Family finances: What they are, objectives and importance - GovtVacancy.Net

Family finances: What they are, objectives and importance - GovtVacancy.Net
Posted on 24-10-2022

Family finances: What they are, objectives and importance

The economy of a family is subject to the way its finances are managed. Therefore, it is essential to know how to correctly manage the various aspects that make up the finances of a home.

Definition of family finances

Family finances are defined as the money management that a family does to keep its economy healthy. It takes into account the income you receive, as well as the actions of budgeting, spending, and saving, to efficiently manage your money.

It contemplates, in turn, the possible eventualities that could occur in the future and negatively affect the financial resources of the family.

They also take into consideration the assets that a family owns, such as real estate, savings funds, insurance, loans, and investments. Therefore, the way in which these resources are managed, regardless of their materialization or liquidity, is part of the economy of a family.

In each resource or action, the family administration studies the different factors that affect it. For example, in investments, the family unit must analyze the financial risks involved in carrying out a certain investment. By doing this, they are able to know if they can afford to lose such money, consider the levels of return, and calculate the percentage of risk to determine whether or not the investment is worth it.

Family finance goals

In general terms, the objective of family finances is to efficiently manage the assets of a home, to obtain the best possible results in the long term.

However, the specific objectives would be the following:

  • Quantify income: It is about counting the income that is received on a recurring basis to plan savings and spending actions.

  • Assess sources of income: Indicates how safe the sources of money are, this in order to know if it is necessary to opt for other sources of income and not depend on those that are not safe.

  • Know and control the expenses: In this part, the expenses (expenses) are determined, as well as the causes of this. It is carried out to know family consumption, and to analyze the possibility of reducing expenses that are not elementary, as happens, for example, with ant expenses.

  • Analyze the degree of indebtedness: It refers to the measurement of the expenses incurred as a result of the debts. It is done with the aim of developing a strategic plan and being able to get out of debt.

  • Use available resources intelligently: Resources such as credit cards or bank loans must be used intelligently to get the most out of them, and thus prevent them from playing against us.

  • Saving: Saving is one of the most important objectives of family finances, since it allows us to face unexpected situations or materialize plans.

  • Make an emergency fund: It is a bit related to saving, however, an emergency fund is intended only for those unexpected events that force us to disburse a considerable amount of money. This, in addition to not interfering with savings, avoids indebtedness, we will no longer see the need to request a loan to make a payment.

Importance of family finances

The importance of family finances lies in maintaining a healthy economy. Controlling expenses, being debt-free, having an emergency fund, saving to buy material goods, and having secure sources of income contribute to a better general well-being of all the individuals in the family.

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