February 22, 2021   by
Image result for income and expenditure folder
An image of an income and expense folder

Monitoring the income and expenditure statements is very crucial to any Investment group. Additionally, in any business, it is critical to understand the relationship between expenditure and income be it an investment, Chama, or a Sacco. This relationship between income and expenditure is referred to as a consumption schedule. The consumption schedule is used to describe economic trends in an organization, household, or business. The money in an organization is often either a form of expenditure or an income. The two have to be kept in check and should always run and aim towards having more incomes than expenditure. Through this method, the Chama will likely stay afloat and have financial health over a long period of time. 

When there is more money or there is the anticipation of income, there is a high probability of expenditure in the Chama. This means that the money spent on expenditure is at times more likely to occur even when there is not enough income to cover them. In such situations, the investment group may not be financially healthy. Therefore, it is important to prevent this by considering the relationship between expenditure, savings, and income and extracting data to find a way to strike balance between the investment group’s income and expenditure.

Expenditure and Income

An image of expenses vs income calculations

There is a significant difference between the income and expenditure in an investment group. The income refers to the money the group gets, it could be from their businesses or investments, or contributions. Generally, this means that income refers to the money coming into an investment group.  As the income increases the group’s disposable income increases and therefore the expenditure increases consequently.

 However, this does not mean that there is a direct relationship between expenditure and income. This is because at times some groups have increased expenditure in comparison to their income. The difference between the income and expenditure is on how much is left over as saving the end of the month. 

Forms of Expenditures for a Chama

Interests as a Form of Expenditure

In a Chama, there are different types of ways to acquire finances. One way is through loans. These loans often have interest rates as the loans offered to Chamas require them to pay back within a specified time. For this reason, when applying for a loan, it is advisable to research the different types of loans offered by Saccos and banks and check their interest rates. The more favorable the lesser the expenditure due to the decreased amount of money payable as interest.  One can calculate interests annually or quarterly. For more information click here.

Member Welfare 

Member welfare refers to the contributions given to one member to cater to their welfare needs.  Often the members make welfare contributions and when a member needs financial assistance they are given the welfare contribution. For instance, when a member loses a loved one they may ask for the welfare amount. They may also have the welfare amount given on special occasions. The group chips in and help members during such occasions to offer support. Most groups gave the welfare account set aside for specific purposes, to ensure the expenditure does not deeply affect other group’s finances.

Service Payments

The Chamas sometimes decide to legalize their groups or find other services that might require them to make payments to lawyers, surveyors, business analysts, and economic advisors. In such a case the amount of money payable to the professionals go on record as expenditures. When creating a Chama and making it legal there are several processes which one should follow. For more information on these processes click here

To help groups manage such intricacies of group finance, Chamasoft provides great features for not only expenses and income management, but also membership management, group communication and many more.

Sources of Income for a Chama. 

Member Contribution

Contributions are the basic sources of revenue in a Chama. They are the principal foundation upon which Chama’s finances are built. Contributions may be monthly, or weekly in intervals depending on the agreements of the members. It also involves the contributions amounts that will vary depending on Chama’s goals and the financial ability of the members. Some groups also use the merry go rounds type of contributions while others pool money together and open savings accounts. Other types of contributions involve member savings towards creating an investment group.

Loans as a source of Chama Income

More often than not, Chamas offer loans to their members. These loans are often up to 3 times the amount of member savings. In the event, the group’s finances may not be enough to finance the group’s expenses they may take loans from banks.  One may acquire these group loans at the bank so as to undertake projects that require additional funding. The loans are a great method of tackling projects and ensuring they bring in returns in the future as there is no monetary limitation to member contribution.

 Obtaining a loan involves several legal procedures other than personal loans, which involve a specific number of guarantors or signatories. It is important to agree upon a loan in a group unanimously to prevent conflict regarding the money and its payment.  The management of these funds is also equally important. This is critical as one should ensure the money fulfills its precise intended purpose. That means that they must have a well-stipulated expenditure plan for the funds.

Investment Benefits

As earlier discussed dome members decide to make contributions towards starting a certain business investment. These groups accrue a profit after a certain period. One may venture into the real estate business, plot leasing, building apartments, or reselling buildings. These investments often offer groups a great profit. It is vital for a group to seek expert advice when making investments to prevent losses. As members must be willing to take risks in their investments.

Donations types of Income

In different countries, some non-governmental organizations offer financial assistance to groups to help them boost their activities. These donations are often a way of empowering the countries socially. Many women’s self-help groups especially those in rural areas have received numerous benefits from such donations and initiatives.

As listed above all the sources of income bring in money to the organization, while all the expenditures involve extracting money from the organization. There is a distinct relation between the two as the increase in income gives enough finances to fund expenditures. Similarly, too much expenditure leaves the Chama or investment group with little to no income.

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This post was written by Martha Adhiambo

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