Fiscal Responsibility and the 2012 Crop Year

At one time or another, we learn the lessons of fiscal responsibility. Some of you may have learned them before you were 12 by managing an allowance. Some of you still might not have this down and that's why you're reading this post.

Being fiscally responsible sounds simple; spend less than you make. But the challenge becomes more complex when the income you make grows substantially and you find yourself operating in a whole different dimension.

Think about lottery winners. Suddenly they have more money than they've ever had. Follow lottery winners ten years down the road and you'll often find someone who is having financial difficulties despite their wealth. They entered a new dimension where the price tags on the items they purchased were completely beyond their experience.

The same thing happens with many professional athletes who come from poverty only to find themselves 5 or 6 years later as pro athletes with paychecks beyond their comprehension. 

Agriculture has recently seen prosperity. We're the rock stars of the economy. The challenge is refraining from spending like rock stars. This is our opportunity to build working capital rather than to buy everything we've always wanted.

Our company works in many areas of business that touch a farmer's finances. We began the business 17 years ago solely in the commodity marketing arena. Some years back we noticed a trend that follows particularly successful years for our farmers. We heard comments about financial stress, even though farmers had just experienced a very good year. Some had entered the dimension of lottery winners and professional athletes. That's when we decided it was important to connect financials to commodity marketing and help farmers manage the money they earned in a good year.

Think about those people who go to college to become doctors and lawyers. They graduate and start their jobs, sometimes spending their earnings even before they're in hand. They want to look like a doctor or look like a lawyer. They are not spending based on what they earn, but rather on what they anticipate earning in the future.

If you had a good 2011 and are anticipating that 2012 is going to be a rerun of 2011, you need to think about the concepts in this article. The year will likely be less prosperous than last because of higher input prices and commodity prices sitting in a lower range. We don't know at this point. But the fiscally responsible thing to do is not to spend based on what you think is coming.