FINANCIAL
MANAGEMENT
AND PLANNING
LEARNING OBJECTIVES
After completing this chapter the learner is able to — • understand the meaning and concept of financial management. • know the different types of income. • explain the steps in making family budgets. • describe meaning of savings and investments. • discuss the principles of sound investments. |
16.1 INTRODUCTION
(i) FINANCIAL MANAGEMENT in the context of a family simply means management of finances. Finances are all types of income available to a family which include salary, wages, rent, interest, dividends, bonus, retirement benefits and all other forms of monetary receipts. Planning, controlling and evaluating the use of all these types of incomes is called financial management. Its purpose is to give the family greatest satisfaction from the resources at hand. The quality of living that can be exchanged for financial resources is dependent not only on how much income is available, but more importantly on the regularity and stability of income. Therefore, it is important to learn the skill of managing money as a resource. This chapter will deal with the types of family income, management of income and the steps in making family budgets.
(ii) FINANCIAL PLANNING is a component of financial management. The term budget is often used for the planning stage in financial management.When families make budgets, they see to it that the family income is used in a manner that fulfills all the present needs of the family members and also takes care of the long term goals of the family. Thus families are able to achieve their objectives by optimising the use of their resources. In addition, financial planning minimises wastage of money on non-essentials, thus making families save a part of their income for future use. This is, however, possible when the family monitors its financial plans and evaluates the plans from time to time. Commitment of family members towards the success of the financial plan is very important for it to show any results. Management is using what you have (resources) to achieve what you want (goals and objectives). Family resources are the resources that are available to the individual or the family at a particular time, which help them reach their family goals. Family resources include human resources such as knowledge, skills, health, time and energy; material resources such as housing, money and investments; and community resources such as the library, parks, community centres, hospitals etc. In order to ensure maximum utilisation of resources it is important to manage them well. A family is a consumption unit while being a social unit, and its purpose is to manage the finances of the family for the well-being of its members. Money is one of the important family resources. A family cannot lead a comfortable life without sufficient money. Managing money effectively to meet present needs and future goals is a learned skill. So let us understand what we mean by family income.
