The first week of November 2024, the Center for Ag Profitability at the University of Nebraska–Lincoln and Nebraska Extension celebrated “Ag Smart Money Week.” Throughout the week, we held several webinars and workshops. In preparation for the week, I was reminded how often Americans don’t have a rainy-day fund. According to the Federal Reserve, one-third of Americans cannot cover a $400 emergency with cash, savings or a credit card paid off in full the following month. Could you? 

Rainy-day funds, commonly called “emergency funds” by financial experts, are critical to your financial success. While most financial advice works for folks with a 9 to 5 job, I think there are some specific things to consider as a farmer or rancher.

I wholeheartedly agree with personal finance experts that building an emergency fund should happen before paying down debt or participating in long-term investing. An emergency fund allows you to handle unexpected expenses without taking on additional debt or withdrawing from accounts that may trigger additional taxes or penalties.

There is some debate about how much families should have set aside. Some experts recommend starting with $1,000, while others advise having three to six months of living expenses. Even a small amount of savings can be helpful in a time of need. Given the unpredictable nature of cash flow in farming and ranching, I recommend aiming for three to six months' worth of living expenses for farm and ranch families. 

Place these funds in a separate, yet accessible account. It can be tempting to leave these funds in your everyday bank account. However, to help decrease the likelihood of spending these funds on non-emergencies, consider putting them in a separate money market, or high-yield savings account. These accounts not only provide separation but also earn a higher interest rate while allowing funds to be withdrawn quickly.

Building an emergency fund can take a lot of time. Many experts recommend automating transfers to this account until you have met your savings goal. Automated contributions may be difficult without a steady stream of income. However, it is still important to transfer these funds when they are available.

Finally, not enough financial experts are talking about rebuilding your emergency fund. If you withdraw funds from this account, your top priority should once again be rebuilding this cushion. 

Building an emergency fund is critical for farmers and ranchers to protect themselves from unexpected financial challenges. By taking these steps, you’ll be better equipped to weather the literal and financial storms that come your way.