Family finances and income

Financial management in a family means planning, controlling and evaluating the use of all its income, so that the family gets the greatest satisfaction from what it has. Financial planning, done through a budget, meets today's needs, works towards long-term goals and leaves room for saving. It works only if it is checked regularly and every member is committed to it.

Family resources. Money is only one of a family's resources:

• Human resources: knowledge, skills, health, time and energy of the members.
• Material resources: housing, money, investments, household goods.
• Community resources: libraries, parks, hospitals, schools, public transport.
• Managing money is a learned skill, not something people are born knowing.

Family income is the total income of all members, from all sources, over a set period. Officially the period is the financial year, from 1 April to 31 March. Income comes in many forms: wages, salary, profits, commissions, rent, interest, dividends, pensions, gifts, royalties, tips, bonus and subsidies.

What money does:

• Medium of exchange: we swap money for goods and services instead of bartering one thing for another.
• Measure (standard) of value: prices tell us what things are worth compared with each other.
• Deferred payments: money lets us buy now and pay later, or lend now and be paid back later.
• Store of value: money can be kept for the future, which makes savings and investment (capital formation) possible.

Three types of income:

• Money income: the rupees that come in. It may be regular, like a monthly salary or pension, or irregular, like a farmer's income that comes mostly after each harvest, or a shopkeeper's earnings that rise in festival months.
• Real income: the goods and services the family actually gets. Direct real income comes without spending money: meals cooked at home, a sweater knitted by a grandparent, a tap fixed by a family member, vegetables from a kitchen garden, or a free health camp run by the community. Indirect real income is what the family obtains by spending money: rice bought at the shop, a bus ticket, a doctor's visit.
• Psychic income: the satisfaction felt from using goods and services, such as the pleasure of a quiet evening in a well-kept home. It is intangible and subjective: two people can feel very differently about the same thing. It matters most for quality of life.

Example (new): Meena's family earns Rs 22,000 from her mother's job and Rs 4,000 from a rented shop each month: that is money income. Her grandfather grows tomatoes and chillies on the terrace: direct real income. The family's joy at eating those home-grown vegetables together: psychic income.