10.2.1. Types of Family Income

Family income means the sum total of the income of all types and from all sources of all the family members in a given time period. It can be annual, monthly, weekly or daily income. However, for official purposes, it is considered as the annual income in a financial year which is generally from 1st April to 31st March of the next year.

Family income refers to the total earnings received by all members of a family during a specific period. This can vary in frequency such as daily, weekly, monthly, or annually. For official use, family income is often calculated on an annual basis, typically from April 1st of one year to March 31st of the next year. Understanding this definition is crucial for tracking and managing family finances effectively.

Imagine a family of four where each member contributes to the household. The father earns a salary, the mother runs a small business, and the children might earn allowances or part-time jobs. When you sum their incomes for a year, that total is the family income. Just like a team works together to reach a common goal, family members contribute their earnings to meet their joint financial needs.

Income may be in the form of: • Wages • Salary • Profits from business • Commissions • Rent from properties • Interest on cash loans • Dividends • Pensions • Gifts • Royalties • Tips and donations • Bonus • Subsidies, Charities, etc.

Family income can come from various sources. These sources are categorized into different forms, including wages (paid for hourly work), salary (fixed compensation for work), business profits (earnings after expenses), commissions (a percentage of sales), and rent (income from leasing property). Other sources like interest, dividends (from investments), pensions (retirement payments), gifts, and tips also contribute to a family's total income. Recognizing these sources helps families understand their financial landscape better.

Think of family income as the ingredients in a recipe. Just like a good meal is made up of various ingredients like rice, vegetables, and spices, family income is made up of different forms of money inflow. For example, the husband’s salary, the wife’s business profits, and rental income from property all mix together to create the family's total income—a delicious financial dish!

There are three types of family income.

1. Money Income
2. Real Income
3. Psychic Income

Family income is further categorized into three primary types: Money Income, Real Income, and Psychic Income. Money Income represents direct monetary income, such as salaries, wages, and profits. Real Income accounts for the goods and services that can be obtained from the money earned, encompassing the value of what the family can procure. Psychic Income refers to the satisfaction and well-being derived from ownership and use of goods and services. Understanding these distinctions helps families evaluate their financial health and satisfaction.

Consider a person receiving a monthly paycheck (Money Income). This paycheck can be used to buy groceries or pay rent, which leads to having food on the table and a roof over one’s head (Real Income). Additionally, when they enjoy a meal with family or feel secure in their home, that’s Psychic Income—the happiness and comfort that money can’t always quantify. Just like a balanced diet includes different food groups, managing your income includes understanding these three types.

Money Income is the purchasing power in rupees and paisa that goes into the family treasury in a given period of time. It comes to the family in the form of wages, salary, bonus, commission, rent, dividends, interest, retirement income, royalties and any other allowances to any member of the family. Money income is converted into goods and services required for daily living, and often a part is diverted into savings for delayed use or for investment purposes.

Money Income is a direct representation of cash inflows into a family’s treasury over a specified timeframe. This includes all sums received as wages, salary, bonuses, and other financial sources. After receiving this income, families typically use it to purchase daily necessities, save for future use, or invest to secure additional income. Understanding Money Income is crucial for effective family money management.

Imagine your family receives monthly paychecks, much like water flowing into a reservoir. You need to decide how much to use for current needs (like paying for groceries and utilities) and how much to save for future use (like a vacation or home improvements). If you let your reservoir fill up (save) wisely, you'll have enough for the sunny days when you want to splash on extras!

Real Income is defined by economists as a flow of commodities and services available for satisfaction of human wants and needs over a given period of time. This definition has three important points, namely: • Real income is a flow of goods and services, it is not stagnant. • It consists of goods and services which might or might not be available with money, e.g., produce from your own land, services of a household. • There is a time period involved – it may be a month or a year.

Real Income encapsulates the goods and services that a family can access based on their financial income over a specific timeframe. It is dynamic, signifying that the availability of these goods and services can change over time. Importantly, Real Income does not solely depend on monetary income; it also includes resources like homegrown vegetables or household labor that do not require cash transactions. Recognizing Real Income allows families to assess their overall well-being.

Consider a family growing their own vegetables in a garden alongside earning a salary. The salary represents money income, but the tomatoes and carrots harvested from the garden represent Real Income. Just as having fresh produce directly contributes to family nutrition and savings on grocery bills, Real Income enhances overall family sustenance and quality of living, making you feel rich without necessarily having to spend.

Psychic Income is the satisfaction that results from the ownership and utilisation of goods and services. It can also be defined as the satisfaction derived from real income. It is difficult to quantify psychic income in terms of rupees. It is a form of hidden income. It is intangible and subjective and the most Important in terms of quality of living.

Psychic Income refers to the emotional and psychological satisfaction gained from owning and using goods and services. Unlike Money and Real Income, it can’t be easily measured in terms of money. However, it plays a vital role in determining the overall quality of living, valuing experiences like happiness, security, and contentment. Recognizing this aspect helps families focus not just on financial metrics but on well-being as a whole.

Think about how you feel when you buy a new toy or gadget. The happiness you experience when playing with it or showing it off is a form of Psychic Income. It’s like adding flavor to your life experience—it can’t be quantified, but it certainly adds joy, just like a dash of salt makes a dish delicious. In a way, Psychic Income nurtures the spirit, making the financial side of family life more fulfilling.

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