Wealth vs Income – What’s The Difference?

Wealth vs Income – Is there a difference between the two?

Here’s how most people think about wealth and income…

It’s actually fairly simple-minded as it goes something like this: 

The more a person’s income increases, the more wealthy they become.

Sound familiar?

If this was the case, then all doctors, lawyers and other professionals would be rich as they have higher incomes than most. (As a side note, I’m going to use the words “rich” and “wealthy” interchangeably today).

Most doctors have an ABOVE average income yet have a difficult time building wealth due to several factors such as:

  • high student loan debt
  • buying THE doctor house too soon
  • fancy cars

  • private school tuition
  • expensive vacations
  • start earning later in life

The more I’ve studied the habits of successful millionaires, the more I realize that to build wealth, having a HIGH income may not be the MOST important factor. 

Let’s take a look at wealth vs income…

Wealth vs Income

What is income?

There’s numerous articles for those interested in exploring income inequality, wealth inequality and unfair wealth distribution in the United States. That’s NOT what I want to focus on today. I want to talk about the difference between income and wealth and why they’re not the same thing.

wealth vs income

Income is earning money. It’s the MAIN reason you get out of bed each day and go to work if you only have active/earned income coming in. 

There’s also something called passive income that comes from assets (i.e. real estate) that is purchased via your earned income.

Income is the main way that household wealth is created.

But income by itself does NOT equal wealth. 

Reread that last sentence until it REALLY sinks in.

This is what confuses those individuals with a good job and high salaries. They think just because they earn a good living, they don’t have to budget or worry too much about investing money.

This is the mindset of a typical doctor that spends their entire career trading their time treating patients for money.

Most end up in retirement  having created only one income source from their 35+ year career.

Earned income is derived from:

  • wages/salaries
  • tips
  • commission payments
  • self-employment earnings
  • long-term disability benefits

Another point to consider is regarding income taxes. If you work relying only on this earned income,  you should know that it’s the highest taxable income vs passive income.

Now that you’ve gotten a feel for what defines “income”, let’s move on to wealth.

What is wealth?

the next millionaire next door

Depending on the source, there’s multiple definitions floating around on what it means to be “wealthy” or “rich”.

The Next Millionaire Next Door author Sarah Fallaw states that wealth refers to the net worth of a household, i.e. all of its assets minus of all its liabilities.

JD Roth from Get Rich Slowly defines wealth as having money.  And if you have a lot of money, you are rich. If you don’t have much money, you’re poor.

The book Rich Dad Poor Dad states that, “The wealthy don’t worry about money.”

If that’s the case, then the majority of Americans are NOT wealthy.


A recent survey from the Capitol One site stated that 77% of Americans are stressed about their financial situation.

That’s pretty funny coming from a company that’s always asking, “What’s in your wallet?“.

Their survey found:

  • 52% have difficulty controlling money-related worries
  • 68% mostly worry about having enough saved for retirement
  • 58% feel their finances control their lives

Simple path to wealth

simple path to wealth

Is there a simple path to wealth?

Author JL Collins’s book, The Simple Path To Wealth, gives out guidelines to obtaining wealth:

  • Spend less than you earn – invest the surplus – avoid debt.
  • Money can buy many things, but nothing more valuable than your freedom. (I couldn’t agree more)
  • Save a portion of every dollar you earn.
  • Try saving and investing 50% of your income. With no debt, this is perfectly doable.
  • When you can live on 4% of your investments per year, you are financially independent.

It’s NOT What You Make, It’s What You KEEP

In today’s recent trends, when a person says they want to be rich, what they really mean is they want to spend like a rich person.

They’re hoping to join other high-income earners only focusing on earning a big paycheck. 

And that’s approaching building wealth incorrectly. To me, being rich is having assets generating income that exceed your standard of living.

To put this in perspective, a teacher earning $40,000 a year from assets producing  passive income spending $30,000 are wealthy.

This is why ‘rich‘ has little to do with how big your paycheck is.

In the book Cashflow Quadrant, author Robert Kiyosaki teaches us that in order to get rich, it’s NOT how much we make but how much we KEEP.

He’s big on pointing out the difference between what’s considered an asset vs a liability.

Kiyosaki states, “Assets put money in our pockets and liabilities take money out.”

My 13 year old read his first book Rich Dad Poor Dad and has already learned this lesson that most adults don’t know. 

Kiyosaki goes on to say that “We want to make sure we invest to grow our wealth. We can do this by investing in things that produce income, appreciate or do both.

He’s big into real estate investing which both provides:

As a side note, Kiyosaki states that acquiring more money won’t solve your financial problems if you don’t know how to manage it. It actually makes things worse.

Income Is NOT Wealth

The average U.S. household income is $70,000 whereas the average doctor makes $250,000 annually.

You’d think that doctors and other high-income earners should be some of the richest people yet many don’t understand that income is NOT wealth.

Even with their high income level, many go their entire career living paycheck to paycheck.


They focus on their social status spending money on things that go down in value (cars, boats, etc.) to impress people that don’t really care about them.

Instead, they should invest in assets that pay them whether they treat patients or not.

If the amount of money you earn is limited by the number of hours you work, then you will NEVER be wealthy.

If you don’t realize by now, buying stuff will NEVER lead to wealth. This is why a teacher that doesn’t earn as much income as a doctor can attain more wealth as high salaries don’t always lead to wealth.

They realize that it’s what they do with their income to build wealth that makes them rich.

I stress to new Passive Investors Circle members to avoid lifestyle creep even when they receive a bump in income. By doing this, it will leave more money left over to investing thus ultimately increasing their net worth.

Putting their money to work in REAL assets (i.e. real estate) produce income independent of laboring which helps set you free. This allows you to move from working harder to working smarter.

Wealth = income producing assets

One of the main differences between wealth vs income is that ultimately wealth has to do with financial freedom.

It means that you’ve either invested enough in financial assets to sustain your lifestyle such as from the stock market or you’ve built sufficient passive income streams to pay your bills while you sleep.

To me at this stage of the game, all I want to know is that if I need to attend one of my kid’s school functions or go on a family vacation then I can do so without financial pressure.

For us, family wealth is a measure in time, not dollars.

Learning By Example

Here’s an example of wealth vs income from Money Crashers:

To explore the distinction between income and wealth in context, I’ll use two fictional 50-year-old characters: Adam and Bill.

Adam is wealthy, but has never earned a large income. Adam began working at age 22, after earning his bachelor’s degree paying in-state tuition at a state university. Although his starting salary was fairly low after graduation, Adam has managed to live well below his means. He committed to investing at least 10% of his income, and diligently shunned credit card debt. Through hard work and an excellent reputation, Adam has worked his way to a management position and now earns $60,000 a year.

Adam’s family lives simply, and they’ve remained in their small, three-bedroom house in a working class neighborhood. He and his wife paid off the mortgage a few years ago. Their children attended public schools, and when the kids grew up and needed cars, they got used cars and paid cash. They may not live a lavish life, but the family is not only comfortable – they’re debt free. And after 28 years of investing 10% of his income, Adam has built up an investment portfolio worth close to $1.5 million.

With a simple annual budget of $45,000, Adam’s family could sustain their current lifestyle for more than 30 years, without Adam or his wife ever needing to work again.

Bill earns a large income, but he isn’t wealthy – at least not yet. Unlike Adam, Bill attended an expensive private university, which, after financing, cost about $200,000. Bill is highly intelligent and hard working, and with his stellar record he gained admission to one of the best medical schools in the country, incurring another $200,000 in student loan debt to earn his M.D. After completing medical school, residency, and a fellowship, Bill got a job as a physician, starting out earning over $200,000 per year.

Especially with the comfort of a high annual salary, Bill’s family lives extremely well. He qualified for a jumbo mortgage on a $750,000 home in an exclusive gated community, complete with a golf course. Bill’s children attend the most prestigious local private schools, and Bill and his wife drive current-model, imported luxury vehicles.

A highly-proficient physician, Bill has worked his way up to an annual salary of $350,000. But Bill’s family’s expenses – the large mortgage payment, payments on two new cars, the children’s private schools, his own student loans, club memberships, luxury clothing, and expensive vacations – add up. The total cost of indulging is equal to Bill’s yearly salary. Some years the end up spending even more than Bill makes.

Bill’s family ends up living paycheck to paycheck, despite his huge annual salary. If Bill were to stop working, his family would soon be destitute.

Final Word

Now that you know the difference between wealth vs income, do you consider yourself wealthy?

I understand that a high salary can make one appear wealthy but it takes commitment and sacrifice to attain real wealth.

To take it a step further, I firmly believe that one can build sustainable wealth through real estate.

The cool thing is that you can build your own strategy to fit your personality. If you want to start small and become an active investor, then purchasing a single family home or duplex might be the best fit.

For those that don’t want to deal with tenants (like me) and are busy, then passive investing in syndications would work best.

With real estate, not only do you benefit from appreciation and cash flow, you also get some of the best tax advantages that the IRS allows such as depreciation

So if you’ve been thinking about how you can attain financial freedom in terms of working more hours or possessing more skills, think again.

It’s going to take a mindset shift to get you thinking of wealth in terms of money that’s being generated for you while you’re doing other things.

Once you realize that there’s a limit on how many workable hours there are then you can start the process of focusing on investing in assets that produce passive income.

Being wealthy means you don’t have to go through life always trading time for dollars to survive. 

Related article: 3 Steps Doctors Can Take To Stop Trading Time For Money

Are you ready to learn how to obtain real wealth? Join the Passive Investors Circle today.

Cast but a glance at riches, and they are gone, for they will surely sprout wings and fly off to the sky like an eagle.” – Proverbs 23:5

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