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AgLending: What's a good proxy for living expenses?

Bob’s question:

We are an AgLender  trying to establish a reasonable proxy for Living Expenses to use with our Global Cash Flow Worksheet when using Tax Returns. One consideration is 25% of AGI. I have been at banks that use $12,000 + $3500 per dependent. What have you seen other folks using that might be reasonable and systematic?

Linda says:

I much prefer a per family amount with an add-on for number of dependents. It just is not the case, especially with farm families, that their living expenses go up dramatically when their AGI increases.

Especially if it is a windfall year,  many families are more likely to use the windfall for capital improvements or catch-up on deferred maintenance.  Or maybe put some extra towards the college fund.

One of my AgLending clients also looks at Schedule A. They have a range per family of $24,000 to $36,000. I do not remember how or whether they adjust for number of dependents. They do, however, go toward the top of the range if either out-of-pocket medical costs or charitable contributions seem to be on the high side.

Another factor with farm families is the extent their family living expenses are covered by the farm. This could include transportation as well as food costs. Again, that observation will influence the choice of high in the range or low.


About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.