Tag Archives: wealth

Ranching for Profit

I always chuckle a bit when i type out ‘ranching for profit’ because it’s almost an oxymoron!  Yet, David Pratt, owner of Ranch Management Consultants and Ranching for Profit instructor, contends that there is such a beast if we ranchers use sound financial and economic principles.

Mr Pratt’s most recent blog discusses using debt properly.  Now, okay, my mind goes immediately to the song, ‘Neither a borrower, nor a lender be.  Do not forget, stay out of debt.’  Which then led me to wonder where that came from.  I knew it was from Shakespeare’s ‘Hamlet’ (Polonius counsels his son, Laertes in Act-I, Scene-III of William Shakespeare’s play, Hamlet by saying, “Neither a borrower nor a lender be; / For loan oft loses both itself and friend.”  But what about the tune?

Completely surprised when i discovered that it was created and made famous on the TV sitcom, Gilligan’s Island, which i watched religiously when i was young.  SO FUNNY!  It is sung to the tune of the Toreador Song in Bizet’s Carmen.

The Bible also has advice on debt and teaches us to guard against being in debt, likening it to slavery and bondage.  However, debt does not seem to be a sin, but a tool to earn money wisely, but counting the cost before taking on the burden.

May 9, 2018
ProfitTips
from the Ranching for Profit School
A lot of people tell me that they want to be “debt free.” They are tired of making big interest payments on land, livestock, machinery and their operating note. They have had too many sleepless nights worrying about making the next payment. They believe that if they didn’t have to borrow money they would be more profitable and financially secure.
But the proper use of debt makes us more profitable, not less. And being debt free doesn’t make us financially secure. In fact, for most of us, short of winning the lottery, the appropriate use of debt is our only realistic path to financial security.
The problem isn’t debt, it’s our misuse of debt. The two most common ways we misuse debt are:
  1. We put finance first and economics a distant second
  2. We use debt on the wrong things.
Using debt effectively begins with understanding the difference between economics and finance. It boils down to this: In economics we ask, “Is this profitable?” In finance we ask, “Can I afford to do it?” If we are going to be smart about our use of debt, economics must come first. If it isn’t profitable you don’t have to worry about how you’ll pay for it, because you shouldn’t do it in the first place.
Smart Debt
Economics vs Finance
When RFP grads evaluate the profitability of a livestock enterprise they include opportunity interest on the herd as a direct cost in the calculation. If the enterprise has a healthy gross margin it tells us that borrowing money to expand the herd will increase profit. If we haven’t included opportunity interest in our calculation we can’t be sure if expanding the herd is a good idea.
Opportunity Costs
The other problem is that people use debt on the wrong things. There are two primary places where we put money in our businesses: fixed assets and working capital. Simply put, fixed assets are things we intend to keep (e.g. land, cows, infrastructure, vehicles, equipment). Working capital is the money tied up in things we intend to sell (e.g. calves). Most of us have most of our money invested in fixed assets. This is the biggest financial problem in agriculture. It’s a problem because when most of our money is tied up in things we intend to keep, we have relatively little to sell and generate very little income relative to the value of our assets. Making matters worse, a lot of the income that we do create gets spent maintaining the fixed assets. That’s why most ranchers are wealthy on their balance sheet and broke in their bank account.
Borrowing to buy fixed assets may be a smart long-term investment strategy, but it might cause you to go belly-up in the short term. We’d be better off to use debt to buy assets that directly produce income.
We shouldn’t be afraid to borrow money, provided the economics of our enterprise is rock-solid and we use the borrowed money to buy income producing assets.
2018 – 2019 School Schedule
Sept. 9-15, 2018
Boise, ID
at Holiday Inn Express
Dec. 2-8, 2018
Abilene, TX
at MCM Elegante Suites
Jan. 6-12, 2019
Colorado Springs, CO
at Radisson
Jan. 13-19, 2019
Billings, MT
at Billings Hotel
Jan. 20-26, 2019
Rapid City, SD
at Best Western Ramkota

Making Investments vs Creating a Job

Economic definitions:

Investment – an investment is the purchase of goods that are not consumed today but are used in the future to create wealth.  to put (money) to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value.

Job – a paid position of regular employment.  a piece of work, especially a specific task done as part of the routine of one’s occupation or for an agreed price. Everyone has goals in life – some will involve being financially secure.  If you are interested in building financial wealth, there are a few basic premises which need to be incorporated into your plans.

1) Your saved dollars must be put to work!

2) Break free from the bondage of financial slavery by changing your spending habits

3) Invest in yourself – education or your own business

4) Learn to manage the money you do have – more money will not necessarily fix your financial problems

5) Debt is a hard task master – avoid it!

6) Use your income from a paid job to make investments that will gain in value while you continue your paid job.  Later you can retire from your job and enjoy your investments.

Many, many economic experts have different ideas about how to invest, so it’s up to you to decide who or what you want to invest in.

Dave Ramsey Investing Philosophy

How to Become Wealthy  – Nine Truths that can Set You on the Path to Financial Freedom

Rich Dad/Poor Dad – Dave Pratt, Ranching for Profit newsletter

Shabbat Shalom!

tauna

David Rankin, Farmer, 1906

In a recent farm magazine, a young farmer was recognised in an article as one of  America’s (United States)  best.  Lo, and behold, he is from Tarkio, Missouri and the article made mention of David Rankin, Missouri Corn King, who died in 1910, but had amassed 30,000 acres, 12,000 head of cattle, and 25,000 hogs. It was reported that he raised a million bushels of corn in a single season, much of it from a 6,000 acre field.

David Rankin, Farmer: Modern Agricultural Methods Contrasted With Primitive Agricultural Methods By The Life History Of A Plain Farmer (1909)

So, i did a quick search online about Farmer Rankin and to my delight, discovered he wrote a small book about his life and how he managed his assets to obtain such wealth.  ALthough the writing is not fancy and sometimes seems disjointed, his simple outline is a great insight into basic business management.  Some of his early income would have been taxed at a 3%-5% rate, but that income tax was rescinded in 1872.  Full on income tax didn’t come about until 1913.

But the crux of his idea, is to invest in time saving modern implements and buy land.  For a time, he was paying 17%-18% interest on money he borrowed to buy land.  Granted, he had some good hits that were just plain lucky, but not always.

You can read his short book here for free online or it can be ordered for a modest amount on Amazon.