Management Of Family Resources

Lesson 34 : System For Money Management By Families

Defining Success In Terms Of Life Style

Analyzing the financial Resources:

Reaching financial goals requires knowledge of available resources-inventorying the financial resources of those whose goals are being sought. Financial resources are the economic assets that come within the managerial scope of an individual or group. They are specifically money income, elastic income, fringe benefits, and wealth. Fringe benefits-group insurance, health services, private pensions, employer contributions to social security and other retirement plans, vacation pay, sick leave, expense accounts, and stock options-play an im­portant role in financial planning and should not be overlooked as financial resources.

Analyzing financial resources involves three steps: (1) clarifying current financial status through a net-worth statement. (2) evaluating the current quantity, certainty, source, and pattern of income flow and predicting its continuation over the short term (one year), and (3) estimating the pattern of financial resources over the lifetime of the family.

Statements of net worth should be computed annually to measure financial progress. Net worth is a comparison of financial assets to liabilities. Assets are usually computed first. The value of non-liquid assets is difficult an to determine but should be estimated yearly. The current market value of such assets as owned cars, home and other real estate, furnishings and equipment, clothing and other forms of wealth can be estimated.

Liabilities are the negative side of a net-worth statement. The major liability of most families is the mortgage on a living unit. Charge account and installment purchase balances are also liabilities. Insurance premiums due medical and dental bills, bank loans, life insurance loans, and all bills payable should be included in the total of liabilities.

Net worth is the difference between total assets and total liabilities. The statement should be dated for future comparisons. Such a financial analysis tells a family what its financial health is, much as a physical examination tells person's state of health.

The second step in analyzing financial resources is to consider the current quantity, certainty, source, and pattern of income flow and to predict its continuation over the short term. Money income, value of fringe benefits, and increased purchasing power through use of credit are central foci in this step toward management for financial success.

Occupational choices affect the regularity and characteristic flow of income and, consequently, the financial planning that is possible. The quality of living that can be exchanged for financial resources is dependent not only on how much income is available but even more importantly, on the regularity and stability of income.