Most people have no idea of the difference between rich vs. wealthy, and many think it means the same thing, but it’s not.
Without an understanding of the terms, it is easy to believe they are synonymous with each other. But once you have a sense of rich vs. wealthy, you will understand why wealthy is a much better option for living a financially free life you love than rich.
What does it mean to be rich?
Being rich is generally about living big with a lot of income, expenses, and debt. But being rich doesn’t mean you are wealthy.
Rich people also often have car leases and student loans. In addition, lottery winners and people who inherit money are considered rich. And most spend their money on a big lifestyle, gadgets, cars, and other depreciating assets and end up broke.
And while rich people live “high on the hog,” and their life often looks exciting and fulfilling, rarely is that reality.
Their life is like a hamster on a wheel. They often earn a lot of money and generally spend even more. Once you start living the rich life, it can be difficult, if not impossible, to get off. And this road ultimately leads to a broke, desperate, and even bankrupt life.
Let’s look at examples of the difference between rich & wealthy
The simple difference between a rich vs. wealthy person is that a wealthy person has sustainable assets, meaning they will always have wealth and money. A rich person has income and possibly small savings or bank accounts. They typically overspend, rarely have large amounts of money or cash, and will run out of money if they cease to continue to earn it.
Examples of Rich People
Whitney Houston earned millions and even had a $100 million record deal. Divorce, drugs, and overspending forced to borrow money from friends.
MC Hammer had $70 million in the bank, a million-dollar home and 100s of staff members, and several racehorses. With his lifestyle and lawsuits, he declared bankruptcy in 1996. The result was $13 million in debt.
Dennis Rodman had $27 million. The combination of excessive spending, legal problems, and back child support caused him to lose everything.
Evander Holyfield had $200 million. Excessive spending and tax problems destroyed it all.
Nicholas Cage had $150 million. Over-the-top spending, legal issues, and back taxes forced him into bankruptcy.
Wesley Snipes had $40 million. Excessive spending, back taxes, and legal issues led to his financial woes.
Examples of Wealthy People
Wealthy people focus on building long-term wealth so they can ultimately achieve financial freedom and reach their long-term goals. They focus on managing their personal finances and growing their net worth. They also make financial planning and wealth management a priority. Instead of spending time purchasing consumable assets, their focus is the accumulation of assets.
An excellent example is Warren Buffet, who still lives in the home he bought in 1958 and drives a 2014 Cadillac XTS. Buffet lives frugally despite having billions of dollars, focusing on building wealth and investing in the stock market instead of spending it.
Despite his wealth, he still lives in the Nebraska home he bought for $31,500 in 1958. And while he purchased a vacation property in California for $150,000 in 1971, he sold it for $7.5 million.
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Another example of a wealthy person is Katie Couric, whose net worth is $55 million. She became known as co-host of “The Today Show” and anchorwoman for “CBS Evening News.” She doesn’t live a lavish lifestyle and prefers store brands that cost less. Financial independence is more important to her than “looking rich.”
Another example is Jay Leno. He was not born into wealth and spent his early years living paycheck to paycheck and working two jobs so he could make ends meet.
While he has a net worth valued at $250 million, he only spends the money he makes doing his stand-up comedy shows and saves the rest. Although he owns an elegant car collection, he uses his cash flow to purchase the vehicles. His goal is to have enough money to be comfortable in retirement.
A Comparison of Rich vs. Wealthy
Things a Rich Person Does
- Start spending money early in life
- Earn a lot of money, but rarely accumulate or save it
- Live big – paycheck-to-paycheck
- Spend big on wants, such as trips, big homes, cars, etc.,
- Small savings or/investment account, if any
- Invest in depreciating assets (i.e. cars, boats, toys, and other gadgets)
- Show worth and wealth through physical possessions and bragging rights
- Earn income by working for others
- Investments are an afterthought and rarely planned
- Borrow money to buy “stuff” and pay for entertainment, trips, etc.
Things Wealthy People Do
- Start saving and investing early
- Accumulate a lot of money, but don’t always earn a lot
- Live modestly – below their earnings
- Spend frugally on items they need
- Invest first and spend what’s left
- Invest in income-producing assets (i.e. businesses, real estate, the stock market, etc.)
- Show worth through relationships and meaningful possessions
- Earn income by working for themselves
- Invest to create income streams and passive income
- Borrow only for capital investments or property, i.e. home, business, etc.
How to Become Wealthy
1. Set Clear Long-Term Financial Goals
Wealthy individuals know where they are going because they have clearly defined goals.
When you have goals, boulders won’t deter you, but when you don’t, pebbles will wreak havoc on your journey.
State goals in “I am” or “I active” verb statements.
2. Create a Money Mindset
To achieve the wealth you desire, you must create a winning money mindset.
This begins by identifying and removing blocks specifically money barriers that are keeping you stuck.
Common blocks include success, money, and mindset. They can cause various problems and challenges in your life because they keep you from achieving your desired results in your business, finances, career, relationships, peace of mind, sleep, and weight, to name a few.
Many money blocks come from our early years and can require time and money to remove.
Examples of Abundance Blocks include
- I am a failure, or I never succeed.
- Money is evil.
- Wealthy people are bad.
- I do not do money or numbers.
- I am not enough.
- Money doesn’t bring me happiness (FYI, neither will poverty!).
- It is hard to manage money.
3. Living Debt Free
A critical step to becoming wealthy requires that you live debt free and use debt only when it is necessary or makes sense (i.e., mortgage or business loan).
First, pay off high-interest debt such as credit cards, and then stop making purchases unless you can afford the item and pay off the balances each month and not accrue interest.
4. Reduce Expenses
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Begin by separating “need-based” expenses from “want-based” expenses. Examples of “need-based” expenses include mortgage or rent payments, car or lease payments, all insurance payments, and your groceries and utilities. Want-based costs include entertainment, dining out, daily coffee, vacations, etc.
Wealthy people spend their money on “need-based” expenses, while rich people spend it on “want-based” expenses.
5. Start Investing as Soon as Possible with as Much as You Can
While many recommend investing 10-15% of your income, why not increase that to 50%? Millionaires and wealthy people commonly invest well over half of their income.
Another common trait of wealthy people is that they begin saving and investing money early in life.
Conclusion: Rich vs Wealthy
When it comes to wealth, it doesn’t come with huge amounts of income. True wealth begins with the right mindset and game plan. Set your goals, remove money blocks, reduce expenses, pay off debt, and save and invest as much money as early as possible.
Now that you know the difference between rich vs. wealthy, you can see the power of accumulating money so you have the life and time freedom you desire. If you genuinely want to be wealthy, you need to do what wealthy people do and stop taking the steps that rich people take.
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