Income

Income is a flow: it is measured over a period, such as a month or a year. This makes it different from wealth, which is a stock measured at a single moment. Someone can have a high income but little wealth if they spend everything they earn, or high wealth but little income if their assets produce no cash.

Income can come from many sources. Earned income comes from working, such as wages, salaries, tips and self-employment profits. Investment income comes from what you own, such as interest on savings, dividends from shares or rent from property. Some people also receive transfer income, such as pensions or government benefits.

It is important to know which income figure is being discussed. Gross income is the total before anything is taken out. Net income, often called take-home pay, is what remains after taxes and other deductions. A person earning 4,000 a month before tax might receive only about 3,200 in their bank account once tax and contributions are deducted.

Lenders, landlords and tax authorities all look at income, because it shows how much money is regularly available to pay bills, debts and taxes.