Earning and income

Income is any money that flows to you. For most people it starts with a first casual job, but over a lifetime income can arrive from many directions, and the differences between them matter.

Income from work

• Wages: paid by the hour. Common in casual and part time jobs. Work more hours, earn more.
• Salary: a fixed yearly amount paid in regular instalments, whatever the hours turn out to be.
• Self employment: you run the show, send invoices and keep what is left after costs.
• Commissions and tips: extra pay linked to results, common in sales and hospitality.

In Australia, employees also have rights that come with work: a minimum wage, penalty rates for some evenings, weekends and public holidays, and superannuation, which is money your employer must pay into an investment account for your retirement on top of your wage. Super feels irrelevant at 16. It is quietly one of the most powerful money machines you own, and the investing topic shows why.

The reason super matters so much, even though you cannot touch it until you are near retirement, is time. That money is invested and left to compound for decades, and a small amount left alone for forty years grows into something far larger than the same amount saved for five. A contribution made from your first job at 16 has the longest possible run, which is exactly what makes those early dollars worth more than the ones you add at 50. The investing topic works the numbers, but the short version is that super turns time into money on your behalf, automatically.

Many young workers assume super is optional, or a slice the employer generously chooses to add. It is neither. The law sets a percentage of your earnings that the employer must pay into a super fund on top of your wage, and it is your money, held in your name. It is common to end up with several small super accounts by your twenties, one from each job, quietly charging separate fees, so it is worth knowing you can combine them into one and check where your money actually sits.

Income that does not come from work

Money can also arrive without you trading hours for it. Interest is paid by the bank for holding your savings. Dividends are a share of profits paid to people who own part of a company. Rent is paid to people who own property others live or work in. Building income like this takes years, but it is how money eventually starts working for you instead of the other way around.

This is the quiet distinction that shapes a whole financial life. Income from work stops the moment you stop working, because you are selling your time and there is only so much of it. Income that does not come from work keeps arriving whether you are at the desk, asleep or on holiday, because it comes from something you own rather than something you do. Nobody builds much of it overnight, and the early amounts look almost pointless. But every dollar of it is a dollar you no longer have to earn with an hour of your life, which is why the saving and investing topics spend so long on it.

Gross and net: the number that actually lands

The pay rate a job advertises is the gross amount. What lands in your account is the net amount, after tax is withheld and other amounts are taken out. A job that pays $25 an hour does not put $25 an hour in your pocket once you earn enough to pay tax. Always think in net when planning your own money, and gross when comparing jobs.

Here is how that works in practice. Suppose you earn $200 in a week from a casual job. If that is your only income and across the year you stay under the tax free threshold, which is the first $18,200 a year that the government does not tax, then no income tax comes out and close to the full $200 lands in your account. Earn well above that threshold, from a full time job later on, and tax is withheld from each pay so the government collects steadily rather than in one lump at year's end. This is why two people on the same $25 hourly rate can take home different amounts: the one earning more across the year pays a higher share in tax.