Family accounting

Submitted to: MRs. Jyoti meenaSubject : Home management (family economics)Unit :2 family accounting

Jai narain vyas university2014-2015

Submitted by : Harshita bhargava B.sc. Home science III yr

What i s Family Budgeting

Content

The Importance of a Household BudgetBenefits of household budget Things to consider when planning to do Family BudgetingHow to make an Effective Family Budgeting PlanRecord keeping ,family accounting Saving and Investment

Importance of Saving Factor determining

savingInvestment characteristicsTypes of Savings and channels of investmentWhat is a Savings Institution

INSTITUTIONS OF SAVING

Family Budgeting is a plan on how family income should be spent to provide for family needs without incurring debts or deficits. It’s the parents primary task to prepare a budgeting plan. However, every member must also know how the family income is budgeted. Through family budgeting, family members learn to spend money wisely, thus, saving money which could be use for other family needs. Resources such as time, energy and utilities are also used well when income is budgeted. It is a financial map that help families see where their income is really going each month.

What is Family Budgeting?

A proper household budget is extremely important in our lives and its absence could lead to many financial problems.

A well-made, proper household budget has a great impact on our financial lives. If we do not have one, we may have to face financial problems of various kinds. A household budget is all the more important in this consumer era because it teaches members of the family the worth of money. It is, indeed, an important cog in the wheel that runs a house.

The Importance of a Household Budget

Once a household budget is in place, it becomes much easier to bring things under control. It can also teach younger members of the family the importance of money, so that they stop wasting money on unnecessary things. They can utilize this knowledge when they grow up and start their own families.

Another important benefit of a household budget is that it can alert you against possible cash flow problems in the future. For example, it will let you know if you have more direct debits from your bank account than your wage can cover. And once alerted, you can then take some necessary measures, such as seeking a small loan or overdraft facility to cover the deficit or get in touch with the concerned companies regarding the direct debits so that you can change your payment plans. As a household budget also gives you a clear picture of the money which is coming into the house, you can then try to increase it in various ways that suit you – like finding a better job, seeking a pay rise, or starting a small new business

A household budget helps you to identify the areas in which you spend, and take necessary steps to curtail expenditure on those items that are non-essential and unnecessary. Household expenses often spiral out of control because we have no idea about how the family’s total outgoings are created. Once a household budget is in place, it becomes much easier to bring things under control. It can also teach younger members of the family the importance of money, so that they stop wasting money on unnecessary things. They can utilize this knowledge when they grow up and start their own families.

Benefits of household budget

1. Basic Needs

-it is the first thing we should consider in family budgeting. It is the things we need in our daily life like Foods, Shelter, Clothes.

2. Allowance or Provisions -A limited amount or portion of income for

daily life like Provisions/Allowance for Students/Parents that work. Use for buying foods, beverages and for things that they need.

Things to consider when planning to do Family Budgeting

3. Bills or Utilities -such as Electric Bills, Water Bills, Telephone Bills, Internet Bills, Gas which are paid monthly

4. Savings -the money saved can be used in

emergency situations. Also it can grow in the form of investments. It can also came from excess money from different things.

5. Education -Tuition Fees and school needs such as

textbooks and other supplies constitute expenses that must be provided for, especially the daily school allowances.

6. Transportation -usually we don’t have cars, so we need to also budget the transportation expenses

1. Know your income2. Determine which expenses are needed to

be record3. Base the budget on a system of priorities4. Have a record of expenses5. Do the family budgeting planner. Use only

the allotted many for each expenses and as long as possible don’t get extra money from savings to fulfil a budget for a expense.

6. If there’s an excess money it is advisable to put or to add in the savings if not needed to use.

How to make an Effective Family Budgeting Plan

Accounting, or accountancy, is the measurement, processing and communication of financial information about economic entities. Accounting, which has been called the "language of business", measures the results of an organization's economic activities and conveys this information to a variety of users including investors, creditors, management, and regulators. Practitioners of accounting are known

as accountants.

Types of accounting 1. Short term account 2. long term account

Record keepingfamily accounting

Short-Term DebtCurrent liabilities include any obligations that are due

within one year. Categories of short-term debt include accounts payable, accrued payroll and accrued payroll taxes. Current liabilities also include any payments in the upcoming year required to service long-term debt. For example, payments on a mortgage due in the next 12 months are considered current liabilities.

Long-Term DebtA long-term debt is any liability owed that is not due

for more than one year. The principal balance of a mortgage is one common type of long-term debt. Another is the principal balance, or face value, of bonds sold by the corporation that will not mature for more than one year. The unpaid balance of a long-term lease is also a long-term liability. In some cases, retirement benefits due to employees are considered long-term liabilities.

Things to be kept in short term accounting:Monthly bills ( electric , news paper, water,

t.v. And mobile recharges , etc. )Daily expensesMedical expensesSalary Income taxThings to be kept in Long term accounting• Mortgage on building • Purchasing a vehicle Service and repair of equipments

Example

Importance of Saving

Emergency cushion - This could be any number of things: a new roof for the house, out-of-pocket medical expenses, or a job layoff and sudden loss of income. You'll need money set aside for these emergencies to avoid going into debt to pay for what you need.Retirement – If you intend to retire someday, you'll probably need savings and/or investments to take the place of the income you'll no longer get from your job.Average Life Expectancy – With more advances in medicine and public health, people are now living longer (and needing more money to get by).Volatility of Social Security – Social Security was never intended to be the primary source of income and should be treated as a supplement to income.Education - The costs for private and public education are rising every year, and it's getting tougher to meet these demands.

Factor determining savingInterest rates: Higher interest rates will encourage people to save more.Availability of appropriate savings schemes: With more options to save money people will be attracted to save moreAdvertising of/knowledge about what is available at financial institutionsConfidence/trust in financial institutionsSize of real disposable income: Disposable income is the income left after paying taxes. Thus more money left in pockets will encourage people to save more.Rate of inflation: when inflation is high people have less money left with them to save because a major part of their disposable income will be spent to satisfy their needs and wants.Save for a future purchase: People might save with the motive to carry out a future purchase e.g. a housePrecautionary factors: People might be ‘saving for a rainy day’Tastes and preferences of consumers: It also depends on a individuals preference. Some people save more than others.Consumer confidence/expectations about future changes in the economy, e.g. risk of unemployment may lead to people saving more

Investment characteristicsFrom an investors’ perspective the infrastructure asset class provides appealing investment characteristics which evolve due to their physical and economic characteristics: Stable and predictable cash flows: By nature infrastructure facilities exhibit steady demand with stable and predictable cash flow streams. In some cases income is regulated or backed by certain types of guaranteed uptake or purchase agreementsLong term predictable income streams: Implied by the long life span of infrastructure facilities. For basic infrastructure facilities operating costs are low compared to the initial investment and investment returns are dominated by yield. These features are attractive to investors seeking long-term, stable, yield dominated investments. In addition the revenue stream may be supported by "shadow tolls", government subsidies or other non-market interventions 

Inflationary hedge: The income streams from regulated infrastructure facilities are often linked to inflation providing a natural inflation hedge against movements in market pricesInsensitive returns of investment: In particular with respect to fluctuations in business cycles, interest rates and stock market movementsHigh credit rating: Since infrastructure exhibits stable and predictable cash flows they usually have a comparatively high credit ratingLow correlation and low volatility: This arises from the fact that infrastructure exhibits unique investment characteristics which deviate fundamentally from traditional asset classes. In particular the inelastic and stable demand for the goods and services provided imply comparatively low volatility and correlation

Types of Savings and channels of investment

 Savings AccountsSavings accounts are among the most basic ways to save money. All banks offer them, usually for free. The money earns interest each month,

Certificates of DepositCertificates of deposit are another savings option offered by most banks. CDs are long-term savings accounts into which a depositer place a given sum of money for an agreed-upon time, often five or 10 years.

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AnnuitiesAnnuities are low-risk investments that require one-time or ongoing payments, and pay out a specified sum. Investors who purchase annuities hope to receive more in payments than they put into the annuity. An annuity may be structured to provide income during retirement, offering a predictable payment for life.

Mutual FundsA mutual fund is an investment product that uses stocks to earn money for a large group of investors. The fund's manager pools money from investors and uses it to buy many stocks. Some mutual fund managers buy and sell shares of stock daily or even hourly.

Real EstateReal estate is another type of investment. While most homeowners hope that their own homes' values will rise, real estate investors buy land or rental property with the expectation of selling it in the future.

CommoditiesInvesting in commodities involves predicting the future price of a product or resource. Commodities investors buy futures contracts, which represent the right to buy a commodity, such as crude oil, corn or wheat, for a set price at a given time in the future.

Bonds- An Obligation issued by the corporation that promises the holder to receive fixed annual interest payments and payment of the principal upon maturity

Financial Institutions-

Retained Earnings- the practice of using corporate profits for capital investment rather than dividend payments

Financial Intermediaries, Banks-A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank links together customers that have capital deficits and customers with capital surpluses.

Mutual Fund-

Financial Intermediaries

A mutual fund is a type of professionally managed collective investment scheme that pools money from many investors to purchase securities.[1] While there is no legal definition of the term mutual fund, it is most commonly applied only to those collective investment vehicles that are regulated and sold to the general public. They are sometimes referred to as "investment companies" or "registered investment companies".

Savings and Loans-

A savings and loan association (or S&L), also known as a thrift, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans.They are often mutually held (often called mutual savings banks),

meaning that the depositors and borrowers are members with voting rights, and have the ability to direct the financial and managerial goals of the organization like the members of a credit union or the policyholders of a mutual insurance company. While it is possible for an S&L to be a joint-stock company, and even publicly traded, in such instances it is no longer truly a mutual association, and depositors and borrowers no longer have membership rights and managerial control. By law, thrifts can have no more than 20 percent of their lending in commercial loans — their focus on mortgage and consumer loans makes them particularly vulnerable to housing downturns.

Stocks-

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. 

The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount of money to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

Insurance Company-

What is a Savings Institution?

A savings institution focuses on home loans and other real estate financing. They serve as organizations that work with members to raise funds.  Most of the funds deposited into savings institutions are from consumers for the purpose of establishing a home mortgage. Savings institutions typically focus on customers and closely serve local communities.

INSTITUTIONS OF SAVING

Banks =

Saving banks-

A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank links customers that have capital deficits and customers with capital surpluses.

The savings banks are especially for those who belong to the low income groups or those who are salaried. The savings banks function with the intention to help people culminate the saving habits, which is especially for those who belong to the lower income groups or those who are salaried. The post office is also in a way a saving bank, where people can open recurring accounts to save money. Commercial Banks-

The main function of these types of banks is to give financial services to the entrepreneurs and businesses. It gives financial to the businessmen like providing them with debit cards, banks accounts, short term deposits, etc. with the money deposited by people in such banks. The commercial banks also lend money to these businessmen in the form of secured loans, unsecured loans, credit cards, overdrafts and mortgage loans.

Banks allow people to open accounts to which they can deposit there surplus finance to which in returns they pay an interest on the amount by which not only money is saved but also increase money .. Some banks even provide wide range of opportunities for saving for saving money. By issuing some national documents in which a person invest his money and get it back with interest.

Post office-A post office is a customer service facility forming part of a national postal system.[1] Post offices offer mail-related services such as acceptance of letters  and parcels; provision of post office boxes; and sale of postage stamps, packaging, and stationery. In addition, many post offices offer additional services: providing and accepting government forms (such as passport applications), processing government services and fees (such as road tax), and banking services (such as savings accounts and money orders).The chief administrator of a post office is a postmaster.

The Post Office Savings Bank has emerged from its limited role of providing the poor people with a safe means of securing their savings to a major instrument for mobilising savings for meeting development expenditure of the Nation and the State as well. The Government have been introducing various schemes from time to time to suit the varying requirements of individuals. 

Credit Union-

A credit union is very similar to a bank in services rendered, but varies in the way that it provides those services.Credit unions are nonprofit organizations that are owned by the people who deposit money into accounts.  Credit unions are exempt from paying taxes on this deposited money because of their nonprofit role.Account holders are considered members of the credit union and deposits are seen as “buying shares” in the credit union. Customers must meet specific credit union qualification criteria to join.  These members are paid dividends on the credit unions’ earnings, much as shareholders are paid dividends on a company’s stock earnings.Credit unions most often operate on the local level. Members share some sort of connection, often an occupation or social status. Because credit unions generally have fewer customers and fewer employees than banks, the interpersonal connections between the two are often stronger than those in banks.

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