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Difference Between Wealth and Income: Wealth vs Income

Finance BY Mashum Jun 06, 2021
wealth vs income

Wealth and income are two broad concepts with several similarities between them. While wealth is created, income is generated. A high income does not imply high wealth. On the contrary, a person may have a high amount of wealth but no income. 

Many people think these two are identical. But in real terms, income is a continuous stream of money received from rent, salary, interest and profit. Money helps in the maximization of wealth. It is required to understand Wealth vs. income to point out the contrast between the two. 

Were you confused till today with both these terms? No need to be puzzled anymore! This article will talk about wealth and income and also will shed light on wealth versus income.

What is Wealth?

what is wealth

What is Wealth in economics? You have come across this question in your academics several times. Measures and definitions of wealth have been evolving across the global economy. In modern society, wealth is measured with respect to money.  Yet, many experts do not accept this as a legitimate measurement method.

Wealth is the current value of the total assets possessed by any individual, country, society or company in the potential market. It is mainly the aggregate of all intangible and tangible assets owned by that could be exchanged in terms of money. 

Wealth includes investments, real estate, land, savings, cash and other valuable commodities less all kinds of liabilities. Firms, households and government fall under this category. All these have the potential to generate income in the future. Wealth also takes into account natural resources and human capital.  

GDP is one of the most widely used measures to find out the total wealth of a country. Net worth is the way to determine the amount of wealth that an individual retains. It is estimated by calculating the total market value of all assets owned and subtracting it by debts. 

Anyone who possesses a vast amount of net worth could be considered to be wealthy. It is evident that most of us evaluate this term in a relative sense. Like net worth or money or commodities, you can measure it in terms of sheep or wheat. 

Total wealth can differ from one group to another, one individual to another. These relative dissimilarities in wealth among people are what we refer to for identifying who is wealthier. These points are necessary to interpret  Wealth vs. income accurately. 

Apart from economic and financial aspects, wealth is a crucial part of human happiness and satisfaction. A country having larger volumes of wealth occupies a higher position in the happiness index. 

What is Income?

what is income

We can define income as the monetary returns that accrue or are expected o rise at fixed time intervals. It is the amount of money an individual obtains or earns through capital investments or providing services and goods.

You can derive income from several sources: 

  • Sales from business
  • Dividend stocks
  • Remuneration or wages from an employer
  • Bond/interest coupons
  • Rental income from residential properties
  • Interests on securities and savings

In accounting terms, income can be referred to as the revenue less all costs and taxes. Furthermore, income is not only limited to the collection of revenue while calculating taxes. It also includes non-recurring gains such as winnings from crossword puzzles, lotteries and horse races. 

Individuals earn their income primarily from wages, rents, interests as well as stock earnings. Investment in real estate is also a significant income source. For example, the stock holding of an investor would pay him income in the form of yearly dividends. 

Businesses earn income by selling services and goods above the costs of production. Tax authorities treat income earned from various sources distinctively. Nonetheless, business income is the revenue that indicates a firm’s residual revenues after settling all the taxes and expenses. In this particular case, income is also known as earnings. 

Income is helpful for funding day-to-day expenditures. It is a vital component for everyday living purposes. Pension is an essential origin of income for retired individuals. It can also be called their primary source of income. 

Most of these income forms are subject to taxation regulations by state, federal, and local governments. The revenue accumulated by the income tax department of a nation, finances the government programs and actions. 

Wealth vs. Income- What are the key differences?

Wealth vs. Income- What are the key differences

After going through the above explanation, your first and foremost question will be – what is the difference between income and wealth? Several economists have tried to answer by using theories, models and complex concepts. However, we are here to elucidate this to you in the most straightforward way. 

Income vs. wealth is a highly discussed topic in today’s world. It is of greater importance due to the rapid expansion of globalization. Moreover, tax rules are becoming more rigid in maximum countries. This is leading to a sharp rise in the importance of comprehending Income vs. wealth.

The key differences between income and wealth are highlighted below:

  1. Income is obtained periodically through the interchange of products and services or capital investment. Wealth is the sum of properties and assets held by a person, group, or entity with time.
  2. The money stream from various factors of production is income. Unlikely, wealth is the market price of the asset stock possessed by households or individuals. 
  3. An individual or a firm receives or earns income during a limited period. Oppositely, you can accumulate wealth over a longer time. 
  4. Incomes from multiple sources are susceptible to taxes. As against it, wealth tax is imposed on for the latter case.

Conclusion 

To conclude, you will earn your income in exchange for the money invested or work performed daily. But your wealth will assist you in surviving for some time without income. The explanation of wealth vs. income is helpful in managing financial resources.

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Mashum Mollah is a digital marketing analyst, SEO consultant and enthusiastic internet marketing blogger. He is very much passionate about social media and he is the founder Social Media Magazine.

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15 July 2022 at 6:07 PM

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