Unfortunately, most farmers and graziers have either never heard of Financial Freedom, or they think it doesn’t apply to them. It’s usually as far from their train of thought as thinking about what the city folk are having with their decaffeinated almond milk lattes!
If I asked my Dad what financial freedom is, I reckon the conversation would go a little like this:
Me: “Dad, do you know what financial freedom is?”
Dad: “Never heard of it son.”
Or, “I’ll work until they carry me off in a box!”
Or, “My farm is my superannuation.”
End of conversation
So let’s begin with a definition of financial freedom:
Financial freedom means having enough “off-farm” assets, generating enough income, indexed to inflation, to cover your annual costs of living, without having to work, for as long as you live!
You might be thinking, “What a mouthful!”
Or you might understand what I mean by Financial Freedom but be asking why it’s so important and how it applies to you.
Here are five reasons it’s VERY important to you:
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 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 with as little debt as possible, leave an estate or just help your kids out, then soley having the farm as your superannuation might not be enough.
Reason #2:
An agribusiness with too many mouths to feed will struggle (or die).
Life expectancy is now pushing up near 90.
So if you don’t provide for your retirement and the kid (or kids) to take over the farm, the family farming business may be financially providing for up to three generations once your grandkids are back and keen for their go!
Few agribusinesses can financially support that many family members (or differences of opinion) and one that does definitely will not thrive.
Reason #3:
Building “off-farm” assets can offer some tax breaks
An example of this is superannuation which when used correctly can be taxed at concessional rates to encourage you to use it so why wouldn’t you?
We all love a tax break!
Reason #4:
‘Off-farm’ assets can in some cases be liquidated in a time of crisis
In a severe drought, an investment property could be used as security for additional lending or a share portfolio might be fully or partially sold to tide you over in a tight period.
Reason #5:
You can’t work forever.
There does come a point where old muscles don’t do what they used to or 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 the things you actually want to do – instead of the things you have to.