When we think of someone being rich vs wealthy, we might think it’s the same thing but it’s not. For some reason, the words rich and wealthy are often incorrectly used to describe the same thing.
The two words might seem like synonyms, but they are completely different. It’s hard to spot the difference, but being rich and being wealthy are not equal. So, let’s dig into the difference between rich and wealthy.
What does it mean to be rich?
Being rich is simply having a lot of money or a high income. It comes down to how much cash you have in your bank account. But just because you’re rich, doesn’t mean you are wealthy.
In fact, being rich can often mean that you are spending a lot of money. It can also mean that you have a lot of debt.
It doesn’t matter how much money you have if your expenses are higher than your income. Being in debt is definitely not something to aspire to!
People who are rich might drive a fancy car, live in an amazing house in the best part of town, or have a high-paying job, but it comes at a cost. If you make $200,000 a year, but spend $225,000 a year in expenses, you might seem rich because of your high salary, but you’re on your way to going broke.
As a matter of fact, plenty of celebrities have gone broke, some because of their rich lifestyles.
What does it mean to be wealthy?
When it comes to being rich vs wealthy, being wealthy means not only having enough money to meet your needs but being able to afford not to work if you don’t want to. It’s about amassing assets and making your money work for you. In other words, it’s having a significant net worth.
Wealthy people don’t necessarily own the latest gadgets or cars or throw lavish parties. What they do have, is a lot of assets, such as real estate, investments, cash, and financial stability. They think about building wealth, not owning more possessions.
For example, if your monthly expenses are $5,000 per month, and you have $30,000 in savings, then you have about six months’ worth of wealth. If you invest that $30,000 and you end up with $5,000 a month in investment revenue, you are wealthy.
And when asking “what is the difference between rich and wealthy”, wealthy people have money habits that are something to consider. For example, wealthy people choose to be cautious about expenses and plan out their finances.
The most wealthy people in America are often business owners. Jeff Bezos, the founder of Amazon, is worth $177 billion, while Warren Buffett is worth $118 billion. Buffett is considered a frugal billionaire.
Despite his massive wealth, he still lives in the Nebraska home he bought in 1958 for $31,500, and while he bought a vacation beach house in California for $150,000 in 1971, he ended up selling it for $7.5 million.
What is the difference between rich and wealthy
So, what is the difference between being rich and being wealthy? Well, there is a bit more to being rich vs wealthy than how much money you have in your bank account.
In fact, it’s possible for someone who makes less than a rich person to actually be wealthier than a rich person with a fancy car and the latest fashion designs.
That’s because rich people spend a lot of money, but wealthy individuals save and invest most of their money. Wealthy people might have a lot of money, but they don’t spend it all in one go. And they certainly don’t use debt unless it’s for a very clear purpose, such as an investment in a house.
Instead, a wealthy person saves as much money as possible and invests it in assets. That might mean buying real estate or investing in the stock market.
Regardless of how they invest, wealthy people know that in order to grow their wealth, they need to turn their cash into assets and create a high net worth.
How to become wealthy
Now you know the difference between rich vs wealthy. So, if you want to become wealthy, there are a few things you can do to get started. Don’t just focus on how big your paycheck is.
You also want to avoid schemes that sell you ideas to get rich quickly. Instead, follow these steps to eliminate debt and have the right mindset when it comes to amassing wealth.
Save 10-15% of your paycheck every month
The first step to becoming wealthy is to save a portion of your paycheck every month, no matter how much or how little you make. Always set aside at least 10% to 15% every month.
You can set up your bank account so that a portion of your paycheck is deposited directly into your savings. It’s an easy way to save without even needing to think about it.
If you struggle with saving, try a savings challenge, or look at your budget and find out where you can eliminate expenses.
Pay off debt, starting with high-interest debt
So another of the key differences between being rich and wealthy is being debt-free. If you want to be wealthy, you need to be debt-free in order to have financial freedom. Focus on paying off your debt, starting with high-interest loans such as credit card debt.
Find out if it makes sense to refinance your student loans or mortgage for a better interest rate. You can also look into things like student debt forgiveness. Make becoming debt-free your number one priority!
Invest as soon and as much as you can
One of the quickest ways to grow your wealth is to invest it. Of course, investing comes with its own risks, but there are plenty of options available.
You can use an automated service like a Robo-advisor, get investment advice from a broker, or invest in things other than the stock market, like physical assets.
No matter what you do, do something, even if you start investing a small amount of money! You can even put your money in a high-yield savings account to accrue interest until you’re ready to invest it.
Make your money work for you. Remember investing is one of the main differences between being rich vs wealthy.
Don’t splurge on unnecessary expenses
The key to growing wealth is being frugal and living within your means. In fact, you should live far below your means so that you can invest your extra income and savings. Your spending habits are a huge part of a wealth mindset.
That means resisting the urge to buy those designer jeans or buying the latest iPhone model when an older model will work just as well. Be smart about what you spend your money on and only buy the things that you not only need, but that will also last in value.
Think about your long-term financial goals and assets
What is another difference between being rich and being wealthy? Long-term goals and assets. Growing wealth is a long-term commitment. It’s not something that happens overnight.
It could take you years to build up your wealth and that’s okay. When things get tough, remember your long-term goals and why you chose to try to become wealthy in the first place.
Long-term wealth requires really thinking through how your purchases and investments today will affect you in the future. That means that the difference between being rich and being wealthy is that wealthy people spend time growing their income streams and investment portfolio, and building up passive income, in order to make their future the best it can be.
Wealth is a mindset
So, what is the difference between rich and wealthy? When it comes to rich vs wealthy, being wealthy doesn’t start with a huge wallet full of cash.
Wealth starts with the right mindset. Save a portion of your income, focus on becoming debt-free, and invest early and often.
If you want to be wealthy, you need to always think about your long-term goals.
Do you want to retire early? Own a few houses? Travel?
When thinking about wealth, don’t just focus on your income, but focus on building up your investments and assets to last you a few lifetimes. Your financial plan is key to wealth building.