Money vs. Wealth: What is the Difference?

It is a common misconception that many have; associating wealthy people with those who have a large amount of money coming in. While that may be true, there is a difference between wealth and money. The value of assets someone has contributes to their wealth. This spans many factors, the property they may own whether it be a home or vehicles, as well as any investment accounts they have. The money that a person makes, either through commission or employment, is considered income. It can factor into wealth but is not the same. So, money vs. wealth,  what is the difference, and how do we accrue more of each?

Ways to Increase Your Wealth

One example of wealth is a retired individual who has had a lifetime to contribute to their wealth. What they put into their wealth accrual results in income or a return on investment. So essentially, their wealth works for them to make them money in the current moment. As wealth grows, the income they earn or money that they live on, day-to-day also grows. So, how do you increase your wealth? There are several factors that go into wealth accrual.

Get Yourself Out of Debt First (Or Not)

First and foremost, many financial advisors would suggest removing debt as the first crucial step to building wealth. You can’t grow money if you owe money. While it may not seem feasible at first, slowly chipping away at debt while slowly working to build wealth could work. Some people choose to do it this way, others choose to fully get themselves out of debt before working toward building wealth. Of course, paying off a mortgage will take longer. To help pay down your mortgage, consider paying a little bit more toward your mortgage each month. Additional payments can shave years off your overall mortgage payoff time. The key is to do as much as you can at this stage to be debt-free. Depending on your age, financial means, and what phase of life you’re in, your path may be different from someone else’s.

Build Your Savings

Another important step toward building wealth is to grow your savings. It’s easier to save when money is coming in, but if you were to lose your job, saving would be almost impossible. Having several month’s worth of expenses squirreled away in the event of an income emergency is a good idea no matter what your investment goals. You never know when an opportunity will end, so it just works as insurance for protection to ensure you can pay your bills and keep a roof over your head while you look for a job. Financial advisors recommend saving about six months’ worth of daily living expenses as a financial cushion in the event of an emergency. Once you’re out of debt and have a bit of a nest egg squirreled away, it may be time to look into investing in a retirement account like a Roth IRA or 401(k) account. 

 Increase Your Income to Build Your Wealth

So now that you know how to work towards building wealth, what do you do in the meantime? Increasing your income is a great way to get a head start on building your wealth. With more money in the bank, you can eventually take bigger risks with your investments.

One way to put more money in the bank is by starting your own home-based business. Whether you choose to set up an Etsy or t-shirt shop or try your hand in the freelance sector, cultivating a side-hustle has never been easier. Consider what you’re good at, what you enjoy doing, and what people ask you about most and figure out a way to earn additional income doing it.  

Curb Your Spending

One of the easiest ways to increase your income is to cut back on spending. It goes without saying of course, but there are some creative ways to cut back that won’t have you feeling as though you’re missing out. One of the most common suggestions of course is to stop buying your morning coffee on the way to work each morning. While that’s easy to say, if you’re used to a delicious cup of coffee, your typical coffee maker isn’t going to do it. So, make it enjoyable. Splurge a little for a coffee maker that creates lattes and cappuccinos, buy some syrups in bulk and try recreating your favorite recipe at home. In the long run, you’ll be saving money without feeling as though you’re depriving yourself. 

Along the same lines, it’s easy to suggest not getting takeout meals as a way to keep more money in your wallet. Cooking at home for even those of us who love cooking, can get monotonous and feel like a chore after a while. One helpful way to combat this and make it less boring is by subscribing to a meal delivery service like Home Chef or Hello Fresh. You’ll still save a bit of money but won’t feel as though you’re depriving yourself by just having beans and rice every single day. 

Money vs. Wealth Start Building Both As Soon as You Can

Building wealth is a marathon, not a sprint. It takes time, dedication, and sometimes a little bit of sacrifice. No matter what life stage you’re in, there’s always an opportunity to work toward building wealth. When you have money in investment accounts, you’re simultaneously increasing your regular income or money you have on hand. 

The longer you have your investments, the harder they work for you in the short term. It may seem challenging and overwhelming, You may realize you have a long way to go before you’re comfortable with the wealth you’ve built. Rest assured though, when it comes to money vs. wealth,  starting as soon as possible is the best option. No, you can’t go back and change your finances, of course. It’s impossible to change your prior spending or lack thereof, but knowing the direction you want to proceed, is the first step in building wealth over time and increasing your income in the short term.