Most people use the terms “rich” and “wealthy” interchangeably, and although they sound like synonyms, there is a vast difference between the two. If you’re perplexed, don’t worry, as surprisingly, most people are unaware that “rich” and “wealthy” are two different things.
What Does It Mean to Be Rich?
Regardless of our background, we all know a few rich people. They drive flashy cars, live in a big house, and have all the latest gadgets. Think of most celebrities, for example. The lavish lifestyle they lead screams wealth, but in reality, it is rarely the truth.
You see, rich people love to spend money, so while they may have well-paid jobs, the money that comes in goes out just as quickly. So, material-wise, these people have a lot to show for the money they make, but most of their possessions are liabilities (things that decrease in value). Therefore, although they may have a lot of money right now, it doesn’t mean they always will.
Numerous people have won the lottery and then became bankrupt just a few years later. What happened to all that money? They spent it on things that had no value, perhaps in an attempt to show off their good fortune. As they did not use their money smartly by saving and investing, the cash quickly dried up.
You don’t have to win the lottery to lead a rich lifestyle, though. In fact, many people that appear to be rich are actually in debt. That’s right, they may drive a Mercedes Benz and go on exotic holidays every few months, but their bank balance is painfully empty, and their credit card debt is quickly building up.
What Does It Mean to Be Wealthy?
The interesting thing is that most genuinely wealthy people don’t appear to be rich. Instead, the people with the highest net worth usually live an average but comfortable lifestyle.
They have everything they need, yet they know it’s wiser to put their money into stocks and savings accounts than splurge on designer clothes and the latest tech. So, they do not appear rich from the outside, but their bank balances are growing at a rapidly increasing pace, thanks to their wise investments and controlled lifestyle.
Rich people spend their money on liabilities, like fancy cars and expensive watches that dramatically lose value over time. However, wealthy people choose to buy assets instead. Assets are things that increase in value like real estate and stock market investments.
The Difference Between Rich and Wealthy
The critical difference between the rich and the wealthy is that rich people live lavish lifestyles and collect material things. In contrast, wealthy people live a modest lifestyle and accumulate assets. As a result, rich people usually end up broke and retire with little to no savings. However, wealthy people reach financial freedom and build generational wealth, creating a better life for their children and grandchildren.
If you’re new to the world of money, this may all seem a little confusing. So let’s break down the main differences between the rich and the wealthy in an easy-to-understand way.
|The Rich||The Wealthy|
|Purchase items that decrease in value||Purchase things that increase in value|
|Work for money||Have money work for them|
|Live lavish lifestyles||Live modest lifestyles|
|Spend their money||Save and invest their money|
|Life for today||Plan for the future|
|Don’t understand finances, tax, or investments||Study investing and research tax strategies|
How to Become Wealthy
It’s important to note that you do not have to be in a highly paid job to become wealthy. Building wealth is more about what you do with the money you have. It’s about investing and saving in ways that make your money increase over time without much effort on your part.
Of course, the more money you earn, the more you have to save and invest, but you can start building wealth on a middle-class income. The steps below will help you eliminate your debt, stop living paycheck to paycheck and put an end to your constant money worries.
1. Study Personal Finances
Unfortunately, the school system does not teach children how to manage their finances, so the vast majority of the population has no idea how to choose investments or even how to budget. Therefore, the first step is to educate yourself on how to be smart with money. There are plenty of excellent free resources online that will help you get started.
2. Budget and Live Within Your Means
To start budgeting, you’ll first need to understand how much money you spend each month. Therefore, start tracking all your expenses, not just your rent and bills but your grocery shopping, impulse buys, and the money you spend on eating out.
Once you know how much you spend each month, you’ll see if you’re spending more than you’re earning. If this is the case, you are not living within your means and are heading towards debt. So, look at where you can cut costs and create a budget plan, so you have some money left over at the end of the month.
3. Build Savings
Aim to save at least 10% of your paycheck each month, preferably more. Once you create a budget and start cutting back on unnecessary expenses, you’ll understand how much you can put aside each month. Plus, as you get smarter with money and increase your income, you can save more.
The point of saving is to build an “emergency fund” which will help you out in emergencies, like losing your job due to a global pandemic! Make it your goal to have 3-6 months of your living costs (including rent) in your savings account.
4. Make Smart Investments
First, do some research on investing to gain a basic understanding of what your options are. Then, get advice from a broker or financial planner to help you make smart investments that have decent compound interest and are pretty safe. There are many different types of investments, but index funds are a great place to start.
Rich vs. Wealthy Quotes
Another thing you will need to become wealthy is the right mindset. If you’re used to blowing your paycheck as soon as you get it, take a look at these inspirational quotes from some of the wealthiest people worldwide.
Whenever we spend money instead of investing it, we are actually taking from ourselves—we are taking both the time we spent to make the money and the future freedom it can buy. – Grant Sabatier
Rich is measured in money and wealth is measured in time. Most people focus on getting rich rather than becoming wealthy. – Rich Dad Lessons
The real measure of our wealth is how much we’d be worth if we lost all our money. – John Henry Jowett
The rich invest in time, the poor invest in money. – Warren Buffett
Time is more valuable than money. You can get more money, but you cannot get more time. – Jim Rohn
It’s normal to aspire to be rich in a world full of celebrities and Instagram influencers living the “high life” and showing off their material possessions. However, it’s essential to realize the truth in the matter, that living this type of lifestyle is not wise or sustainable.
While living for the moment is not necessarily bad, you need to start thinking long-term when it comes to finances. So, whether you want to buy a house, start a business, or enjoy a comfortable retirement, it’s time to start making your money work for you!