

Just imagine if you got to ‘retirement’ and had enough off farm assets to fund yourself, how much easier would it be to hand on the farm and live a comfortable and secure retirement?

Reason #2: An agribusiness with too many mouths to feed will struggle (or die).

• Life expectancy is now pushing up near 90 and  if you don’t provide for your retirement and the kid/s take over the farm, the family farming business may be financially providing for possibly 3 generations.
• By the time you pass away it is entirely feasible that your grandkids will be all grown up and wanting their go at running the farming business. ‘Killing the goose that lays the golden eggs’ comes to mind right now, doesn’t it.
• Few agribusinesses can financially support that many family members/generations and one that does, definitely will not thrive.

Reason #3: Building “off-farm” assets can offer some substantial tax concessions

Especially if you use superannuation. We all love a tax break during a good year! This is a topic that could take up an entire book in itself.

• Farm Management Deposits (FMD’s) are a great way to balance out income over the years. However, there are limits on how much you can hold in FMD’s. Also, holding substantial amounts of cash at such low interest rates, for a long time, may not be the best use of your funds.
• If it wasn’t for tax, superannuation wouldn’t exist. You would just invest in your own name. Superannuation is taxed at lower rates to encourage you to use it and why wouldn’t you?

Reason #4: ‘Off-farm’ assets in some instances can be liquidated in a time of crisis

​For example during a severe drought to prop up the agribusiness. Whilst this isn’t ideal, I have seen it used as a valid and critical lifeline time and time again.

• In the example of an investment property it could be used as additional security for more lending. Using a share portfolio as an example, you could sell some or all of the portfolio. In both of these examples the funds could be used to tide you over in a tight period and that’s got to be good.  

Reason #5 You can’t work forever.

The ladies reading this will usually know what I am talking about here. They have spent countless hours banging their head against the wall, trying to get the men to understand this.

• There does come a point where old muscles don’t do what they used to, or you get to the point that you don’t want to work all the time. You might want to travel, spend time with the grandkids or maybe you just don’t want the pressure.
• If nothing else, having non farming income coming into the household will give you more chance to do what is it you actually want to do.

So where do most farmers get it wrong?

• They never actually give any consideration towards preparing for Financial Freedom. They wait until they get to the point that they want to stop (or are forced to stop) working and the only solution is to sell the farm. For most families this is a fail!
• They have all their wealth tied up in the farm and never think about building their “off-farm” wealth. This is a major reason why many Rural Succession Plans fail or are unable to be implemented. The cost of funding retirement generally makes the agribusiness unviable and it is fully or partially sold or best case, struggles.
• They have all the good intentions of building “off-farm” assets but don’t get good advice, they dabble, get their fingers burnt and then decided it is all too hard and give up.

So, what do the successful agribusiness owners do?

• They are realistic –they know that they will need to achieve Financial Freedom and they accept this.
• They know that the agribusiness cannot provide for 2-3 generations, and they build a financial exit plan (other than just dying).
• They find out early what they need to do over time to prepare i.e. they find out their Financial Freedom Number, what they need to do annually, review the plan regularly and adjust as required. In other words, they get good advice and implement it!

On a final note, if this all resonates with you, here are a couple of things to remember which I will be addressing in my coming blogs:

• Building “off-farm” assets is simpler than you think. It doesn’t have to be rocket science, but the assets do need to be high quality and well diversified – not just a holiday unit on the beach or cash in the bank.
• You need to work out with your advisers what Financial Freedom looks like to you and make your plan to achieve it.

Cheers​