Money Management

Money Management

Among all the resources that are available to the family, the most important one is money. Money plays an important role in the life of man as an instrument through which he can satisfy his physical, mate-rial and mental needs. The income and expenditure pattern of the family decides the family’s standard of living and its place in the society.

1. Concept of Income

Income is the inflow of money, goods and services. Family income is one of the con-cept of income. It is defined as money or purchasing power earned by family mem-bers during a specific period of time and goods and services received or created in that time by the family eg. goods like veg-etables from kitchen garden, services like doing household chores, teaching chil-dren etc.

Family income can be classified as:

1.        Money income

2.        Real income

3.        Psychic income

1. Money income

Money income is the cash available to a family from any source, over a period of time. The period can be daily, weekly, monthly or yearly. It is obtained in the form of a currency, bank draft or cheques.

Money income is tangible and is used for purchasing goods and services for the family. The sources of money income are given below.

Sources of money income

• Salary 

• Rent 

• Bonus 

• Profits

• Wages 

• Cash gifts

• Dividends from shares

• Interest from banks

• Pension 

• Investments

• Lotteries

2. Real income

Real income is the stream of goods and services available to a family over a period of time. Real income is derived from properties and possessions owned by a family, skills, efforts and abilities of the family members and also from com-munity facilities. These goods and ser-vices may be available to a family either directly through direct contribution of family members or by community facili-ties or indirectly when some medium of exchange, usually money is involved.

3. Psychic income:

It is that flow of satisfaction that arises out of everyday experiences, derived largely from use of money and real income. It is intangible, subjective and is the most important income in terms of quality of living. Psychic income depends on the skills of family members in utiliz-ing their money and commodities judi-ciously. Satisfaction derived out of flow-ers obtained from the plants at home is an example for psychic income. 

2. Factors Affecting Income of a Family

Several factors affect income generation such as:

a. Skills and talents: If a person has tailoring skills, they can start a bou-tique, while a knowledgeable home-maker can conduct bakery classes and generate income.

b. Time and energy: A person with time and adequate energy would be able to supplement his income by doing additional work.

c. Interest in job: A higher interest in the job increases efficiency which in turn helps in career advancement through promotions and results in a higher salary.

d. Location of home: Living in a remote area may lead to lesser job opportunities as compared to Cos-mopolitan cities where there are more job opportunities.

e. Investments/assets: The more a person invests, the more interest can be earned. Other assets like property/ land also help in generat-ing income through rent.