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Intermediate

Wealth vs. income: What’s the difference?

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Making money is great, but keeping and growing it? That’s the real game. In its simplest terms, income is what you earn, while wealth is what you keep and build over time. But that’s not the only way these two terms are different. Let’s explore more about wealth vs. income. 

What is income?

The definition of income is money you earn from work, side hustles, or investments. Basically, income is any money that comes into your wallet or bank account, whether you’re actively working for it or it builds up on its own over time. Types of income usually fall into one of these three categories:

  • Earned income. Salary, wages, bonuses, and tips that you make from a part-time or full-time job are earned income. It could come from your regular job or a side hustle, like freelancing, selling handmade crafts, running a small business, or creating online content. 

  • Passive income. This type of income requires minimal daily effort to continue coming in (that’s where the “passive” comes from). It includes things like rental income, royalties, or limited partnerships. It could also include unemployment benefits, alimony,  and worker’s compensation. Think of it like this: If it can earn money while you’re sleeping, it’s passive income.

  • Portfolio income. Also called investment income, portfolio income is money you receive from investments, dividends, interest, and capital gains. It’s also generally considered passive income, but it comes from your financial portfolio specifically.

You may have also heard the term “unearned income.” This generally covers both passive and portfolio income. Understanding income is important because whether you're earning a paycheck, making extra cash from a side gig, or earning interest on your savings account, knowing where your money comes from helps you make better financial decisions.

What is wealth?

We know income is how much money you make. Wealth is how much of that income you keep, grow, and can pass down over time (i.e., generational wealth). So, while income is what you earn, wealth is what you build. Some examples of wealth include:

  • Savings. Money you’ve set aside for the future, whether it’s in a bank account, emergency fund, or retirement account.

  • Investments. Stocks, bonds, mutual funds, and other financial assets have the potential to grow over time.

  • Real estate. Property you own, such as a home, rental properties, or land that appreciates in value.

  • Business ownership. If you own a company or share in a business that generates income.

  • Assets that increase in value. This could include collectibles, art, or other items that appreciate over time.

In a nutshell, wealth includes everything you own that either has value or increases in value over time. Building wealth is really about making smart financial choices. It’s not just about earning money. It’s about saving, investing, and letting your assets work for you over the long run.

Wealth vs. income: More key differences 

Income and wealth are connected, but they’re not the same. Here’s a closer look at what sets them apart.

What do you earn vs. what do you own?

We know that income is the money you earn from a job, business, or investments. Wealth, though, is what you own and keep over time. You could make a great salary, but if you’re not saving or investing, you're probably not building wealth.

Are you spending or saving?

Making a lot of money doesn’t automatically mean you’ll build wealth, especially if it’s all going out as fast as it’s coming in. Wealth grows when you put saving and wise investing ahead of spending. In fact, someone with a smaller paycheck but strong saving habits can end up wealthier than someone with a high income who overspends.

Today or tomorrow?

Income covers today’s needs. It’s focused on paying bills, buying groceries, and handling daily expenses. Wealth is bigger-picture. It’s about growing your money over time, creating financial security and opportunities that can last for years.

Are you working for money or making money work for you?

With income, you’re trading your time and effort for money, whether from a paycheck, side hustle, or passive income streams. Wealth can continue to grow even when you’re not working through strategic investments, real estate, and other assets. This idea of having your money work for you allows financial freedomand stability.

Now that you know the difference between wealth and income, you can start making a plan to turn your income into lasting wealth. It starts with setting long-term financial goals and building smart and consistent money habits.

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