Income and wealth are the terms used in the context of personal finance and the majority of people make this mistake of considering both terms as the same which is not the case as both are completely different from each other. If you are one of those who consider both terms as the same than you should remove your misconception and read the differences between income and wealth –
Income VS Wealth
Meaning
Income in simple words refers to the inflow of regular funds to an individual whether it’s from salary or business while wealth refers to the total assets of an individual which he or she has built over the years. In simple words while income is like a river just like river flows in the same way income flows throughout the year whereas wealth is like a dam just as the dam is full of water in the same way wealth is full of assets earned and created by an individual over many years.
Example
An example of income is suppose an individual is earning $25000 per month from his job, owns a house from which he is receiving $5000 monthly rent and receive monthly interest of $5000 on his investments than his total monthly income will be $35000. While the example of wealth suppose an individual has purchased 100 stocks of Google 20 years back at $10 and after 20 years same stocks due to bonus and stock splits are worth $200000 then this $20000 is not income but wealth of an individual.
Rate of Increase
Income always grow in arithmetic progression implying that the rate of increase of income is slow and steady, hence when you are in a job you get a yearly increment of 5 to 20 percent every year same is the case with rental income and interest income but when it comes to wealth it always grows in geometric progression implying that rate of increase of wealth is high.
Purpose
Income is used by individuals for maintenance purposes only that is individuals use the income for paying their regular expenses like school fees, monthly bills, grocery items, and so on while wealth is used by individuals for enjoyment and living lavishly. If you are an economic student then you must have read about the difference between need and want and here the purpose of income is to satisfy your needs while the purpose of wealth is to satisfy your wants.
Source
The source of income is salary, rent, regular dividends from stocks, and interest from deposits while the source of wealth is capital appreciation which happens when you hold stocks for a long term or have invested money in real estate. In simple words, while sources of income are many but still one is not able to satisfy all his or her wants from the income but in the case of wealth while its sources are limited but one is able to satisfy all his or her wants from the wealth.
Number of People
In the case of income, it is earned by the majority of people and hence one can say that income is omnipresent as it is earned by people all around the world while as far as wealth is concerned it is created by select few individuals and hence you will find many people having good income but you will find it hard to find people having wealth.
Taxation
As far as taxation is concerned one has to pay income tax on the income while as far as wealth is concerned one has to pay wealth tax on the wealth of an individual.
As one can see from the above that income and wealth are completely different from each other and although it is good to have a respectable income however your focus over a long period of time should be on building wealth if your dream is to have a luxurious life for yourself and your family.