Living debt free

I had a feeling a lot of people on Permies would be debt free. Certainly more than your average. It's pretty interesting!

While I understand that using credit cards but paying the balance every month is technically debt free (I wouldn't even call it a grey area as long as you aren't carrying a balance month to month) I struggle to believe it is a good moral or permie choice to make. Credit card companies aren't npo's just looking to give everyone a free vacation for paying their bills on time. They make money from people who fail to pay their bill on time. They may so much money from people carrying over a balance that they are willing to share that with more responsible people for 2 reasons I believe. 1- A very small percentage actually get to use these benefits in any meaningful way, it is really just a marketing gimmick. 2- Even if you are paying your balance monthly, I imagine they are able to gain funding and investments based on total membership and credit allowances. Either way, they are making money off of you, and the"free vacations" are really paid for by someone who probably won't be able to afford a vacation ever. This isn't making the world a better place. It isn't thinking long term. Its just thinking longer term than the person carrying a balance. If every cardholder refused to carry a balance, there would be no perks and no credit card companies. I realize this come across overtly preachy and holier-than-thou, but it isn't meant to pass judgement. This is America, and I'm not your dad. You're free to do what you want. My living certainly isn't above reproach. Hearing (reading) someone talk about how easy it is to win with credit cards just gets me, like stepping on a thorn. It is only easy because it is so very hard for so very many other people. I'll step off my soapbox now...

Mike Jay wrote:

Mike Barkley wrote:Write in the note section of the 13th check "paid toward principle only".

 This is critical when paying extra!  Otherwise they'll happily just apply it to the interest, which is in their best interest  When doing this online, there should be a check box or something to ensure extra payments are going towards principle.

I have to laugh, when I started the monthly overpayments, which I wanted the "extra" to  go to principle only, my bank royally messed it up. (several times) After many phone calls, my account was sorted out, and they did the right thing, and applied the extra payments when they should have been applied, but my solution was on my statement ticket (the bottom portion I sent back every month) I included bright colored (red) arrows and instructions showing the full breakdown of the payment I was sending. I actually wrote out the math equation version of payment + principle only = total enclosed, and annotated each line as such. (I wrote the same on my checks) After about a year of annotating my "ticket" the bank revised their monthly statements, and included lines where you could add in any additional principal or interest that you were sending in each month. I'm not sure if my comical notes were the cause, or just a needed overhaul, but I've never had an issue with them mis-applying our payments since I started that, and now that they have made it clear on their tickets, it's been much easier to add the extra in each month!

Anthony Cooley wrote: I struggle to believe it is a good moral or permie choice to make. Credit card companies aren't npo's just looking to give everyone a free vacation for paying their bills on time. They make money from people who fail to pay their bill on time.

You make some good points here, Sorry, I don't know what a npo is. I have not had a balance on a credit card in more than 15 years. The credit card companies give me the cash back option for doing business with companies that accept their cards, My credit card companies are always contacting me to offer a lower interest rate.  Why since I have no balance?  I just ignore their offers which might not be wise.  I just have others things I prefer to be doing with my time.  Plus, every month I get plenty of credit card companies trying to solicit my business.

Hearing (reading) someone talk about how easy it is to win with credit cards just gets me, like stepping on a thorn. It is only easy because it is so very hard for so very many other people. .

Every time I swipe my card at a business the credit company makes money.  They charge the business.  It may not be a lot but it adds up every time someone uses a machine.

And then there is always the possibility that something might happen and I will not be able to pay the balance and have to start paying interest.  

Anne Miller wrote:
Sorry, I don't know what a npo is.

Non-Profit Organization

If every cardholder refused to carry a balance, there would be no perks and no credit card companies.  

In my opinion we would all be a lot better off if that happened. THERE IS NO EASY BUTTON. Unless you're a credit card company.

I have so much to say on this subject, but sadly my wife is a banker so I cannot say much. All I will say is: Credit Card Companies are NOT your friend.

Dave Ramsey is great.  Both of my older daughters listen to him on the radio when they are in their cars, and I've taken one of his courses.

I am debt-free and have no mortgage.  I've never had a huge income, and have often lived well below the poverty level.  Refusing to go into debt is part of the reason that we've come through the low-income stretches as well as we have, though it's often been difficult.  I have no credit cards, and my name has only ever been on one credit card my whole life (as a young wife with a toddler and a new baby, we moved into a house that didn't have a refrigerator -- we got a Sears card and used it to buy a frig.  Over the years, my (now ex) husband used the Sears card once in a while for something like tools, but I never used it again.  I have always hated debt).  

That's not to say I've been financially wise, though.  I've never been very good at saving money, and have made some unwise purchases, but at least I didn't go into debt to do it!  I've had car payments a few times, but got them paid off as quickly as possible.  Need to save up money for my next vehicle now, because I'm driving a 21 year old pickup; it's only got about 160,000 miles on it, but eventually it will need to be replaced.  

My last house was bought on an owner contract, and I paid it off in four years.  Money from that place plus money inherited from my grandmother enabled me to pay cash for this place, though it wasn't very expensive (under $50,000, and needs a ton of work).  I had a pretty good emergency fund before we moved here, but have used most of it getting essential things (like the plumbing) fixed; building that back up is high on my priority list.

Anyone can be debt-free.  It helps to have a nice income, but it isn't necessary.  What IS necessary is the willingness to live well below your income level, save as much as you can, purchase as little as you can (and purchase wisely), and work up.  After my twenty-eight-year marriage broke up, my mentally handicapped youngest daughter and I were homeless for over a year (most of that time we stayed with a friend, but part of it we lived in a small pickup truck with a box on the back).  Then we lived with my grandmother for eight years -- beneficial to both of us, because she was 89 when we moved in with her, and our being there enabled her to stay in her own home to the end of her life.  There was a gap between when Grandma died, and when we started receiving payments on her house, so we lived in an old 5th wheel at my mother's place for about nine months -- electricity in the 5th wheel, but no water; I used a sawdust toilet and emptied it into the septic tank.  Then I bought an old double-wide on an acre and a half of land from a friend -- that's the place before this one, that I was able to pay off early, in only four years.  Now we are in a small, old farmhouse on a little over 2 1/2 acres and it's paid for (and has low property taxes, under $500/year).  My old truck has been paid for for about seven years and hopefully still has a few more years left on it.  The climate is better for growing things than the high desert where we were before.  I really don't want to move again ever, but if we do need to sell this place eventually, it should bring quite a bit more than I paid for it (once everything is fixed), and we *should* be able to make another step up.  

Like I said, anyone can do it as long as you really want it and work at it.  

Kathleen

Stacy Witscher wrote:Mike - While I generally agree with you, consumer debt is only stressful if you let it be. Most of the time, the only consequence of not repaying credit card or other unsecured debt is a lower credit score. If you don't care about that, why worry? One of the things that I find so freeing about not having debt and not using credit, is that I don't have to care about my credit score. So if I feel like a bill is unreasonable, and I don't need to continue doing business with a certain company, I just don't pay it. It's such a relief. I never understand people who feel like paying an unreasonable bill is a moral duty, so bizarre.

As far as education, I encourage young people to look around. If you are open to different options, you can often get through college, undergraduate and graduate, without going into debt, and without joining the military. I think a lifetime of PTSD is a very high price to pay for a college education. There are better ways.

Stacy,  I agree that for anything stress is a matter of your state of mind. I remember hearing a quote once, something to the effect of “if stress is real than please show me by filling a cup with it.” I’m sure I didn’t get that quite right, but you get the idea.

I am a bit concerned about your statement of not paying a bill if you feel it’s unreasonable. All bills are something you take on voluntarily. Perhaps your choices are limited such as in the case of a medical emergency, but it is your choice to undergo treatment at that facility. Bills are a commitment you chose to agree to at the time of purchase. So to change your mind and decide not to pay, after committing, just seems a bit unethical to me. As much as I may be mad about a bill, its really my past self I have to be mad at, not the company I owe.

I appreciate hearing everyone’s stories of how they have achieved financial freedom. My husband and I only have a mortgage and student loans and have our plans to paying them off. We too are debt averse.

One last point I want to make: just imagine how much we could change the world if all of us were putting the money we spend on interest, even just the interest from our mortgages, into doing good I our own communities. When we pay rent there is a chance that the money is going to someone in our own community rather than to a big bank. That alone is worth the years it takes to save to buy a house in cash. The banks don’t need anymore of our money, our community does.

Jackie - In my experience, not all bills are voluntary. For example, around here if an ambulance is used to transport you, you are legally reasonable for the bill regardless of whether or not you chose to take it. But that aside, I find things way more complicated than you, and rarely attach morality or ethics to payments to corporations. It's extremely freeing.

We've had a horrible run of luck lately. We found out our daughter has congenital cataracts that will require surgery. Then the next day our son broke his arm. So we are looking into the face of thousands of dollars of medical bills. The laser for her surgery isn't covered by insurance and will cost us 1800. The doctor is telling us this with worry on his face. I imagine a lot of people freak out. We did not freak out. We save. We save for this very reason. So, while no one wants to spend thousands, we have it and our kids will get fixed. I'm so thankful we are debt free!

Stacy Witscher wrote:Jackie - In my experience, not all bills are voluntary. For example, around here if an ambulance is used to transport you, you are legally reasonable for the bill regardless of whether or not you chose to take it. But that aside, I find things way more complicated than you, and rarely attach morality or ethics to payments to corporations. It's extremely freeing.

While I'm not big on corporations (although many are actually small businesses that had to incorporate), incurring a bill -- a debt -- and then refusing to pay it is actually stealing.  And even the big corporations have many people working for them who need their paychecks, and they sell a product which can see the price go up to other buyers if too many people refuse to pay their bills/debts.  So there is more to the morality question than perhaps you are considering.

Kathleen

Kathleen Sanderson wrote:

Stacy Witscher wrote:Jackie - In my experience, not all bills are voluntary. For example, around here if an ambulance is used to transport you, you are legally reasonable for the bill regardless of whether or not you chose to take it. But that aside, I find things way more complicated than you, and rarely attach morality or ethics to payments to corporations. It's extremely freeing.

While I'm not big on corporations (although many are actually small businesses that had to incorporate), incurring a bill -- a debt -- and then refusing to pay it is actually stealing.  And even the big corporations have many people working for them who need their paychecks, and they sell a product which can see the price go up to other buyers if too many people refuse to pay their bills/debts.  So there is more to the morality question than perhaps you are considering.

Kathleen

Never mind that if they get it into their head to actually pursue the debt it's really easy to get a judgment and start taking stuff either paychecks, bank accounts or stuff.

Tyler Ludens wrote:Travis, I am very glad for you that you have the ability to be flexible and change plans based on circumstance.  I think that is one of the qualities which enable some of us to become debt-free.  Cancer is going to make that even more of a challenge, as it is one of the health conditions which regularly bankrupt families.  Another is Alzheimer's.  My family has both (plus mental illness), so it will be quite a challenge for me to manage our finances to avoid plummeting into debt, especially in these uncertain times (political)!

Tyler: I am so sorry I did not see this earlier for some reason, and I do apologize for not replying. Over the years of being on permies I have got a sense of who you are, and while I do not pretend to know you, I do have a deep respect and appreciation for you. I am sorry you are dealing with these issues. I know from first hand experience that it is very difficult.

My friend who is a Sheriff in this county, got me started on a newly formed committee addressing drug addiction and mental illness specific to this area. We do not have the answers; I do not have the answers, but we are collectively trying as a committee to form new policy and help a hurting community.

The drug addiction problems in Maine alone are daunting: 6th worst in the nation based on a per capita basis, yet THE worst when it comes to the number of recovery centers. 418 drug overdose deaths last year alone, 72,000 over dose deaths last year in the United States in all. Grim statistics that is for sure. One was my brother-in-law and another my best friend. We are also addressing mental health, and trying to get certain people true help instead of circulating through the criminal system.

What do I have to offer? Not much; but I do care. It is a start. (Hugs from miles away) :-)

living in parents basement

it helps!

I was debt free for eight years from when I paid off my student loans until I married and my wife had student loans. We paid those off the next year but then I borrowed some money for a business venture (a two year contract). I plan to pay off that loan soon when the contract is done.

I am also starting a second degree that will allow me to teach school which is a less rarified profession than my current one which is mainly seasonal botany work. The second degree may also incur debt or it could. There is funding through a grant my advisor got, but it requires teaching at a high needs school for ~4 years. Otherwise it becomes debt.

However, we paid off student loans before, with largely seasonal income, and we can do it again if for some reason I don't end up teaching at a high needs school for the requisite four years.

On the bright side I own outright an eight acre lot, with 3.25 acres of it gardenable (arable). Where I garden. We recently bought a small travel trailer (paid for) for work trips. So now we have the means and ability to hang out at the garden land on the weekends. If I can get a nearby summer job next summer it should be fun.

elle sagenev wrote:I had a feeling a lot of people on Permies would be debt free. Certainly more than your average. It's pretty interesting!

Yes... very interesting and way more than average.

I've lived debt free all my life because that's what my Dad taught me by his example. Never had a student loan because I went into business instead of going to college. I pay cash for everything from apples to new vehicles to land and homes.

Even though he's preaching to the choir, I still love listening to Dave Ramsey and hearing those happy debt free screams.

I also don't really view mortgage debt automatically as a bad thing.

I have a mortgage on my land. If I didn't have my land, I wouldn't have been able to build my home (which I built with cash/sweat equity). If I didn't have that mortgage, I'd probably still be renting and throwing money away every month.

While I do agree that it is important to do everything you can to pay off a mortgage asap, sometimes taking on a mortgage is the only way to get out of the renting trap. I'd much rather be paying monthly for a mortgage than monthly rent. Now having said that, it is my intent to use my land as a way to give my kids a way to have a home w/o a mortgage, but I think sometimes leveraging a mortgage is probably the quickest path to actually being debt free.

If I hadn't been able to build my house with cash, I would still be renting and probably would still have consumer debt. Having built my home with cash has allowed me to pay off all my consumer debt... but I had to get that mortgage on the land to get to that point.

Bethany Dutch wrote:I also don't really view mortgage debt automatically as a bad thing.

I have a mortgage on my land. If I didn't have my land, I wouldn't have been able to build my home (which I built with cash/sweat equity). If I didn't have that mortgage, I'd probably still be renting and throwing money away every month.

While I do agree that it is important to do everything you can to pay off a mortgage asap, sometimes taking on a mortgage is the only way to get out of the renting trap. I'd much rather be paying monthly for a mortgage than monthly rent. Now having said that, it is my intent to use my land as a way to give my kids a way to have a home w/o a mortgage, but I think sometimes leveraging a mortgage is probably the quickest path to actually being debt free.

If I hadn't been able to build my house with cash, I would still be renting and probably would still have consumer debt. Having built my home with cash has allowed me to pay off all my consumer debt... but I had to get that mortgage on the land to get to that point.

There is a time and place for a mortgage.  If I hadn't taken on a mortgage when I bought the last house we lived in, we would have had to live in that old 5th wheel travel trailer with no plumbing inside it for another three years, by my calculations.  (I had bought a couple of cheap lots near my mother's place, where we were living, but they needed a well and a septic system before I could even start building.)  All things considered, the mortgage was a good decision, but I'm really glad that I was able to pay it off quickly.

I think my main advice is that most people will need to seriously down-scale their expectations of the kind of house they can afford, and need to have in order to be comfortable, in order to pay a mortgage off quickly.  Often cheap houses need a lot of work, so a combination of skills, some money for materials, and time are needed.  But there's an element of keeping up with the Jones's in most of us that makes us unwilling to live in anything we -- or others -- might consider 'substandard.'  It helps to be able to lose that notion.

Kathleen

Bethany Dutch wrote:If I hadn't been able to build my house with cash, I would still be renting and probably would still have consumer debt. Having built my home with cash has allowed me to pay off all my consumer debt... but I had to get that mortgage on the land to get to that point.

I did it backwards.

I was a renter until I was 50 and because I had no consumer debt,
I was able to buy land for cash and build our house for cash.

Greg Mamishian wrote:

Bethany Dutch wrote:If I hadn't been able to build my house with cash, I would still be renting and probably would still have consumer debt. Having built my home with cash has allowed me to pay off all my consumer debt... but I had to get that mortgage on the land to get to that point.

I did it backwards.

I was a renter until I was 50 and because I had no consumer debt,
I was able to buy land for cash and build our house for cash.

Me too! Since I took on the family homestead, I won't need to buy land but I still need to put a long-term house on it so that's where I'm funneling my money now.  Well, that and permaculture improvements. :)

Yes, we live deft free too.

When buying big tickets, I always consider maintenance and ongoing costs, like taxes. It is better to pay more for something upfront when the future maintenance costs are low, at least this has been my thinking. There is a card game in Spain called Mus. Each hand has 4 cards and the game is rated on 4 items, who has the highest value hand, who has pairs, who has "game" 31 points or more, and who has the lowest points. The biggest hand is 31, 3 kings and an ace. That wins highest value, pairs, and game, but loses lowest hand. Players collect points by bidding on each of those 4 categories for every game. The bit of wisdom is that players who play to get the lowest points do not win the game. That is because playing for the lowest hand requires as much effort and calculation as playing for the highest hand, but playing for the highest hand can win 3 out of 4 points while playing for the low hand wins 1 out of 4 points. The wisdom in this is: don't worry too much about the little things, the little expenses, but make reasonable attempts to secure the bigger entries of money, and having the lowest cost for your living expenses. Also, live bellow your means. Save about 10% of your income if you can, make sure also that you give a portion to the causes you believe in, even if it is only $10 a month to a kiva fund, or $5 to your favorite youtuber´s pattern, give! There is no receiving without giving. If your temperament allows you, give generously. If not, plan to give and give. "A generous man will himself be refreshed". But be prudent, you can not give if you do not have extra, "a man who puts up security for a stranger will surely suffer".  

I hope this helps.

Buy a good house or apartment but buy something that is much less than what you can afford, and consider taxes, maintenance, heating etc. Is there any way you could make money with it, by renting a room, or building a small summer house to rent or similar idea?

Cars: do not buy your dream car. I once drove an Audi in winter that had the most fantastic 4 wheel traction on snow, I loved it! I would go on and off snow as it it where nothing. But when I had to buy a car, I bought a Honda, practical, boring, cheap, with low gas consumption.

Do not buy a new car, do not buy a fancy car, buy a 2nd hand 2 or 3 year old car certified pre-owned in great condition without the ultimate bells and whistles and pay it off ASAP. A new car loses a great deal of its value the fist year, or as soon as you buy it. I gently used car is a much better deal.

Save and invest, and diversify. If you are good at business, do business.  Anything you attempt, will cost you an entry cost which is the learning curve. So start small, $5000 is what the average successful business costs to start, start small. The upfront investment of money, time and energy that any endeavor will require means that it is best if you do something you love, something you would do for free if you were financially free, but at the same time, be practical and choose some industry that would allow you to make a reasonable living since there is a reasonable demand for it (hint, being an artist is not a reasonable living plan if you like to eat).

Travis Johnson wrote:

Marco Banks wrote:I use my credit card for everything

I disagree wholeheartedly, as another has said, if a person does not have cash, they cannot afford it, but what was not said is cash is king. That is very much the truth. From chainsaws to stoves, when retailers know I have cold hard cash in my pocket, I have gotten some amazing deals. Sometimes it is because they do not have to pay the credit card transaction fee, but mostly it is because they too like cash. For example, I once bought an old antique stove for 50% off because I paid in cash, on the spot. It was a $1400 stove, so I saved $700.

But that is hardly a one time thing; I can be driving along the side of the road and see something for sale and buy it, negotiating the price.

This need not be a teeter-totter, binary choice. A wad of cash for incidentals, and a good card for routine buys, makes sense to me. And afford can, and imho should, mean for the month, not just for the moment. So, if you really pay it off monthly, you were affording it. Cards are a trap, as you make purchases to chase points and rewards; if you can ignore that temptation, as the previous commenter apparently does, they do pay off.

I am debt free. I have never made much money (never more than $15,000 in a year, $4,000 at the lowest, and my adult average is probably around $8,000 a year I would say). My expenses are quite low. I have managed to save ~$45,000. I am 31.

I do use a credit card which I pay off every month. I do not find myself tempted to spend extra on it. I use an Amazon card, and save up my points to buy fancy tea (my weakness), books, or occasional necessities on Amazon. I do use cash for certain purchases, for instance to get discounts.

What some other comments have mentioned about credit card companies being evil and making money from even those of us who pay off our balances every month is a fair point. Amazon is also pretty exploitative and wasteful. I may have to consider eliminating or reducing my credit card usage. I would miss the points, though.

When I hear about farmers here in Sweden have to work outside the home and outside their farm I want to almost cry.They invest millions of dollars in new buildings for milkcows and so but still and maybe because of their heavy investments in new buildings they have to leave their homes working outside.What is that worth to work as a farmer for nothing? but so is the market.
I live debt free  but it does not mean I do not work but I work at home.Many of the works I do at home are tax free.Cutting fire wood,baking,sewing my clothes etc are all tax free.Why go outside the home to work,pay tax and buy your clothes,your bread and your fire wood? There has of course have to be income but living debt free is freedom in a way.

Jennifer Richardson wrote:  I use an Amazon card, and save up my points to buy fancy tea (my weakness), books, or occasional necessities on Amazon. I do use cash for certain purchases, for instance to get discounts. ...

Amazon is also pretty exploitative and wasteful. I may have to consider eliminating or reducing my credit card usage. I would miss the points, though.

For those of you who use your Amazon points to pay for Amazon purchases  ... you are missing out on earning points.

I hope I can explain this.   If I buy something on Amazon or anywhere else I get points for my purchase. 3% or 5% at Amazon depending on the kind of membership you have.  Each $1.00 earned is equal to 100 points.

The catch is that they only give you points for the amount you paid, not the amount you spent.  

Example:  $25.00 spent; paid $15..00 and used 1,000 points.  You would earn points on $15.00.  Without using points you would earn points on $25.00.

Go ahead and make the purchase ... spend the $25.00 then apply the 1,000 points as a cash back statement credit.  

Rolf Olsson wrote:When I hear about farmers here in Sweden have to work outside the home and outside their farm I want to almost cry.They invest millions of dollars in new buildings for milkcows and so but still and maybe because of their heavy investments in new buildings they have to leave their homes working outside.

Many farmers I've known over the years have had to have an off-farm job in order to support their farming habit.

Timothy Markus wrote:

Rolf Olsson wrote:When I hear about farmers here in Sweden have to work outside the home and outside their farm I want to almost cry.They invest millions of dollars in new buildings for milkcows and so but still and maybe because of their heavy investments in new buildings they have to leave their homes working outside.

Many farmers I've known over the years have had to have an off-farm job in order to support their farming habit.

Why? is it so and why is the farmers work so little valued? It should be possible to at least one good wage based on an invest of one million dollars.I would see for example the plumber go to another work 16 pm.

It is pretty simple: EVERYONE eats.

Because what the farmer produces is such a requirement, the world not only wants food, they want CHEAP food. Can you imagine if food was expensive what would happen to the world? (Starvation).

This is not conspiracy theory here, it is reality, the governments of the world want lots of cheap food, and they get it.

On my families dairy farm, the government tells us what we will be getting paid for milk 6 months in advance. The US military consumes the most fuel in the world, and as such they should be dictating the price of fuel, and yet they do not, yet for milk they do! There is no supply and demand price here. It is dictated too us, yet milk is a food staple, and so that is just the way it is. When prices drop below what dairy farmers can sustain, then the government comes in and has subsidies to allow the dairy farmer to survive. Farmers know that, and so does the government...and in the end the system just rolls along as crazy as it is.

But agriculture is strange. Despite the incredibly hard work, somewhere, someone, wants to farm, and so while the prices are not based by supply and demand, the supply of farmers sure is. Being endless, and the world not being in a vacuum, whatever farmer goes under, another farmer takes their place.

When I graduated in 1992, there was 400 dairy farms in Maine, now there is about 250. However, the effeciency of the Maine Dairy Farm has increased to the point that milk production in Maine has never been as high as it is today. Less farmers, but a lot more effecient. I say effecient because since 1992, the Maine Dairy cow now produces twice as much milk as it did in 1992. So, it is not just the size of the farm, but the individual production of the cows as well.

Want to hear something crazy? Everyday the milk truck leaves our farm, EVERYDAY. Christmas, Easter, Tuesday morning...everyday.

Yet the milk taken today will get taken to a plant where they mix the milk with sugar, and dilute it with water, then sell it for a variety of different products, and in two week the creamery will send us a check based on what THEY think it is worth. Keep in mind it has already been consumed by consumers all over New England, so we have no say in the matter, no taking our milk back, it is GONE, and we have no recourse but to accept the amount.

To put this in perspective, it would be like me coming to your farm, taking the firewood YOU cut, then after selling it for the most money that I can get out of it, turn around two weeks later and send you a check for what I think YOU should get paid for it. You have no say in the matter, it is what I think it is worth.

No other commodity in the world is run that way, but that is the crazy system we have for milk, but if it was not like that, milk would be $8 a gallon, and every kid in New England would have rotted teeth from drinking Cool-Aide and Soda.

A few years ago the Maine Milk Commission which sets the price of milk statewide, got caught with their pants down. Area farmers hired a professor to check the milk price formula. A Professor of Mathematics, he concluded that it was IMPOSSIBLE to calculate. The equation used was missing several key factors, but by guessing as best he could, the professor concluded that if his estimates were right, we were being shorted by several dollars per hundred weight!

Good points, Travis.  Here we've got a quota system, so farmers get paid a set amount per kg as long as they meet the %fat content and don't have high cell counts.  The rationale behind it is that dairy farmers had a very hard time with a free market system so they brought it in in the late 60's.  Now, it's about $30k for a unit of quota, about 1 Holstein's production.  I think you have to buy in at a minimum of 10 units, so almost $300k for 10 cows, plus the cost of the farm and cows.  No wonder we have some of the highest priced milk.

Today, you are guaranteed a return on your quota investment and banks fall over themselves to lend for quota.  Most farmers have to be very smart to make money and, even then, it's a crap shoot at times, but I've met several dairy farmers who have very poor business sense but can still make money, and quite a bit.  The kicker is that they think they're great businesspeople.  

There are a lot of issues with quota and my main beef is that it pretty much precludes a seasonal, grassfed dairy, but I may just be jealous.

Travis Johnson wrote:
When I graduated in 1992, there was 400 dairy farms in Maine, now there is about 250. However, the effeciency of the Maine Dairy Farm has increased to the point that milk production in Maine has never been as high as it is today. Less farmers, but a lot more effecient. I say effecient because since 1992, the Maine Dairy cow now produces twice as much milk as it did in 1992. So, it is not just the size of the farm, but the individual production of the cows as well.

Holsteins today are monsters compared to the 80's.  I went to the Ag Fair in Toronto a few years ago and the cows were well over 6' at the shoulders.  I think the winner was almost 6'6", about a foot taller than the biggest Holsteins I milked as a kid.  

Travis Johnson wrote:Want to hear something crazy? Everyday the milk truck leaves our farm, EVERYDAY. Christmas, Easter, Tuesday morning...everyday.

Yet the milk taken today will get taken to a plant where they mix the milk with sugar, and dilute it with water, then sell it for a variety of different products, and in two week the creamery will send us a check based on what THEY think it is worth. Keep in mind it has already been consumed by consumers all over New England, so we have no say in the matter, no taking our milk back, it is GONE, and we have no recourse but to accept the amount.

To put this in perspective, it would be like me coming to your farm, taking the firewood YOU cut, then after selling it for the most money that I can get out of it, turn around two weeks later and send you a check for what I think YOU should get paid for it. You have no say in the matter, it is what I think it is worth.

No other commodity in the world is run that way, but that is the crazy system we have for milk, but if it was not like that, milk would be $8 a gallon, and every kid in New England would have rotted teeth from drinking Cool-Aide and Soda.

A few years ago the Maine Milk Commission which sets the price of milk statewide, got caught with their pants down. Area farmers hired a professor to check the milk price formula. A Professor of Mathematics, he concluded that it was IMPOSSIBLE to calculate. The equation used was missing several key factors, but by guessing as best he could, the professor concluded that if his estimates were right, we were being shorted by several dollars per hundred weight!

Yes it is crazy.If the job being a farmer at least was a healthy way of living but it is not even that.Herbicides,pesticedes,exhaust from maschines,risks of accidents and so.It should absolute not be so and up on that slaves to the banks.

When I got into sheep, a local bank had set me up with a grant so do a feasibility study for my fledgling sheep farm. Being 9th generation they wanted the press of saying they helped "save" a 9th generation farm. That is fine, I understand spin to make board members feel good about themselves.

So they set me up with this "team" that included bankers, agronomists, sheep specialists, etc. They came to my farm for a big meeting and soon HUGE numbers were being floated around. The loan would have been over half a million dollars, and a payment of $2500 a month.

Here is the rub; dairy farming is high tech, high cash flow. By that I mean at least a farmer gets a check every other week, but with sheep farming it is twice a year. Sheep farming is very low tech...and the money just is not there. In the end I bowed out as what the "experts" were proposing did not make financial sense. I cannot imagine today trying to pay $2500 a month after getting cancer and struggling as we have for the last two years. Because we said no, we have survived a trying two years.

I know I am not always the favorite guy on this site, but I really try to keep people who are new to farming, to being talked into big payment by bankers. It is not a conspiracy, it is just how the systems works. Bankers will always get 100% of their money back, and then 6% of yours, which of course is called interest. That is why farmers have the wind blowing the tin off their crappy barn roofs, and bankers have the best buildings in the CITY, and wear argyle socks and eat prime rib. There is nothing wrong with that, but WE can do something about it...be patient, and do not play their game.

Travis Johnson wrote:

So they set me up with this "team" that included bankers, agronomists, sheep specialists, etc. They came to my farm for a big meeting and soon HUGE numbers were being floated around.

Yes and each of them had at least 100 dollars salary an hour.There are so many"experts" want to make money out of absolutely nothing.What was it worth in real terms they walked their? A kick in the ass and goodbye is what they should be saluted wit.

Travis Johnson wrote:
I know I am not always the favorite guy on this site, but I really try to keep people who are new to farming, to being talked into big payment by bankers. It is not a conspiracy, it is just how the systems works. Bankers will always get 100% of their money back, and then 6% of yours, which of course is called interest. That is why farmers have the wind blowing the tin off their crappy barn roofs, and bankers have the best buildings in the CITY, and wear argyle socks and eat prime rib. There is nothing wrong with that, but WE can do something about it...be patient, and do not play their game.

That's funny, because I think you are one of THE favourite guys (or gals) on the site.  I even through in an extra 'u' for you.  Actually, two now.

Travis Johnson wrote:

I know I am not always the favorite guy on this site,

Almost 600 apples out of 3000 posts is a good score:)

Part of the issue farmers face is growing crops that are super low margin and requires huge volume. If you can specialize into a niche or higher margin market there’s more profit potential and might not need so much investment in equipment. Perhaps the less automation it can handle the better, to avoid competition from massive, equipment based companies.

Mark Brunnr wrote:Part of the issue farmers face is growing crops that are super low margin and requires huge volume. If you can specialize into a niche or higher margin market there’s more profit potential and might not need so much investment in equipment. Perhaps the less automation it can handle the better, to avoid competition from massive, equipment based companies.

I have also come to that conclusion that specialisation is the best thing in everything.Over time you get better and more and more efficient in what you are doing.You need a limited amount of mashines and concentrate the resourses in maybe one specialized crop.
I have also noticed that specialized companys are they which survive and grew.Specialising is the key I think what ever it is.