Welcome back to the TRIO Financial Literacy Blog! If this is your first time reading the blog, welcome and before moving forward, take a moment to read last week’s as each build upon the previous. Looking back, we learned that there are five components to financial literacy; earn, spend, save and invest, borrow, and protect. This week we will explore what it means to earn.
Before you can set a budget, pay bills, save and invest, or purchase the most amazing dessert you can find, you must know how much money you have accessible to you. Having money typically happens in two ways by earning it or making it. Understand that printing money is illegal and is NOT the same as making money. Earning is “when you trade your time and energy for money” (Donati, 2020). In laymen’s terms, you earn by the hour working during the time allotted. In these cases, you’re dependent on another entity to earn money, and that entity most likely will only pay you once per hour you spend working.
Earning money can be exciting and rewarding when spending hours working on or as something you find joy and passion doing. Both time and energy are limited resources. However, before we can move forward as financially literate people, we must know precisely where our money is coming from and where it is going. As an earner, you should be receiving a paycheck for your time and energy. On that paycheck, it is vital to identify your gross and net income, along with any other deductions. Your gross income is the total amount of money you are paid before income tax is removed. Your net income is the real money you are paid after taxes and deductions, or “take-home pay.” Deductions or withdrawals are items such as employer health insurance or retirement plans deducted after taxes before receiving your “take-home pay.”
You may be wondering why are gross, net, and deductions vital as they relate to earning. Your gross income is what you would use if you ever wanted to negotiate a pay raise or on a loan application, or when applying for a credit card. Additionally, your net income is the actual money you have on hand to make purchases and set a budget to save and invest in making more money. Who doesn’t like more money? Certainly not us! Today, don’t just glance over your pay stub or only accept your direct deposit as final; look closer. Hiding from the numbers will not change or grow them but understanding them will. Awareness is the gateway to clarity and that “clarity” positions you to make money. Let’s Build!
Donati, E. (2020b, August 25). How to Earn Money vs How to Make Money. Mint.Com. https://mint.intuit.com/blog/personal-finance/yes-earning-money-and-making-money-are-different