Definition and Meaning
Earned Income refers to the money an individual earns through active participation in a job or business. This includes wages, salaries, bonuses, tips, and commissions one receives from performing work duties.
Etymology and Background
The phrase “Earned Income” originates from the Old English word “earnian,” meaning “to merit” or “to gain.” This term has evolved to encompass various forms of work-related compensation.
Earned income is crucial for personal finance as it’s often the primary source of sustenance for individuals and families. It serves as the foundation for budgeting, savings, investment, and obtaining personal loans, mortgages, or other financial products.
Key Takeaways
- Primary Income Source: Typically, earned income is the main source of income for working individuals.
- Types of Earned Income: Includes wages, salaries, bonuses, tips, and commissions.
- Taxation: Generally subject to income tax and social security contributions.
- Financial Planning: Plays a vital role in qualifying for various financial products and insurance policies.
Differences and Similarities
Differences Between Earned Income and Passive Income
- Activity Level: Earned income requires active work, while passive income flows from investments or business activities that do not need day-to-day management.
- Taxation: Earned income is often taxed at higher rates compared to some forms of passive income.
- Stability: Generally more consistent, whereas passive income may fluctuate based on market conditions.
Similarities
- Income Sources: Both contribute to an individual’s overall financial health.
- Financial Planning: Essential components in budget creation and long-term financial goals.
Synonyms
- Wages
- Salaries
- Employment Income
- Job Earnings
- Work Compensation
Antonyms
- Passive Income
- Unearned Income
Related Terms
- Passive Income: Earnings from rental property, limited partnerships, or other sources not requiring direct involvement.
- Capital Gains: Profits earned from the sale of assets like stocks or real estate.
- Dividend Income: Earnings generated from owning shares in a company.
Frequently Asked Questions
What qualifies as earned income?
Earned income includes wages, salaries, tips, commissions, and any other payment received for work a person performs.
Is earned income taxable?
Yes, earned income is subject to federal and state income taxes and often social security and Medicare taxes.
Interesting Facts
- Record Earnings: The highest reported annual salary in the world belonged to Tim Cook, CEO of Apple, who earned $378 million in 2011.
- Minimum Wage Variations: Different countries have disparate minimum wage standards; Australia’s is one of the highest around the globe.
Quotations
“You must gain control over your money or the lack of it will forever control you.” — Dave Ramsey
Proverbs and Clichés
- “A penny saved is a penny earned.”
- “Money doesn’t grow on trees.”
- “Hard work pays off.”
Humorous Sayings
- “Money talks, but all mine ever says is ‘Goodbye.’”
Government Regulations
In many countries, earned income is subject to tax regulations, which may include federal, state, or local income taxes, as well as mandatory contributions such as social security and Medicare.
Suggested Literature
- Rich Dad Poor Dad by Robert T. Kiyosaki
- Your Money or Your Life by Joe Dominguez and Vicki Robin
- The Total Money Makeover by Dave Ramsey
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Happy earning and learning!
Until next time, remember: “Fortune sides with those who dare.” — Jordan Weiss, October 2023
