Difference Of Real Income And Money Income

Wikipedia says: Most types of passive income are derived from real estate/property, while other types of passive income are derived from royalties from patents or license agreements. An income stream falling into this category is one where money is received usually on a regular basis, where no additional effort has taken place.

  1. Difference Of Real Income And Money Income Tax
  2. Difference Of Real Income And Money Income Statements
  3. What Is Real Income
  4. Difference Of Real Income And Money Income Analysis

While income is generated, wealth is created, there is a big difference between two. Many think that these two terms are one and the same thing, but in reality, income is a stream of money, which a person receives from different sources such as salary, rent, profit, interest etc., that helps in the creation of wealth and wealth is the total market value of all the assets possessed, stored or saved by a person for future use.

  • Mar 06, 2013 To maintain your real income or the same level of purchasing power, the hourly rate or nominal income should be increased from $20 to $22. So in summation,nominal income is what you are getting paid. Real income is the amount of money you really get after factoring in inflation.Thus, nominal income will always be more than real income.
  • Real income, also known as real wage, is how much money an individual or entity makes after adjusting for inflation. Real income differs from nominal income, which has no such adjustments.
  • The money that is saved after all the expenses have been deducted is considered as an income. Money and income are two different words that refer to two different things. Money is considered as an intangible concept that is only visible in numbers. Income is the amount of money that an individual has managed to save following their spendings.
  • The purchasing power of the income of an individual, group, or nation, computed by adjusting money income to price changes. A comparison between incomes earned during 1970 and 1980, for example, would be pointless unless 1970 and 1980 price levels were identical.

The former is the money earned by a person, over a limited period say one week or one month, whereas the latter is the money earned by a person during his lifetime. So, if you are also confused between these two terms, take a look at the article provided below to have a clear understanding of these two terms.

Money

Content: Income Vs Wealth

Comparison Chart

Basis for ComparisonIncomeWealth
MeaningIncome refers to the money received or earned on a continuous basis, as a return for work or investments.Wealth implies money or valuable possession accumulated by a person during the course of his life.
What is it?Flow of moneyStock of assets
AcquisitionIncome is generated immediately.Wealth is created over time.
Tax leviedIncome taxWealth tax

Definition of Income

We define income as the monetary return that accrue/arise or is expected to accrue/arise at fixed intervals from certain sources. It is an amount of money, which a person gets, receives or earns, either through investing capital or through providing goods or services. It is the fundamental requirement of an individual, household or business to finance routine expenses. The sources of income can be:

Difference Of Real Income And Money Income Tax

  • Wages and salary from employment.
  • Rental income from house property.
  • Interest on savings and securities.
  • Dividend income.
  • Income from business or profession.

In accounting terminology, income is net of revenue, i.e. revenue less all expenses and taxes. Moreover, while the calculation of taxes, income covers only revenue receipts and includes those incomes also which do not arise on a regular basis, such as winning from lotteries, horse races or crossword puzzles.

Definition of Wealth

Wealth denotes the current market value of total assets owned by an individual, society, company and country. It is the sum of all tangible and intangible assets, an entity possesses, that can be exchanged for money including savings, investments, real estate, cash and other valuable items less all liabilities.

GDP (Gross Domestic Product) is the most common measure to find out the wealth of the country while the wealth of individual can be determined through their Net Worth.

In economics, the term ‘wealth’ refers to the aggregate of all assets of a firm, household, government, etc. , that generates income or is capable of generating income in future. It takes into account human capital and natural resources, rather than money and securities. Economic wealth can be divided into two categories, i.e. monetary wealth and non-monetary wealth.

Key Differences Between Income and Wealth

The differences between income and wealth can be drawn clearly on the following grounds:

  1. The amount of money received on a periodic basis, in exchange for the products or services provided or the capital invested is called income. Wealth can be defined as the assets or property which are held by a person during his course of life.
  2. Income is the flow of money, obtained from factors of production. On the other hand, wealth is the market price of the stock of asset possessed by an individual or household.
  3. Income is earned or received, during a limited period. Conversely, wealth is accumulated over time, i.e. the creation of wealth takes time.
  4. Income tax is charged on the income of an individual from various sources i.e. salary, house property, capital gains, business/profession and other sources. As against this, wealth tax is levied on an individual or household’s wealth.

Conclusion

Therefore, income is something that a person gets in return for the work performed or money invested by him. On the other hand, the wealth of a person is something that helps him/her to survive for some days without working. Income is the only source that can help in the creation of wealth, so it can be said that income yields wealth.

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Difference Of Real Income And Money Income Statements

Inflation has a strong impact on our monetary income. Monetary Income can be described as Nominal Income and Real Income.

Below tabulate the differences between nominal income and real income and the impact:-

Nominal Income:

  • Monetary income before the deduction or accounting for the effect of changes in the price level or inflation.
  • Examples of nominal income like salary and interest income from our saving accounts

Real Income:

  • Monetary income AFTER the deduction or accounting for the effect of changes in the price level or inflation
  • It tell us what are the amount of goods and services that the nominal income can buy for us.

Nominal Income Versus Real Income

Three Scenarios:

  1. Real income increases ( say by 2%)if nominal income(say 10%) rises faster than general price.( 8% )
  2. Real income decreases ( say by 3%) if nominal income( say 7%) does not rise as fast as inflation (10%)
  3. Real income –no increase if both nominal income(say 7%) and general price level (say 7%) both increases at same level

Impact:

·Only when real income increase more than nominal income, then only our purchasing power increases.

·The real income tells us our actual capacity to spend while nominal income only tell us the amount of dollar that we have received either as salary or business profit

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What Is Real Income

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