Monday, September 10, 2007

Dave Ramsey's Baby Steps ... for Farmers

Farming today is an inherently risky business. When a small or beginning farmer borrows money they create an obligation to repay the debt. Uncertain weather conditions, changes to markets, rising interest rates, credit availability, changes to the Farm Bill, and many other events beyond a small and beginning farmer and rancher's control — can affect the prices they receive for their crops and can have a profound affect on their farm finances and ability to pay back their farm loans.
— Intro for "Growing Power" Conference

I am not a farmer, nor have I played one on TV, nor have I slept at a Holiday Inn Express in the last month. Thus I cannot pretend to know all the benefits and challenges that today's small farmers face. What I can do, though, is receive questions by email, and then offer them up to my readers for opinions and advice.

Here's the question I received:

My husband and I farm. We both have the desire to be debt-free. How can we, as farmers, and having a farming business that lives year to year on loans, make the Baby Steps plan work for us? The problem is that farming relies on a great deal of money every year to put a crop in — upwards of $30-50,000 a year. The [profit], consequentially, in years past was not that good. With the bio-fuel industry getting started, it is looking better. The question is, when you have to borrow to put in a crop, and pay it back at the end of the year, how can you feasibly work this plan to your betterment?

It's hard for me to lay out what Dave's response to this would be; in the end, I'm just making an educated guess. But here's what I'd guess:

Each year youíre borrowing money to run your business (farming). What you hope is that your yearly crop will provide enough revenue to pay back the loan, the interest, cover any other costs of doing business ... and also provide you with income over and above all this.

Dave Ramseyís overriding idea is that we all should save enough money so that we DONíT have to borrow at all. Ever. For anything. This would apply to your business interests also: Save up money, control costs like crazy, earn extra on the side somehow, sell stuff, or whatever — accumulate savings so that you donít have to borrow to get the farm, or store, or shop up and running each year.

Or, put another way: Accumulate money, setting some aside each month and each year in what is essentially a Freedom-Account-like concept, so that you have to borrow less and less each following year ... on your way to eventually having to borrow nothing. At that point, you're entirely self-sufficient, and surviving on the merits of your own capital and skills.

As I glanced back through my copy of Total Money Makeover (review) tonight, I couldn't find anyplace where Dave made exceptions to his plan for folks with "out of the ordinary" occupations, or for self-employed persons. He does mention that such situations create an even deeper need for strict budgeting (thanks to uneven incomes over time).

I know this: Ramsey displays a definite affection for businesses which are run debt-free, and he isn't shy to declare the merits of such. Farming is a business like any other, and it's subject to cyclical risks (and rewards) like any other.

Is there a difference between debt used to finance a business (farming, in this case) and debt used to finance the purchase of consumer stuff? Absolutely there is. We take on the first in order to (hopefully) earn a return; we take on the second often because we're impatient, immature, or we simply didn't plan very well.

But just because one reason for taking on debt might be "better" than another, it doesn't mean we're in the clear. Leverage, regardless of its intended use, brings risk in the door. (Yes, even small-time ventures like credit-card arbitrage.)

Besides: Farming is a tough gig, no matter how you look at it. Why rely on the bank to finance your livelihood if you don't have to?

And so, Dear Reader, I'm asking for any and all thoughts on this topic. What guidance might you offer to the couple who emailed me — a couple who has apparently (like so many farming families) relied on leverage every year to get their noble pursuits off the ground?


— Posted by Michael @ 10:16 AM


I don't have an answer other than have a good sense of what you're doing before you get into it and risk that kind of money....or you could blog to beg for money like this family did and get $53,000 paid off on their subprime mortgage in less than two weeks ( I hate to see their tax bill for 2007.

I guess you could say "Jesus saves". (pun intended).


I am convinced that people with Irregular/Cyclical/Seasonal income need to have what is called a "Known Slumps Fund" more than anything. Before debt is attacked. Before vacation. Before anything!!!

When you have a "Known Slumps Fund" of three to six months of expenses (this is NOT the emergency fund), life can cruise along smoothly while the income varies with the seasons.

I recently wrote a series of posts on managing irregular income at

I hope this helps add some more helpful information to the conversation!

** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
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Savings Goal: $15,000
Currently: ~$15,115
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