What is Earned Income?

Earned income is money one receives by working in some form or another. It is one of the two main sources of income. The other is unearned income. Common forms of earned income include wages, salaries, and tips earned from a job. It also includes self-employment income, such as money made from freelancing, consulting, or running a business.

Benefits of Earned Income

Earned income offers several interesting benefits. Perhaps the most obvious is that it is the sole contributor to Social Security benefits, which are a key component of retirement security in the United States. In addition to traditional Social Security benefits, earned income also contributes to retirement savings accounts. This income can be used to fund an IRA, 401(k), or other retirement plan.

Managing Earned Income

One of the important aspects of managing earned income is deciding how to use it. Of course, paying bills is always a priority. To ensure that bills are paid on time, one should budget accordingly and set aside a certain amount of income for monthly bills and expenses. Additionally, some of one’s income can be set aside for emergency savings, retirement savings, and other long-term goals. Additionally, it is important to be mindful of taxes, as taxes owed come out of one’s earned income.

In conclusion, earned income is an important source of income that comes from working. It is also the sole contributor to Social Security benefits. Properly managing earned income includes budgeting and setting aside funds for expenses, emergency savings, retirement savings, and other long-term goals, in addition to paying taxes.