Most people think that being rich and being wealthy is the same, but it is not. There is a massive difference.
Rich or Wealthy?
What is being rich? It is having lots of money right now. Earning a six-figure income is typically regarded as being rich.
What is being wealthy? It is having lots of money right now and in the future. Wealthy people can live for months, years, or even decades without working. The reason is, they have achieved financial freedom. They’ve developed residual or passive income sources. Whether they’re working or not, they make money or money comes to them.
When your passive income is greater than your cost of living, you’re financially free. If your cost of living isn’t high, you can achieve financial freedom at a fairly low level of wealth. Robert Kiyosaki points out that the rich have lots of money, but the wealthy don’t worry about money.
Wealth can also be much broader. It can include things like your health, fitness, and family. Or, the quality of your relationships and having a sense of inner peace.
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The Difference Between Rich and Wealthy People
Let’s see what the key differences between rich and wealthy people are.
Celebrity Look vs. Modest Look
Rich people have the celebrity look. They have flash cars, Rolex watches, Gucci belts, designer clothes, and expensive jewelry. They can have all that because they’re making a good income right now. However, that income is temporary because they have no wealth. They’re just giving off the appearance of wealth. That appearance could disappear at any moment. They live from a big paycheck to a big paycheck. Or even worse, that celebrity lifestyle is financed by being in debt.
Wealthy people often have a more modest look. They don’t always go for those fancy things. They would instead save 10, 20, or 30 percent of their earnings. By doing that, they will have more in the future. If a financial crisis happens, like a recession, wealthy people will be in a better position. Why? Because they’ve already built up some money reserves. The crisis would not affect them as much – financially, mentally, or emotionally. They know that they’ve got the financial reserves to get through difficult times.
Less Going Out, More Coming In
If you earn $500,000 a year, and you spend $540,000 a year, are you rich? Well, you might look rich, but I would say you’re not. Why? Because it’s not about how much you earn, it’s about how much you keep. On a month-by-month basis, wealthy people might be earning less. But the crucial thing is that they’re saving a lot more.
Wealthy people usually have a lot less money going out than they have coming in. As a result, they don’t need to worry about money. If a short term expense comes up, they can easily afford it. They’re not spending as much as they’re earning, and they’re building up their wealth over time. Also, if something happens in the economy, they can handle it. They don’t need to worry about that.
Rich people have money. Sometimes the way they made that money was a bit of luck. They were just in the right place at the right time. Wealthy people know how to make money. Rich people work for money. Wealthy people know how to make money work for them.
Often, the difference between rich and wealthy comes apparent in a recession. Both the rich and the wealthy can lose money. But, the wealthy have the knowledge. They know how to make money. So they bounce back again. There are so many examples of wealthy people that have bounced back from recessions. They knew how to make that money back again.
Is It Sustainable?
How sustainable is their money? Is it easy or hard to lose it? If you think of Bill Gates, he has so much wealth that it would be extremely hard for him to lose it. So a wealthy person has sustainable wealth.
Compare that to a rich person, for example, rich celebrities. They have lots of money now, but there’s no guarantee they’re going to have that money in the future. What if they lose their popularity? What if someone else comes along who’s more liked than they are? Or, more successful than they are?
These celebrities, even if they are successful for a while, often have a fear that they could lose it all in the future. They have that fear of losing, and they’re only rich until the money dries up. That’s often in the back of their minds. Sustainability is a crucial difference between rich and wealthy people.
Active vs. Passive Income
What is an active income? An active income is where you trade your time for money. People working a conventional job are earning an active income. Many self-employed people – like therapists, plumbers, electricians, or personal trainers – earn an active income as well. They’re providing a service, and they get paid for it.
What’s a passive income? With passive income, money is not related to your time and effort. A good source of passive income is earnings from interest on savings. Or, dividends from shares. These are excellent forms of passive income. If you write a book and get royalties from it, that’s a passive income. Or, you can buy a property and have tenants that are paying you rent. You get money from those tenants. It doesn’t matter whether you work or not, you’re getting that rental income.
Quite a lot of people make passive income through an online business. They create products that they sell online. There’s a bit of effort involved in creating the product. But once it’s done, sales come through even when they’re asleep. That’s a key difference. A passive income is a way of making money that isn’t dependent or utterly dependent on your time and effort. It means that you can take a break for a month or two, and that money will still come in.
It’s More Than Money
Rich people tend to focus on money too much. They could be working extremely long hours to make that money. Think about people like stockbrokers, lawyers, and doctors. They are rich, but they could be working 50, 60, maybe even 70 hours a week to sustain their rich lifestyle.
Wealthy people value time. Time is often the most important thing for them.
They also value friendship. That’s very important to them, too. They’re the kind of people that will help you out if needed. There’s a great saying that is “your network is your net worth”. Wealthy people are aware of the value of networks, friends, and family. This is a key difference between rich and wealthy people.
Assets vs. Liabilities
Liabilities cost money to maintain or fix them. Assets don’t. That’s the crucial difference. Examples of assets are stocks and shares or interest on a bank account. A lot of people think that a house is an asset, but it’s not. A house needs maintenance. You could buy a house for $100,000, do it up, and sell it for $200,000. That would seem like a good investment.
But, don’t forget the cost of the work involved. Unexpected costs, like leaks or roof repairs, can happen. You might still make a profit when sold, but it’s still a liability, not an asset until you sell it. You need to put money into it. There’s always a risk that you’ll need to put some money into it in the future. You have to be prepared for that.
Social Media Fascination
Wealthy people are less preoccupied with social media than rich people. I’m sure you’ve experienced this. You’ve seen someone’s new car on Facebook or exotic holiday photos on Instagram. The problem with social media is that it distorts reality. You only see the highlights of someone’s life.
It’s almost like it’s the opposite of the news. The news tells you all the bad stuff that’s going on in the world. Social media shows you all the great stuff that’s happening to other people. This can really distort reality.
What I recommend with social media is that you take it with a pinch of salt. Don’t let what other people are doing on social media distract you from your own financial goals. You can see other people traveling, having beautiful houses, or having kids in private schools. Think if they can really afford that. Are they just living paycheck to paycheck? Or, even worse, borrowing money to achieve that lifestyle?
Nothing Is More Valuable Than Freedom
You now know the difference between rich and wealthy people. Think about what being wealthy means to you. Could it be time with your family and friends? Could it be some time just for you? Perhaps, owning your own home? Maybe, having a cleaner? Or, being able to travel a lot more, and having the time to do it.
I’ll finish off with a few points from the book Simple Path to Wealth by J. L. Collins. Spend less than you earn and invest the difference. Avoid debt at all costs. Money can buy you many things, but nothing is more valuable than your freedom. So ultimately, having money will set you free. When you can live on four percent of your investments per year, you are truly financially independent.
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