The guide to a secured household economy.

1. Introduction

The household economy plays a vital role in society as it involves managing income, expenses, savings, investments, and consumption patterns to ensure the well-being and stability of individuals and families. Effective management of the household economy requires careful planning, budgeting, and decision-making to achieve financial stability and meet long-term goals.

Households must manage their limited resources earned today to meet the demands of tomorrow, emphasizing the importance of rational use and planning for future well-being.

Incomes earned by households are a result of various resources, and the primary objective is to maximize utility by providing for essential needs and luxuries.

By detecting wastages and learning about financial discipline, savings, and investments, households can adapt to external factors that may impact income generation. Factors such as government policies and inflation can influence household income, savings, and consumption, highlighting the need for proactive management strategies.

Triggers!!

The triggers of a rational household are deeply rooted in various concerns and uncertainties that individuals face in managing their finances. These triggers include:

• The realization that one's salary may not cover monthly expenses or meet the demands of the family.

• The fear of not having sufficient savings to support the family in case of job loss or unexpected

• circumstances like government restrictions due to crises such as Ebola or COVID-19.

• The uncertainty of being able to work in adverse weather conditions or the possibility of a family member falling ill adds to the financial stress.

• Additionally, the anticipation of fluctuating prices of goods and services, as well as the inevitable retirement from regular income-generating activities, further highlights the need for households to plan and prepare for future financial stability and security.

2. A Typical Household Economy

The household economy is a term used to describe the financial management and decision-making processes within a household. It encompasses all the economic activities and resources of a household, including income, expenses, savings, investments, and consumption patterns. The household economy is a crucial aspect of any society as it directly affects the well-being and stability of individuals and families.

Scenario 1.0

Mabinty is married to Mr. Sheriff Kamara, a petty trader with a weekly income of approximately SLN 700 (USD 30). Together, they have four children and recently adopted 7-year-old Saffie. The family of eight lives together, with Mabinty also working as a petty trader earning SLN 400 (USD 17) per week. Mr. Sheriff and Mabinty have a weekly spending plan in place to manage their income effectively. They review their spending pattern regularly to track wastages, ensure savings are on track, and prioritize family needs. At the end of each month, they review their debts to others, aiming to keep a small margin of debt to maintain financial stability.

scenario 1.0 typically illustrates a household. This household is comprised of 8 people and can generate approximately SLN 1,100 weekly income, aggregating both the husband's and the wife’s income streams.

This means that only 2 out of 8 people are generating income to cater for the needs of everyone else in the household. Keeping track of the amount we owe to other people will help us to better plan our next spending as we must pay off all our debts while keeping a low debt profile will catalyze peace and confidence at home.

2.1. Income!!, a component of the household economy

Income is a key component of the household economy, referring to the money that comes into the household through various sources such as salaries, wages, investments, and government benefits. The stability and amount of income greatly impact a household's financial situation and its ability to meet its

needs and wants.

Household heads need to find sustainable means of generating income, as the absence of income can lead to a loss of peace, respect, and confidence in achieving future aspirations and saving plans. Income generation is crucial for households to sustain their livelihoods and meet their basic needs. For example,

Momoh's family relies on his monthly salary of SLN 10,000 to cover their expenses and support themselves.

Scenario 1.1,

Momoh is a monthly salary worker earning SLN 10,000. His wife does not have any income-generating activities, and their household relies solely on Momoh's monthly income. This highlights the importance of Momoh's job as the primary source of income for the family. He must continue working to sustain the household's financial needs.

2.2. Spending!!, a component of household Economy

Expenses are the money spent by households on goods and services to meet their daily needs and wants. These include essential expenses such as food, housing, utilities, and healthcare, as well as discretionary expenses like entertainment and travel. The household's ability to manage its expenses

effectively is crucial in maintaining financial stability. Overspending or living beyond one's means can lead to debt and financial strain, while careful budgeting and prioritizing can help households achieve their financial goals

Here is a step-by-step guide to help you plan your spending:

1. Assess your income and expenses: Take a close look at your income and expenses. Understand how much money is coming in and how much is going out. This will give you an idea of how much you can realistically save each month.

In the household of Momoh and his family, their total monthly income is SLN 10,000 and in the household of Mr Sheriff, his wife and 6 dependents, their monthly income is a total of what Mr. Sheriff earns weekly and his wife’s weekly income is multiplied by 4 times.

Mr Sheriff's Weekly income = SLN700

Mabinty’s weekly income =SLN 400

Total household weekly income =SLN (700+400) =SLN 1,100

Total household monthly income =SLN (1,100*4) = SLN 4,400

2. Create a budget: Develop a budget that outlines your income, fixed expenses (such as rent/mortgage, utilities, and loan payments), and variable expenses (such as groceries, entertainment, and transportation). Allocate a portion of your income specifically for savings.

3. Reduce unnecessary expenses: Review your expenses and identify areas where you can cut back. Look for ways to save money, such as reducing dining out, cancelling unused subscriptions, or finding cheaper alternatives for certain products or services. Redirect the money saved towards your savings goals.

4. Track your progress: Regularly monitor your savings progress. Keep track of how much you have saved and compare it to your goals. This will help you stay motivated and make adjustments if needed.

5. Prioritize debt repayment: If you have outstanding debts, consider prioritizing debt repayment alongside your savings efforts. High-interest debts, such as credit card debt, can hinder your ability to save effectively. Develop a plan to pay off your debts while still maintaining your savings goals.

6. Review and adjust regularly: Regularly review your budget and savings plan. Assess your progress, make adjustments as needed, and celebrate milestones along the way. Life circumstances and financial goals may change, so it's important to adapt your savings strategy accordingly.

By following these steps and making savings a priority, you can build a strong financial foundation for your household's future.

2.3 savings and investment!! As components of the household Economy.

Savings and investments are also essential components of the household economy. Savings refer to the money set aside for future use, while investments involve putting money into assets that are expected to generate a return, additional income, or future income. Both savings and investments are crucial for

households to build wealth and achieve financial security. They provide a safety net in case of emergencies and help households achieve long-term financial goals, such as retirement planning or education funding.

Scenario 1.1.2

Mabinty and Sheriff’s household developed a solid savings plan indicating their vision to buy a piece of land in the next 12 months, to start a 3-bedroom building in 2 years. This is because they were tired of paying rent for an apartment, they had rented for over 10 years. For this, they allocated 20% of their total monthly income.

Momoh’s household has had its saving plan developed, indicating his vision to start a business idea for his wife and to send his first child to the university next year. He has put aside 20% of his income for the business and 10% for his daughter’s education.

Mabinty and Sheriff's household:

- Goal: To buy a piece of land in the next 12 months and start building a three-room house in 2 years.

- Allocation: They have allocated 20% of their total monthly income towards their savings goal.

- Action: They will consistently save this amount each month to accumulate the necessary funds for purchasing the land and starting the construction.

Momoh's household:

- Goals: To start a business idea for his wife and send his first child to university next year.

- Allocation: Momoh has set aside 20% of his income for the business idea and 10% for his daughter's education.

- Action: He will save the allocated amounts each month to accumulate the necessary funds for starting the business and covering his daughter's education expenses.

In both cases, the households need to stick to their savings plans and consistently set aside the allocated percentages of their income. They should regularly track their progress towards their goals and adjust if needed. It's also advisable for them to explore different savings options, such as opening separate savings accounts for each goal or considering investment opportunities that align with their timeframes and risk tolerance.

By following their savings plans diligently, Mabinty and Sheriff's household can achieve their dream of owning a piece of land and building their own house. Similarly, Momoh's household can work towards starting a business for his wife and providing his child with a university education. These savings plans will help them take control of their financial future and work towards their aspirations.

2.3. Consumption!! A component of the household Economy

The household economy also includes consumption patterns, which refer to the types of goods and services that households purchase. These patterns are influenced by various factors such as income, preferences, and societal norms. For example, households with higher incomes may have a higher consumption of luxury goods, while those with lower incomes may prioritize necessities.

Scenario 1.1.3

Mr. Sheriff and Mabinty’s household income increased as a result of the boost Mabinty had recorded in her business. She had expanded her business after taking a loan from the bank last year. Mr. Sheriff has also realized recording increased income from his petty trading. As a result of this, their house income has increased to SLN:15,500 from SLN 4,400. All this happened in the 11th month of the year. They then decided to make a few changes to their consumption pattern. Now the kids no longer eat gari in the morning

before going to school. Gari is now being alternated with tea and bread for breakfast. They have also decided to increase their savings for their dream house and increase the amount of money given to the child for lunch to SLN5 per child from SLN2. Both their consumption patterns and savings plans changed as a result of increased household income.

On the other hand, Momoh has been laid off from his previous job and now working for a low income in another organization he’s currently working. His salary dropped to SLN8,000 from SLN10,000 monthly income. As a result

of this, Momoh and his Wife decided that they should review their consumption plan and see where to cut down.

They decided to unsubscribe from DSTV and instead use the free-to-air channel, they also decided to go for weekend beaches and change the house they currently live in to a smaller apartment. They maintained the savings plan as they are keen to start their 3-bedroom building and send their daughter to the university.

It's great to hear that Mr. Sheriff and Mabinty's household experienced an increase in income due to the success of Mabinty's expanded business and

Mr. Sheriff's petty trading. With their household income now at SLN 15,500, they made the following changes to their consumption patterns and savings plan.

▪Breakfast: Instead of the children eating gari in the morning, they now alternate between tea and bread for breakfast. This change may be due to the increased income allowing for a more varied breakfast option.

▪Increased savings: With the boost in income, Mr Sheriff and Mabinty decided to increase the amount of money they saved for their dream house. This indicates their commitment to achieving their goal of owning a house.

▪Increased lunch allowance: They also increased the amount of money given to their child for lunch, raising it from SLN 2 per child to SLN 5. This change may be a result of their improved financial situation, allowing them to

provide more for their child's needs. On the other hand, Momoh's household experienced a decrease in income as he was laid off from his previous

job and is now working for a lower income in another organization. His salary dropped to SLN 8,000 from SLN 10,000. In response to this change, Momoh and his wife reviewed their consumption plan and made adjustments.

Here are the changes they made:

▪Unsubscribing from DSTV: They decided to unsubscribe from DSTV and instead use free-to-air channels. This change helps them reduce their monthly expenses by eliminating the cost of the DSTV subscription.

▪Weekend activities: They decided to forgo weekend beach outings, which likely involved additional expenses. This change allows them to cut down on discretionary spending and focus on more essential needs.

▪Downsizing to a smaller apartment: They decided to change their current living arrangement to a smaller apartment. This change helps them reduce their housing expenses and adjust to their lower income.

Despite the decrease in income, Momoh and his wife maintained their saving plan as they were still determined to achieve their goals of starting a 3-bedroom building and sending their daughter to university. This shows their commitment to their long-term aspirations and their ability to adapt their consumption patterns to their current financial situation.

Both households' adjustments to their consumption patterns and savings plans reflect their ability to adapt to changes in income and prioritize their financial goals.

3. Conclusion.

The household economy is not only about managing financial resources but also about making economic decisions that affect the household's well-being. For instance, households must make decisions about whether to rent or buy a home/build, which can have long-term implications for their finances. They also must decide on the allocation of resources between different family members, such as investing in education or healthcare for children.

You should note that the household economy is a complex and dynamic situation that involves managing income, expenses, savings, investments, and consumption patterns. It is a crucial aspect of any society, as it directly affects the well-being and stability of individuals and families. Effective management of the household economy requires careful planning, budgeting, and decision-making to achieve financial stability and meet long-term goals.