Wealth vs Income: A Common Confusion Worth Clearing before Embarking on Financial Planning
We often struggle with understanding our
financial insecurities despite generating what we feel in a sizeable income. We
could be receiving quite an impressive income from our salary or business
regularly but despite all our efforts we really do not manage to create and
maintain our wealth. One of the main reasons for this gap is our ever-common
confusion about wealth vs income. But what’s really the difference between
wealth creation and earning an income? How can we leverage our income smartly
to create wealth?
Here are five pointers to remember while trying
to figure out the wealth vs income differences.
Pointer 1: Wealth versus income
In simple terms, wealth is what you possess in the form of assets;
it is truly your net worth minus the liabilities. It could be your financial
investments, your savings, home, land, or any other form of personal property.
However, income is the cash inflow; it’s the regular money you receive in the
form of salary, rental income, regular wages for the services you provide, and
even government assistance. You income usually helps you to lead a lifestyle of your choice
and supports you in accumulating wealth. However, having a healthy income does
not necessarily mean that you are wealthy.
Pointer 2: Smartly increase your scope for increasing your
wealth and income
Wealth is accumulated with an expectation of an
increase in its value in the future years. Wealth can be your stocks, shares,
assets, land, house, bonds, property and more. So when their value appreciates,
your wealth considerably increases. Therefore smart financial planning and
regular revisiting of your total asset value will help you make the right
investment and savings decision to improve your wealth. But, income is what you
earn on a regular basis for your work or talent. Showcasing your skills is
essential to earn income; hence, the most productive years of your life if used
to your fullest potential, can lead to a considerably high income.
Pointer 3: Income is immediate, but
acquiring wealth takes time
Wealth creation is a long-term process wherein you
need patience and grasping ability to the market trends. Income can be an
exciting aspect which can be generated at regular intervals for example monthly
salary. The wealth you create can stay with you for your lifetime, but you may
stop earning income from your job when you retire. There can also be a
situation where over a period of time, the income you generate from your wealth
might be more than enough for you to lead a comfortable life. For example, you
could earn a handsome rent from your property or gain from the dividends and
interest from your savings and investments.
Pointer 4: Take expert help to grow
your wealth
Growing your wealth is all about taking
calculative risks, understanding market ups and downs, and investing. The
growth value of wealth may not be pre-determined, but wealth generally has good
potential to increase its value if managed smartly. With innumerable dos and
don’ts to consider while generating and growing wealth, it is always safe to
take the guidance of a registered investment adviser or financial advisory
services for smart personal financial planning. These experts are adept with
managing the entire gamut of options of gaining wealth. Hence they can study
your specific life goals and provide customized guidance to you.
Pointer 5: High earners are not
necessarily always wealthy
With high income comes the need to maintain a
higher standard of living, which leads to high expenses. Hence, without savings
or investing a specific percentage of income in gaining wealth, all your
efforts at being wealthy will be in vain. Your choice of the percentage of your
income you devote to savings is a critical determiner of how much wealth you
can possibly accumulate over a period of time. Ideally, if you land up spending
less than about 20% of your income on savings, then your scope of generating
wealth decreases.
Wealth vs income – what’s critical in
the long term?
While income is critical to ensure that you lead
a healthy lifestyle, the extent of wealth you accumulate is your safety net for
the future and the ladder to reach your life goals. Having a clear mindset about the two crucial
aspects of money - wealth and income – is essential to aid you in the journey
of financial planning in life. So, use your income wisely to convert it into
wealth.
PrognoAdvisor is your trusted online financial planning service from
India, with extensive expertise in understanding your specific financial and
life goals and guiding you achieve these goals with confidence. Connect with
our financial advisors at Prognoadvisor.com to understand how you can simplify the entire process of personal
financial planning and meet your life goals with some smart wealth creation and
management.
Post Your Comments