Module 3 · Earning money
Where money comes from: income and cash flow
The four main sources of income, how to work out your monthly cash flow, and how to plan when your income changes from month to month.
This lesson is still locked
This module opens after you finish the previous one — or pass its module test if you already know it.
In this lesson
- Name the four main sources of income and give an example of each
- Calculate monthly cash flow, including payments that come once a year
- Plan for irregular income with a buffer account and a steady salary to yourself
- Estimate how much money a passive income goal really needs
Darko, 68, receives his pension on the same day every month, plus rent for his garage four times a year. His granddaughter Lea, 19, earns money from student work and a small scholarship. Both ask the same question: how much do I really have to live on each month?
Four ways money reaches you
Almost every euro you receive comes from one of four sources.
| Source | Examples | Usually regular? |
|---|---|---|
| Employment | A job, student work, part-time work in retirement | Yes |
| Self-employment | Tutoring, freelance design, a small shop | Often not |
| Investments | Interest on savings, rent, dividends from shares | Varies |
| Transfers | State pension, child benefit, scholarships, gifts | Mostly yes |
Employment income usually has tax and social contributions taken off before it reaches you. The next lesson looks at that in detail.
means working for yourself instead of for an employer. The money you take in is not what you earn: first you subtract your business costs, then your own tax and contributions.
Income from things you own, such as interest or rent, is often called . It is never effortless. Someone first had to save the money, buy the flat or do the upfront work, and the income can fall.
A is money you receive without giving work or goods in return. Many retired people live mainly on transfers, such as a state pension.
Cash flow: what comes in minus what goes out
Your is the money that comes in minus the money that goes out over a period, usually a month. If it is positive, you have something left to save. If it is negative, you are using savings or borrowing.
Totals are not enough. Timing matters too, because some money arrives or leaves only a few times a year.
When income goes up and down
Maja is a freelance designer. Her net income over six months was €1,800, €3,200, €900, €2,500, €1,400 and €2,800. That is €12,600 in total, so her average is €2,100. Her worst month brought only €900.
If Maja spends like an average month every month, she will run short in the bad ones. One common approach is a buffer:
- Every payment goes into a separate business account.
- She pays herself a fixed €1,800 “salary” each month, based on a weak month rather than the average.
- When the buffer holds more than three months of salary, the extra goes to savings.
Over these six months her buffer never runs dry, and it ends at €1,800. Her household budget never sees the swings.
“Passive income” needs a lot of money first
Suppose you want €200 a month (€2,400 a year) from a savings account paying 3% a year before tax. You would need 2,400 ÷ 0.03 = €80,000 in the account. At 2%, you would need €120,000. That is why income from savings usually comes late in life, after years of saving.
Check your understanding
10 questions. Get at least 8 right to unlock what comes next.