Recently, I conducted a webcast with over 1,300 participants from across the nation. The power of technology in the digital world can be an awesome tool; Generation Z calls it “phigital.” In other words, it is accepted to present one’s physical presence through digital technology. Actually, it isn’t bad option for a vintage baby boomer, either!

On the webcast, one lender asked, “What is a good guideline to use today for family living expenses for a family of five?” In this case, a Midwest family has one child in high school, one in middle school, and one in grade school. Well, this is a great question. Let’s examine what should go into the numbers.

First, there is no such thing as average family living cost because of the wide disparity among family variables. Farm record data finds that after separating farm groups into the top, middle and lower thirds, there is a 40 percent variation in family living from the top to the bottom. With that said, family size is a significant factor. For example, for a family of 4.6, the average family living cost was $94,710 compared to $67,545 for a family of 2.9. This amounts to an almost $30,000 difference.

In determining a good guideline number, the lender should attempt to ascertain, at least at a basic level, whether the family variables point to the higher or lower categories. For example, what types of vehicles does the family own, what area do they live in, and how big is the family? In my experience, families that live closer to an urban area or a satellite city face living costs that are approximately 20 percent higher than more rural areas. Education is another consideration. Where are the children going to school? Tuition for a private school can be quite different from costs for homeschooling.

Another area that impacts family living costs is healthcare. Some families opt for higher deductibles in an effort to lower costs. This can result in sporadic expense patterns, but may be sufficient for relatively healthy families. In addition, some of today’s farm families have the added expense of other dependents such as older family members, which will cause a significant increase in costs.

After considering as many family variables as possible, a few rules of the road can help yield a reasonable budgeting figure.

• Request the producer to estimate a monthly figure for family living cost, and then add 25 percent.
• Examine any commingling of family and business expenses. It is not unusual for this number to total 20 to 30 percent.
• Be careful of the miscellaneous category. If it is more than 10 percent of the overall budget, these costs need to be broken down further.

Finally, separate your customers into family living cost segments. The lower end of the spectrum will generally spend between $40,000 and $70,000 annually. The higher end typically spends $95,000 to $125,000 per year. As a comparison, the average family living cost from Nebraska Farm Business Association was $83,210 for 2016.

In summary, the advice of Dr. Alex White of Virginia Tech is especially applicable in determining family living costs. A professor of personal finance, Dr. White recommends having a producer track family living expenses for one month. From his experience, he reports most producers will be in for a big surprise!