Wealth

Wealth is a stock: it is measured at a single point in time. Income is a flow: it is measured over a period. A person with a high salary who spends everything may have little wealth, while a retired person with a paid-off home and savings may have substantial wealth but modest income.

In personal finance, wealth is usually measured as net worth, which is total assets minus total liabilities. If you own a home worth 300,000, savings of 40,000 and investments of 60,000, your assets total 400,000. If you still owe 180,000 on the mortgage and 10,000 on a car loan, your wealth is 210,000.

Wealth includes assets that are easy to sell, such as cash and shares, and assets that are not, such as property or a stake in a private business. This matters: someone can be wealthy on paper but have little cash available.

Wealth grows by saving part of income and by the assets themselves increasing in value or producing income. It shrinks when spending exceeds income, when assets fall in value or when debts grow.