Rich vs Wealthy: Is There a Difference?
Rich means having a high income and the ability to buy a lot of STUFF, but true WEALTH involves lasting financial stability and freedom.
While being rich is often about current earnings (e.g., being a doctor or dentist), being wealthy means having assets that generate ongoing income, ensuring long-term security.
You might think someone is rich because they have a big house or expensive car, but wealthy people have investments, savings, and assets that grow over time.
This is one of the main points I learned the first time I read Robert Kiyosaki’s book Rich Dad, Poor Dad.
Financial stability is the goal, not just short-term spending power.
When you focus on building wealth, you’re planning for the future, securing your financial health beyond just today.
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Sign up for my newsletterWhat’s the Difference Between Being Rich vs Wealthy?
Rich Folks
Rich people often view money as a way to buy things and enjoy a luxury lifestyle. They might spend a lot to maintain this image. They may have a high salary and can afford expensive items.
Their wealth often depends on active income, like salaries or bonuses.
Yes, they can afford most purchases, but what happens when the income stops?
This is your typical high-income professional or pro athlete.
Wealthy Folks
Wealthy people, on the other hand, see money differently. They tend to save and invest, focusing on growing their money over time.
Being rich is showcased by high-end possessions and a lavish way of life. However, being wealthy is less about outward appearances and more about long-term financial security and growth.
What about net worth?
High net worth is another key metric.
Net worth is calculated by subtracting your liabilities from your assets. This is different from your income, which is what you earn.
A higher net worth often means more financial independence, as you own more than you owe.
Passive income
Unlike someone who is rich, a wealthy person aims to grow their financial resources consistently through passive income like:
- real estate investments
- stocks
- business ventures
Passive income is income earned with little effort.
Passive income streams are essential for financial independence, allowing you to earn money even when you’re not actively working.
Want to learn more about my favorite passive income investment? Check out this video:
What about mindset?
Mindset is crucial in distinguishing being rich vs wealthy.
| Mindset Aspect | Rich Mindset | Wealthy Mindset |
|---|---|---|
| Spending Habits | Focuses on spending to maintain a certain lifestyle and prioritize short-term enjoyment. | Emphasizes saving and investing to ensure financial growth and stability. |
| Financial Priorities | Often prioritizes material possessions and maintaining appearances. | Focuses on financial growth, sustainability, and building assets that generate income. |
| Long-Term Thinking | Less emphasis on long-term financial planning, often leading to a cycle of earning and spending. | Thinks in terms of long-term financial security and creating a legacy for future generations. |
| Psychological Approach | Driven by immediate gratification and maintaining status. | Driven by strategic planning, delayed gratification, and a focus on wealth accumulation. |
What is Rich Dad’s Definition of Wealth?
Robert Kiyosaki defines wealth using a concept he learned from R. Buckminster Fuller, one of America’s great thinkers. Fuller described wealth as “a person’s ability to survive for a certain number of days going forward.”
Put simply, he would ask, “If you stopped working today, how long could you live off the money you currently have?”
It’s a straightforward concept.
Dr. B
Let’s look at an example of a typical doctor (Call him Dr. B) who I provide financial coaching for.
Dr. B’s monthly expenses are $15,000, and he has $50,000 in savings. To determine how long his savings will last, you divide his savings by his monthly expenses:
50,000 / 15,000 ≈3.33
So, his wealth would last about 3.33 months, roughly 100 days.
However, if he had income streams generating $15,000 per month, his wealth would be endless.
True wealth is measured in time, not in dollars.
Strategies for Achieving True Wealth
Achieving true wealth involves more than just increasing your income; it requires strategic planning, consistent effort, and smart financial choices.
Effective wealth-building strategies can help you secure a stable financial future.
Financial Planning and Goals
Setting clear financial goals is the first step toward true wealth.
| Financial Planning Step | Description |
|---|---|
| Create a Budget | Track your income and expenses to understand where your money goes. This helps identify areas where you can save more. |
| Calculate Your Net Worth | Assess your current financial status to set long-term goals based on your assets and liabilities. |
| Set Short-Term and Long-Term Goals | Consider both short-term targets, like paying off debt, and long-term ones, such as saving for retirement. |
| Use Financial Planning Tools or Apps | Use tools or apps to monitor your financial progress and ensure you stay on track with your goals. |
| Consult a Financial Planner (Only if Necessary) | Seek tailored advice and strategies from a financial planner if you need help meeting your specific goals. |
Also, focus on increasing your income through various means, such as advancing in your career or creating additional income streams.
Diversify your investment portfolio to spread risk and increase the potential for returns.
Live below your means by avoiding unnecessary expenses and focusing on needs over wants.
This allows you to save more and invest wisely, leading to increased financial well-being.
Case Studies: Profiles of the Truly Wealthy
Self-Made Success Stories
Jeff Bezos, founder of Amazon, started his empire from a garage. His focus on customer service and innovation turned Amazon into a trillion-dollar company.
Bill Gates, co-founder of Microsoft, built his fortune through revolutionary software development.
Gates’ method involved consistent reinvestment in his company and diversification into other sectors.
Warren Buffett, CEO of Berkshire Hathaway, made strategic long-term investments.
His approach emphasizes buying undervalued businesses and holding them for decades.
These individuals show that building wealth often involves innovation, strategic investment, and persistence.
Inherited Wealth and Old Money
Some of the wealthiest families, like the Rockefellers and Rothschilds, have maintained their wealth across numerous generations.
These families often have diversified portfolios, including real estate, stocks, and private businesses.
Old money, such as the Vanderbilts, showcases wealth passed down through the years.
This type of wealth usually comes with strong financial education and planning from a young age.
Such families often instill values of saving, investing wisely, and leveraging wealth for future growth, ensuring its longevity.
Related article: New Money vs Old Money
Wealth Preservation Across Generations
Wealthy families often set up trusts and foundations to manage and preserve their wealth. These tools allow them to maintain control over their assets and reduce tax burdens.
Long-term wealth preservation involves teaching financial literacy to younger generations.
The Walton family, founders of Walmart, emphasize proper estate planning and diversified investments.
Using various legal structures, they ensure that their wealth survives beyond their lifetimes.
By planning effectively, wealthy families protect their assets and continue to grow their fortunes, even during economic downturns.
Are You Rich or Wealthy?
Now that you understand the difference, do you see yourself as rich or wealthy?
While earning a high salary might make you seem wealthy, achieving real wealth takes dedication and sacrifice.
I believe anyone, including you, can build sustainable wealth through real estate. The best part is you can tailor your strategy to match your personality and lifestyle.
For example, if you prefer to start small and be hands-on, investing in a single-family home or duplex might be your ideal route.
Passive Real Estate
But if you’re busy and prefer not to handle tenants (like me), passive investing through real estate syndications could be a better fit.
Real estate offers more than just appreciation and cash flow—it also provides some of the best tax advantages available, like depreciation, which can significantly lower your taxable income.
So, if you think working more hours or learning more skills is the only way to financial freedom, think again. It’s about shifting your mindset to see wealth as money being generated for you—even when you’re not actively working.
Once you realize that your working hours are limited, you can start focusing on investing in assets that produce passive income.
Remember, true wealth means breaking free from the cycle of constantly trading your time for money.
FAQs
Understanding the distinctions between being rich and being wealthy involves examining mindsets, financial strategies, lifestyles, and societal perceptions. The key points are discussed below.
What are the defining characteristics that differentiate a rich mindset from a wealthy mindset?
A rich mindset often focuses on earning and spending money to maintain a certain lifestyle.
In contrast, a wealthy mindset emphasizes saving and investing to create more long-term financial stability and opportunities. Wealthy individuals are likely to delay gratification and prioritize financial independence.
How do financial strategies differ between someone who is considered rich and someone who is considered wealthy?
Rich individuals might spend a significant portion of their income on luxury items and experiences.
On the other hand, wealthy individuals focus on investment and savings. They might use debt strategically, such as for real estate or business ventures, to increase their net worth rather than financing immediate desires.
In what ways do the concepts of being well-off, rich, and wealthy vary from each other?
Being well-off typically means having enough financial resources to live comfortably without stress.
Rich suggests having a high income or significant assets but possibly coupled with high spending. Being wealthy implies not just having substantial assets but also possessing financial stability and minimal financial stress due to prudent investment strategies.
Can you outline the key differences highlighted in religious texts, such as the Bible, regarding wealth and riches?
Religious texts like the Bible often draw distinctions between wealth and riches.
Wealth is portrayed as blessings that come with responsibilities, often viewed positively if used for good. Riches can sometimes be depicted negatively, especially if they lead to greed or neglect of spiritual and community responsibilities.
What are the typical lifestyle differences between someone who is rich and someone who is considered wealthy?
A rich person might live a flashy lifestyle filled with expensive cars, vacations, and luxury goods.
In contrast, a wealthy person might lead a more modest lifestyle while still enjoying financial freedom and security. They focus on sustainable practices like investing in assets that appreciate over time.
How does societal perception of wealth vary between being classified as rich and being classified as wealthy?
Society often views rich individuals as those who visibly display their wealth through material possessions. Wealthy people may not always display their financial status overtly. Instead, they are respected for their stability and long-term financial health. This difference often influences social status and opportunities.
How Much Money Should I Keep in My Bank Account?
Your bank account should hold enough money to cover at least three to six months of expenses, which serves as an emergency fund for unexpected events like car payments or student loans. While savings accounts provide a safe place for your money, they don’t generate as much financial success as investment portfolios in the long term. Wealthiest people often balance their cash reserves with diversified assets like stocks, real estate, and retirement accounts to make their money work harder for them.