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How Holistic Financial Planning Can Create More Wealth

In Holistic Financial Planning, each enterprise is evaluated for its contribution to the whole and how well it “stands on its own feet.”

By Abbey Smith

As I listened to the budgeting conversation at a large ranching operation here on the west coast of the United States, where the Jefferson Center for Holistic Management was consulting, it suddenly hit me: scale doesn’t matter. The underlying patterns, habits and perceptions about managing finances on a farm or ranch are the same regardless of the size of the operation.

Thinking back to a conversation I had recently with a close friend and market gardener on a two-acre farm, I realized that we were having the same conversation. There were just a few more commas and zeros added to the budget here on this large ranching operation.

As the budget conversation continued, I tested my theory. Yep. It was proving true. If we either added or subtracted dollars from the cash flow in the budget, the number of acres managed, people employed and equipment owned, then at the core, we would be having the same conversation about a two-acre market garden and a three-million-acre ranching operation.

It doesn’t matter if we are managing a $10 million annual expense budget or $10,000 — the profit margin can be the same. It’s so liberating to realize, I thought, that we don’t have to spend tons of money, or have tons of land (but it’s OK if we do too) to be a profitable farmer or rancher. We can have the life we desire, at the scale of farming or ranching we desire, with some pretty basic planning procedures (something we call Holistic Financial Planning), a positive relationship with money and a few good habits when it comes to monitoring expenses.

Holistic Financial Planning

Holistic Financial Planning is a simple, cash-based planning procedure that allows farmers and ranchers to be profitable while maintaining the quality of life they desire and improving the health of their land base. This planning procedure creates an annual projection budget and then a plan for monitoring planned versus actual expenses monthly, controlling expenses and re-planning when needed. In Holistic Financial Planning, we think of expenses differently. Like other principles in Holistic Management, it takes commonly held truths and turns them on their head.

In most households, farms, ranches and businesses, we think of the relationship between income, expenses and profit in one of two ways. Let’s consider this from a perspective of a salaried employee managing her household budget. Let’s say her name is Sarah. She chose a high-paying job at a marketing firm because it supported the lifestyle she wanted. As her salary increased through the years, she allowed her expenses to rise along with it, so the money she was able to save, or set aside as profit, never actually changed. For Sarah, this is just “how it was” with money. Profit wasn’t something she believed she could control; it was just what was left over after all the bills were paid. She is a diligent financial planner and monitors her expenses. Sometimes she has to cut back on expenses to make sure she doesn’t exceed her income, but profit is never something she thought to plan; only income and expenses were ever planned.

In Holistic Financial Planning, profit is planned first. Then expenses are controlled to allow for the desired profit margin, given the income of the operation. Considering the farmers and ranchers I’ve worked with, there is usually a similar response to this concept. It ranges from discomfort to disbelief that this is even possible.

The beauty of planning for profit is that it allows the farmer or rancher to make intentional annual investments in their long-term land plan for the farm or ranch, or other investments that meet their Holistic Context and desired quality of life.

Key principles

There are elements of the Holistic Financial Planning procedure that make it distinctly different from other budgeting processes. Here are the gamechangers:

Holistic Context: All Holistic Management planning procedures depend on a Holistic Context. Otherwise, how do you know which action is the right one, at the right time, for the right reasons, given the quality of life desired by those making decisions on the farm or ranch? Caroline Putnam, owner of Revivolution, took a virtual Jefferson Center Holistic Financial Planning course in late 2020. She said: “I live in Peru full time and have a smallholder farm in an indigenous village. I am focused on food systems transformation through regenerative farming. The holistic finance framework showed me how to make decisions with health and quality of life at the center. I think in traditional business models it becomes normal to think, ‘when I finally make this certain amount of income or reach this promotion in work, I will be able to live the lifestyle I want.’ In holistic finance, we flip this concept and say, ‘here is the quality of life I choose to live, and how do I ensure my enterprises rise to meet that standard.’ So, essentially, we are putting health and wellbeing at the center, as a pillar from which we make decisions.”

Calculating net worth: This is a process of defining all the wealth you have access to, and have created in your life. In a 2020 virtual Holistic Financial Planning course with Andrea Malmberg at the Jefferson Center, she asked course participants to think back to the first job they had — when they first started making money. The assignment was to tally all the income each person generated from that first job through the present day. “The idea,” Andrea said, “is to show that we do have the ability and means to generate wealth in our lives, but oftentimes we don’t realize it.”

Identifying log jams and adverse factors: As we organize our expenses in Holistic Financial Planning, after planning for profit, we categorize them into log jams, adverse factors and inescapable and maintenance expenses. Most people are aware of inescapable expenses (debt, taxes, etc.) and maintenance (monthly bills, repairs, etc.). However, log jams and adverse factors, when left unattended, often manifest “unforseen” disasters or “fires” we have to put out. Log jams are problems that keep the entire operation from moving ahead. They bring all enterprises to a halt.

“Most often, log jams are social,” Andrea said,”they are caused by our relationships with other people.” They usually are not financial or ecological. Adverse factors are smaller forces pushing against the operation or enterprise. A log jam may be an employee or employees quitting, and an adverse factor may be a summer road construction project that requires taking a longer, alternative route to get produce to a farmers’ market, which increases transport expenses. Planning to address these expenses in the annual Holistic Financial Plan essentially prevents the “fire” from starting. It allows for addressing the problem to be incorporated into the cash flow, instead of an unexpected expense that hurts the operation’s cash flow and decreases the profit margin.

Chain of production weak links: Each enterprise on a farm creates a chain of production. This is the idea that solar energy is captured by plants, converted into a product of some kind, taken to market and sold for paper dollars. At each point of transformation of that energy, there could be a weak link. The entire chain of production is only strongest at its weakest link. Enterprises are analyzed to identify a resource conversion, product or marketing weak link. Investments are then budgeted to address the weak link in the chain of production for that enterprise.

Gross profit analysis: A quick analysis of direct expenses and income for each enterprise on the farm or ranch (or household) provides insight into which ones are contributing the most to the overall operation and which ones may be a drain on it. This can be an emotional process if the most cherished enterprises don’t really stand on their own feet from an income and expenses standpoint. Oftentimes the idea of simply separating out each enterprise from the whole operation and analyzing it is a new process, shedding light on the health of the enterprise and one the operation as a whole.

Monitor, control, replan: Creating the Holistic Financial Plan is a great, and very important, first step. But it is just the beginning. The work comes in the monthly monitoring of actual expenses, income and profit compared to what was planned. This gives managers the opportunity to adjust their expenses and activities as needed to keep the budget on track. The “seeing” part is key. We cannot manage what we don’t measure. Many people managing farms and ranches don’t know how much they are spending or if they are spending the money on top priorities. And I say this with no judgement. I find a good practice of monthly monitoring to be very hard to develop. This is why we formed a support network at the Jefferson Center of course participants to help and encourage each other to create and manage financial (and grazing) plans.

Our relationship with money

It was such a relief to know that I was not alone in some of my emotional responses to finances: anxiety, guilt, fear. These emotions deterred me from doing the work of Holistic Financial Planning. When I did the work, it took tremendous energy to work through the emotions, which made it feel like such hard work. I realized I wasn’t alone when we talked about this during the Holistic Financial Planning course taught by Andrea Malmberg at the Jefferson Center in the fall of 2020.

“Normally I am someone that turns the other way when we talk about accounting and financial planning,” Caroline Putnam, a fellow course attendee, said. After taking a Values in Action Character Strengths survey as part of the course, I realized that my core strengths are love, gratitude and perseverance. Drawing on these core strengths, I brought them to my work with finances and began to actually enjoy it. It wasn’t that hard when the emotional baggage dropped. I love to write poetry and journal. It slows my mind down, allows me to become fully present, to reflect and examine, and to find meaning in life. Projection budgets do the opposite to me. I feel pressured to predict the future, to promise to create gold out of straw, and then to be held to it for a year. Each month I have to look at how I measure up to this version of the future. Of course, this brings emotions with it too. Guilt or elation. Fear or joy. Clearly too much of my self worth was wrapped up in a budget. Now, before and during budget planning season, I write a lot of poetry, especially right before I work on a budget. It gets me in a flow state. Additionally, I realized that when doing bookkeeping and reconciling, I love to listen to 90s hip-hop music. It helps me focus and sustain energy. No idea why, or where that came from, but I’m going with it.

Now, when I do the work of budgeting or monitoring, it becomes just “addition and subtraction,” as Tony Malmberg, a Savory Field Professional and long-time holistic manager, said. I couldn’t believe how much easier it was to create annual budgets and do monthly monitoring, reconciling and other bookkeeping when the baggage of negative emotional response to the work was dropped.

Other bad habits we have, that I have noticed in myself and others I’ve worked with, are the following. The good news is that they are simply habits and can be changed.

We are not in the habit of paying ourselves as farmers and ranchers. For some reason this makes us really uncomfortable. Our time, energy and knowledge is valuable and needs to be acknowledged in the budget.

We don’t talk about finances enough. Why was the Holistic Financial Planning course with Andrea the first time I’d had an open and supported conversation with others about my relationship with money? We should talk about real things more often with people who have the desire and capacity to listen and share too.

We are used to doing things the way they’ve always been done. I love the look of joy and surprise in someone’s eyes when they realize that “absolute truths” about how their farm or ranch operates are actually just actions taken that were never questioned or examined, and then repeated (sometimes through generations).

We lack a long-term investment plan for the farm or ranch. Too many of us live in a state of constantly putting out fires. This becomes a habit — and perhaps an addiction to the adrenaline needed to live like this. Having a long-term land plan allows planned profit from each year to be invested in a way that takes the whole operation toward the long-term vision for the property and decreases the time spent in reaction mode.

Working on healing my relationship with budgets, spreadsheets and finances was liberating. Here are some ways to do this important work:

  • Take a Holistic Financial Planning course. The Jefferson Center offers at least two per year.
  • Take a Ranching for Profit course.
  • Form a management club, which is an outcome of a Holistic Financial Planning course with the Jefferson Center. Anyone can do this. Find other farmers and ranchers you trust and meet annually to deeply review plans and budgets, providing honest feedback and ideas.
  • Start talking about finances with people you trust. Let’s have real conversations. It feels good. It is energizing. It is healthy. It forms deep connections. All good reasons to take the chance of being vulnerable, which is required to have a real conversation.
  • Take the Values in Action Character Strengths survey, and begin applying your strengths to your financial planning process.
  • Make time for self-reflection. What emotional responses do you have to budgeting and tracking expenses that deter you from doing this work? How can you decrease your emotional response, or change it to a positive response, when you see a spreadsheet or are asked to create a budget?

Abbey Smith is a Savory Professional Educator and a leader of the Jefferson Center for Holistic Management, a Savory Global Network hub serving the West Coast. Learn more at jeffersonhub.com and savory.global. She lives in Fort Bidwell, California with her children Maezy and Sam, who are learning to love spreadsheets at a young age.