Expenses & Income

Expenses and Income are two of the most important money-related concepts in life. There are various kinds of income & expenses. Many of these are also dependent on the context in which they occur. We will deal only with some simple ideas related to them.

Expenses

We need to spend money for purchasing things and for paying salaries to people who work for us. There are several kinds of expenses in daily life

1. Some are essential for our living - food, clothes, school fees etc

2. Most of us live in houses which may not be owned by us. So rent that we pay for the house is also an essential expense.

3. We have people who work for us like house maids, drivers, gardeners etc. The salaries that we pay them are also our expenses.

4. We also incur expenses on movies, travel etc. These can be called non-essential expenses. If a family wants to reduce its expenses, the easier option is to reduce non-essential expenses.

5. Occasionally we may purchase of a TV or a refrigerator. These could b]e considered essential or non-essential depending on the family.

6. We may also take a loan from a bank to buy a home or a refrigerator or a car. In such cases we would have to pay interest to the bank on the loan that we have taken. We will deal with these issues in chapter 27.8 in this section.

7. Interest & Rent

   1. When we live in a rented accommodation, we are using someone else’s property which must have been purchased for a certain sum of money. So the rent we pay is a compensation for using the property.

   2. Interest is also like rent, except that it is directly associated with money. When we take a loan from a bank, we are using bank’s money. We pay interest to the bank for using its money.

Income

Where do we get the money to pay for the above expenses? The money we have earned and with which we can pay for the expenses is known as Income. We earn income in several ways. Some of them are

1. Salary - Like the housemaid who works in our house, we ourselves work for a company or another person. We get a salary for the work we perform.

   1. Salaries can be received on a monthly basis as in a job in a bank or office.

   2. Salaries could also be paid on a daily or even hourly basis, like a carpenter who comes home to make or repair a piece of furniture

2. Interest – We may have deposited money with a bank which pays interest on your “deposits” with the bank.

3. Profit – We may be managing a business. The profit you earn on the business could be your income. We will deal with these issues in chapter 27.6.

Savings or Shortfall

1. If in a month, the expenses are less than the income, some income is left over (or saved) at the end of the month. We can think of this as the savings for the month.

   1. The savings could be kept at home or deposited in a bank. In the second case, the bank will give us interest on the amount deposited.

2. If the expenses are more than the income, then we can say there is a shortfall. How will the shortfall be managed?

   1. There could be savings from the previous month, which can be used to manage the shortfall.

   2. We could borrow some money from the bank. In this case we will have to pay interest to the bank.