Comprehensive Notes: Income Management
Just like Meena, who realized her pocket money was not enough for all her requirements and an ice-cream, many face the problem of stretching money to satisfy needs and desires. The solution lies in the planned utilization of money.
1 Family Income
Income means anything which comes into the family and which is used to satisfy the needs of its members. It is not just money. Family income comprises of money, goods, and services that are available to the family to fulfill its needs and desires.
Money Income
The hard cash you get in hand. Sources include:
- Work/Service/Business salary
- Rent from property
- Interest from bank deposits
- Household production (e.g., selling pickles, toys, garments)
Real Income
Goods and services enjoyed by the family without direct money payment:
- Free housing or vehicle from an employer
- Vegetables from a kitchen garden
- Doing household chores instead of paying help
- Stitching clothes yourself
Needs vs. Desires
Needs are deficiencies which must be fulfilled for survival (Primary Needs: Food, clothing, shelter). Other needs make life easier (Secondary Needs: transport like a bus or cycle). Desires are what you wish to have after needs are fulfilled. They are not strictly necessary but make you happy to possess (Luxuries: wall hangings, a 3-bedroom house).
2 Expenditure & Income Management
Expenditure is the money spent on buying different goods (food items, soap, iron) and services (telephone, electricity, public transport), required by the family.
Guidelines for an Expenditure Plan
- Divide income into areas: food, clothing, housing, education, transportation, household services, entertainment, and savings.
- Prioritize primary needs over secondary needs.
- Allocate sufficient money to cover expenses for the full month.
- If money is left over, satisfy comforts first, then luxuries. (e.g., A desert cooler is a comfort; an air-conditioner is a luxury).
- Think of future needs (e.g., a marriage) and ensure total expenditure is less than total income to enable saving.
The Process of Income Management
Income Management is the planned and controlled use of the family income.
- Planning: Make a spending plan and keep away a part of income as savings.
- Controlling: Prevent waste (buy wholesale/right quantity) and use real income (time, energy, skills) to cut expenses.
3 Maintaining Records & Supplementing Income
A daily record of income and expenditure offers control over spending. By subtracting daily expenses from the previous day's balance, you observe the balance decreasing, reminding you to check unnecessary expenses.
Advantages of Records
- Understand exactly what money is spent on.
- Check unnecessary spending.
- Compare expenditures across different months.
- Plan accurately for the future.
- Be well informed of market trends and price rises.
Ways of Supplementing Income
- Income Generating Activity: Making pickles, stitching, giving tuition at home.
- Part-time Job: Babysitting, keeping accounts for a few hours.
- Invest Savings: Earn interest on saved money.
- Wise Use of Resources: Renting out a part of a large house or a tractor.
Note: Cutting expenditure (doing chores yourself) is also saving money. "Money saved is money earned!"
4 Savings and Investments
Savings is money from the present income that is deliberately put aside for emergency or future use. Investment occurs when savings are made to grow (e.g., earning interest in a bank).
Need for Saving:
- For a secure future (e.g., after retirement).
- For meeting emergencies (illness, accidents).
- Fulfillment of long-term family goals (buying a house or tractor).
- To raise the family's standard of living (buying a washing machine).
- For starting a small business (capital accumulation).
Financial Institutions & Avenues:
Institutions keep money safe, make it grow, allow withdrawals, and provide loans. Common avenues include:
| Institution / Scheme | Key Features |
|---|---|
| Banks & Post Offices | Safe, earns interest, high liquidity. Post offices offer schemes like NSC with tax rebates. |
| Provident Fund (GPF/PPF) | Compulsory saving for retirement. Money goes to Govt projects. Tax exempt. Loans available. |
| Life Insurance (LIC) | Contract paying a premium for risk security. Money given to a beneficiary upon death. |
| Unit Trust of India (UTI) | Buy units (min 100). Declares dividends. Tax relief and safe. |
| Shares & Debentures | Shares = part owner (risk of profit/loss). Debentures = loaning money to company (safer, fixed interest). |
5 Facilities & Selection of Schemes
Financial institutions also offer Credit Cards (plastic money for credit, high interest if unpaid), Debit Cards (uses your own account money), ATM Cards (24-hour withdrawal), Loans, and e-banking (internet services).
Reference Table 13.2: Characteristics of Investment Schemes
| Institution | Safety | Liquidity | Return | Tax Exemption | Loan Facility |
|---|---|---|---|---|---|
| Saving Bank A/c | Yes (High) | Yes | — | — | Against Fixed Deposits |
| Post-Office Savings | Yes (High) | Yes | Yes | — | — |
| NSC | Yes | — | Yes (High) | — | — |
| GPF / PPF | Yes | — | Yes (High) | Yes | Yes |
| Life Insurance | Yes | — | Yes (High) | Yes | Yes |
| Shares | — | — | Yes | — | — |
| Property/Gold | — | Yes (High) | — | — | — |
Process Flows & Diagrams
Components of Family Income
Goods & Services
Hard Cash
Fulfills Needs & Desires
Figure 1: Family income is the sum of both the actual money earned and the goods/services utilized by the family.
Order of Satisfying Needs & Desires
Figure 2: Expenditure plans must prioritize basic survival needs before allocating funds to comforts and luxuries.
Golden Rules & Exam Tips
1 Equation of Income
Family income isn't just money. It is strictly the sum of Money Income (cash from salary, rent, interest) and Real Income (goods, services, and skills utilized directly without paying). Both are used to fulfill family needs.
2 The Golden Rule of Expenditure
Always prioritize Primary Needs (food, clothing, housing) in your spending plan before addressing secondary needs (comforts) and desires (luxuries). Ensure total expenditure is always less than total income.
3 Savings vs. Investment
Saving is money put aside for emergencies or future goals. Investment is when those savings are made to grow by placing them in financial institutions (Banks, Post Offices, UTI) rather than keeping cash idle at home.
4 Power of Daily Records
Maintaining a daily record of income and expenditure is the simplest way to control spending. It helps you check unnecessary expenses by showing your balance decreasing, compare monthly trends, and plan for the future.
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