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Personal finance seems to be one of those hush-hush topics no one’s supposed to talk about. We aren’t taught it in school, your parents may have talked to you about it, but generally it’s a social no-no to bring up.
As homesteaders, we have a unique set of challenges, due to the lifestyle we want/chose. Homesteading and personal finance go hand-in-hand. Oftentimes, it’s due to financial hardships that people want to live life more simply, economically, and homesteader-friendly.
So as homesteaders, how we look at money can make or break us. It can be the difference between 1 acre and 100, between this breed of livestock or another, between thriving and hardship. Here are the most important rules I’ve learned in my homesteading adventure:
Daydream about your perfect homestead, the lifestyle you want, the quality of relationships. Do you want to be able to know everyone in your town, and have everyone know you? Do you want a large agricultural operation, or a small backyard garden? Do you want to live off of what you grow, or making a living off of it?
Knowing what your dreams are, means you know what your goals are. And knowing what your goals are, helps us to plan and make the correct financial decisions in our lives. It’s also a great motivation to buckle down and do the things we don’t want to do, because we can see how it will help us get closer to our dreams.
Get Out Of Debt
If you’re one of the lucky people who are already out of debt, you have my admiration. Growing up my grandfather always told me two things about money: Save 10 cents of every penny you earn; and don’t ever borrow money. I’ve been able to save 10%, but not borrowing money is easier said than done.
I needed a car, and didn’t have a couple thousand to spend. I racked up a lot of credit card debt during a divorce, but it was necessary to get out of a bad relationship. Now that things have settled down, my number 1 financial goal is to get out of debt.
Borrowing money for anything, credit card, car loan, even a house, means you’ll end up paying more than it’s worth in the long-run. Banks benefit from people’s impatience to wait, save up, and buy something out-right. Getting out of debt means you are your own man/woman, and no one owns you, and that you, alone, own your own property. It’s worth its weight in gold.
So how do you save 10% of everything you earn? How do you buy things out-right instead of borrowing? You build a budget. Budgeting sounds awful, constricting, like an adult time-out. I often have child-like pout-fests when I have to budget, but it’s the one sole tool you have to accomplish your homesteading dreams.
If you’ve never created a budget, or if you have an old one that needs revisiting, the first step is to write down all of the assets you own (your home, your vehicles, any precious metals, investments, etc) in one column, and everything you owe in the next column. Your assets minus what you owe is your net worth. Your net worth is the northern star you’ll use to know if you’re headed in the right direction.
By building more assets, and reducing what you owe, you’ll grow your net worth. Increasing your net worth is the name of the game.
Once you have that listed out, you can begin to list all of your monthly income and expenses. There are great worksheets out there with different categories to help with this process. Start with your monthly income. If it’s very variable, average it out or create separate budgets for summer and winter, for example.
Then list your expenses: start with your regular monthly expenses: those that don’t change too much, ie rent/mortgage, car payment, car insurance, etc.
Then list those variable expenses: heat, water, food, etc. Try to average out the variable expenses, but go on the high side jut to be safe. Hopefully, when you subtract your expenses from your income, you have some left over.
One major expense you should include every month is paying yourself 10% of your income into a savings account. Do this regardless of if you have enough money left over at the end of the month. This is way more important than paying any of your bills.
If, after paying yourself 10%, you’d in the red, start finding things you can cut out of your budget: cable, eating out, clothing, gas, lower your cell phone bill or car insurance. I’ll write another post on ways to save on common every-day things.
Everything Has A Price
This concept is extremely important for homesteaders to understand. Everything has a price. Every expense you’re contemplating making on your homestead should pay for itself.
When getting chickens, for example, add up how much you’ll spend on feed, bedding, shelter, even your time to go collect the eggs every day. If you can’t make that money back in either selling eggs, chicks or the meat, or save that much money by not having to buy eggs or meat, they’re not the right choice for you. When buying chickens for eggs, think about the numbers: chickens will eat roughly 1/4 lb of feed a day, begin laying at 6 months, lay 1 egg a day or every other day, and may lay until they’re 5-7 years old. Now add the cost to buy them, and the probability of them being eaten by a predator. Add the expense for a coop, and fencing to protect them.
Only by crunching the numbers will we know if it’s a good idea or not. Most people don’t get chickens solely for the financial gain, however, but for pest control, and as pets.
These too, will have a price. How much is pest control worth to you? How much is the pleasure of seeing them running around your farm worth to you? Or the satisfaction of knowing where your eggs came from? All of these should have a monetary number. Once you understand everything that’s going into the choice, you can make better decisions.
Your time, as well, should have a price. If you could get paid $13/hr working in the city, make sure you are paying yourself $13/hr to farm. Yes – your lifestyle on your homestead will be much more pleasant that working for anyone else, but your success will be based not only on the quality of life, but also on where your time would be better spent financially.
These are just some of the things I’ve learned about finances on the homestead. Have you learned anything specific on your homesteading adventure? I’d love to hear any other advice or wisdom you’ve heard through the years!