DIFFERENCE BETWEEN INCOME AND WEALTH
Definition
| Term | Definition |
|---|---|
| Income | Income refers to the money earned by an individual or entity over a specific period, typically in the form of wages, salaries, profits, rents, or interest. It represents the flow of funds received regularly or irregularly. |
| Wealth | Wealth, also known as net worth, is the total financial and non-financial assets minus liabilities that an individual or entity possesses at a specific point in time. It represents the accumulation of assets over time. |
Key Differences
| Aspect | Income | Wealth |
|---|---|---|
| Definition | Money earned over a period. | Accumulated assets minus liabilities. |
| Nature | Flow of funds. | Stock of assets and value at a point in time. |
| Time Frame | Measured over a period (e.g., monthly, yearly). | Measured at a specific point in time. |
| Sources | Wages, salaries, profits, rents, interest, etc. | Real estate, investments, savings, possessions, etc. |
| Variability | Can fluctuate frequently. | Tends to change more slowly. |
| Example | Monthly salary, annual dividends. | Total value of a home, savings, investments, and possessions. |
| Purpose | Used for day-to-day expenses and bills. | Represents overall financial well-being and financial goals. |
| Impact on Wealth | Can contribute to increasing wealth over time. | Major source of wealth accumulation. |
| Measurement | Easily measured and tracked. | Requires a comprehensive assessment of assets and liabilities. |
| Economic Indicator | Used to assess short-term financial health. | Used to gauge long-term financial stability and security. |
| Taxation | Typically subject to income tax. | Usually not taxed unless realized (e.g., capital gains). |
Income refers to the money earned over a specific time period, while wealth represents the total value of assets minus liabilities at a particular point in time. Income is a flow, whereas wealth is a stock, and they serve different financial purposes and are subject to different taxation rules.
