Throughout your life, you will have likely come across the terms wealth and income more than once. However, it can often be difficult to understand what these two terms mean and how they relate to each other and your financial situation.
This task is made more difficult due to the fact that the terms are often used interchangeably in casual conversation. In this article, we will look at what wealth and income are and what the difference is between them.
For many people, the term wealth is somewhat ambiguous. People often hear rich people being described as wealthy.
Because of this, it is common for people to equate wealth with the amount of money that someone makes. However, this is inaccurate.
Wealth refers to the amount of money, property, and valuable possessions that an individual owns.
Combining all of these things together provides you with the net worth of an individual which is also their wealth. Things such as property and valuable possessions like cars are included in wealth because they are worth money.
These assets contribute to the overall wealth of a person.
The term wealthy is often used to describe individuals who have a significant amount of assets to their name.However, the term wealth does not automatically mean that someone has a lot of assets or money.
Someone can have a lot of wealth, in which case they have plenty of assets, or they can be moderately wealthy and have a reasonable amount of assets. People can be referred to as having a small amount of wealth if they own minimal assets.
If wealth covers money, property, and valuable possessions, income is a lot more simple. The term income simply refers to the money that is earned in exchange for labor or products.
This is the money that comes into your household or bank account from your job, business, or the sale of personal possessions.
Income is only counted in cash form. This means that payment made in the form of assets or possessions is not considered to be income.
If you are compensated for labor or products with material gifts such as a car or home, this is not income.
If you are compensated with cash, a wire transfer, or a check, this is considered to be income.There are two different terms that cover the income earned through a job.
The term gross income, or gross pay when written on a paycheck, refers to the total earnings of an individual before taxes and other deductions have been made. It is important to note that gross income covers all income from all sources.
This means that it doesn't exclusively cover sources of employment. Gross income can cover gifts and occasionally high-value possessions and assets.
The term net income, or net earnings, refers to the amount of money that is left after all tax and other deductions have been accounted for.
Sometimes, this may be referred to as an individual's take-home pay. Net income is incredibly useful for calculating a budget for your household.
It is also what is used by banks and other financial institutions to calculate loans and eligibility for credit cards.
What Is The Difference Between Wealth And Income?
Now that we know what the terms wealth and income mean, we can begin to understand the difference between them.
Income is the money that is in-coming to your bank account or household from employment sources.
This can be a regular amount obtained weekly, biweekly, or monthly. It can also be irregular depending on the type of employment that you have.
Wealth is the combination of your money, both income and savings, your property, and your valuable possessions. Because wealth covers all of these assets, it is possible for someone to have no current income but still be considered to be wealthy due to the assets that they own.
How To Work Out Your Income
Working out your income is fairly straightforward and becomes even easier if you have a single source of income. If you are interested in finding out your income, you will need to look at the paychecks that you get from all of your sources of information.
If you have regular paychecks, working out your income is quite simple. All you need to do is add together the total income from all sources of employment and income.
Remember that there is a difference between gross and net income so make sure that you are working out the right one for your needs.
How To Work Out Your Wealth
Working out your wealth is slightly different from working out your income. To get started with working out your wealth, you should make a list of all of your valuable assets and property.
Valuable assets include things such as vehicles and businesses. Once you have made a list, you can begin to work out your wealth.
The easiest place to start is by adding up all of your cash savings. This can be done with statements from your savings account.
For any properties that you own, you will need to obtain an up-to-date valuation of the property. This will give you an accurate assessment of the monetary value to add to your wealth.
A similar process should be followed for all vehicles and other assets. If you are claiming a business as part of your assets, the value of the business will need to be determined by an independent auditor.
Once you have all the valuations of your assets, you can add the values together to determine your wealth.
If you are calculating your wealth to secure a loan, you will need to ensure that the valuations are up-to-date and were carried out by trusted businesses or individuals.
There is a small but distinct difference between what constitutes wealth and what constitutes income. Knowing the difference between these two terms can help you to secure loans and purchase assets.
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