While income is generated, wealth is created, there is a big difference between two. Many think that these two terms are one and the same thing, but in reality, income is a stream, that helps in the creation of wealth and wealth is the total market value of all the assets possessed, stored or saved by a person for future use.
The former is the money earned by a person, over a limited period say one week or one month, whereas the latter is the money earned by a person during his lifetime. So, if you are also confused between these two terms, take a look at the article provided below to have a clear understanding of these two terms.
Content: Income Vs Wealth
|Basis for Comparison||Income||Wealth|
|Meaning||Income refers to the money received or earned on a continuous basis, as a return for work or investments.||Wealth implies money or valuable possession accumulated by a person during the course of his life.|
|What is it?||Flow of money||Stock of assets|
|Acquisition||Income is generated immediately.||Wealth is created over time.|
|Tax levied||Income tax||Wealth tax|
Definition of Income
We define income as the monetary return that accrue/arise or is expected to accrue/arise at fixed intervals from certain sources. It is an amount of money, which a person gets, receives or earns, either through investing capital or through providing goods or services. It is the fundamental requirement of an individual, household or business to finance routine expenses. The sources of income can be:
- Wages and salary from employment.
- Rental income from house property.
- Interest on savings and securities.
- Dividend income.
- Income from business or profession.
In accounting terminology, income is net of revenue, i.e. revenue less all expenses and taxes. Moreover, while the calculation of taxes, income covers only revenue receipts and includes those incomes also which do not arise on a regular basis, such as winning from lotteries, horse races or crossword puzzles.
Definition of Wealth
Wealth denotes the current market value of total assets owned by an individual, society, company and country. It is the sum of all tangible and intangible assets, an entity possesses, that can be exchanged for money including savings, investments, real estate, cash and other valuable items less all liabilities.
GDP (Gross Domestic Product) is the most common measure to find out the wealth of the country while the wealth of individual can be determined through their Net Worth.
In economics, the term ‘wealth’ refers to the aggregate of all assets of a firm, household, government, etc. , that generates income or is capable of generating income in future. It takes into account human capital and natural resources, rather than money and securities. Economic wealth can be divided into two categories, i.e. monetary wealth and non-monetary wealth.
Key Differences Between Income and Wealth
The differences between income and wealth can be drawn clearly on the following grounds:
- The amount of money received on a periodic basis, in exchange for the products or services provided or the capital invested is called income. Wealth can be defined as the assets or property which are held by a person during his course of life.
- Income is the flow of money, obtained from factors of production. On the other hand, wealth is the market price of the stock of asset possessed by an individual or household.
- Income is earned or received, during a limited period. Conversely, wealth is accumulated over time, i.e. the creation of wealth takes time.
- Income tax is charged on the income of an individual from various sources i.e. salary, house property, capital gains, business/profession and other sources. As against this, wealth tax is levied on an individual or household’s wealth.
Therefore, income is something that a person gets in return for the work performed or money invested by him. On the other hand, the wealth of a person is something that helps him/her to survive for some days without working. Income is the only source that can help in the creation of wealth, so it can be said that wealth yields income.