Rich vs. Wealthy: Understanding the Distinction

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Isn’t it interesting how our childhood shapes how we see rich and wealthy, and who has money versus who doesn’t? I have a ton of memories from my childhood that made me think I knew who was rich. One stands out in particular.

In high school, there was a kid in my class who I was sure was rich. His family owned a bunch of fast-food joints and lived in a mansion way nicer than my house. Plus, at 16, he drove a new Dodge Stealth – totally over the top. His parents also paid for all his friends to watch pay-per-view events like Mike Tyson fights, which was a big deal since my dad would never shell out hundreds for me to watch sports. To me, this kid’s family was loaded. They spent on cars, entertainment, and whatever else they liked.

Now that I’m older, though, I’ve realized that those who spend lavishly often aren’t truly wealthy. They may earn a lot, but that doesn’t make them wealthy. In fact, high earnings can put people on the road to going broke.

Before diving into the differences between rich and wealthy, it’s worth noting that income levels vary globally. What’s considered poor in the U.S. might be rich or wealthy in a developing country. The World Bank categorizes countries by income levels, and the U.S., most of Europe, and Australia are high-income, while much of Africa and parts of Asia are lower-income. The income disparities around the world are striking, with average monthly incomes in the U.S. being substantially higher than in countries like Argentina, Bhutan, Ghana, Indonesia, Myanmar, and Uganda.

What defines being “rich” in the U.S.? Typically, it means having a high income, spending a lot, and flaunting possessions. The rich may earn a lot, but it doesn’t mean they keep it; they just ensure everyone knows about their income through their spending habits.

Being rich is about living a flashy lifestyle. I recall a couple I knew who earned $250,000 each per year but had only $17,000 in assets due to heavy spending and massive debt. Despite their high income, they had a negative net worth. They were rich by income but not wealthy by net worth, heavily financing their lifestyle and owing more than they owned.

This pattern isn’t unique. Many celebrities and athletes, like Dennis Rodman, Evander Holyfield, and MC Hammer, earned millions but ended up broke due to excessive spending and financial mismanagement. Even Johnny Depp has faced financial troubles despite his massive earnings.

Being wealthy, however, means having a high net worth, often requiring $2.2 million or more according to Schwab’s 2023 survey. Wealthy people save, invest, and focus on building income-producing assets rather than depreciating ones. They don’t need to live paycheck-to-paycheck and often work flexible jobs or own businesses. They control their time, track their assets, and continuously seek ways to grow their wealth.

For instance, Warren Buffet, despite being a billionaire, lives modestly, focusing on building wealth rather than spending it. Wealthy individuals prioritize long-term financial stability over short-term luxury.

The main differences between rich and wealthy people include how they invest, spend, and manage money. Rich people may earn a lot but spend on depreciating assets and live paycheck-to-paycheck. Wealthy people invest in income-producing assets, save diligently, and live modest, financially independent lives.

Being wealthy is undoubtedly better than being rich. Wealth grants you freedom and control over your life and finances. Personally, I consider myself wealthy not just due to my financial status but because it allows me to spend time with my family, pick my kids up from school, and make valuable investments in our future, like building a backyard oasis.

To become wealthy, follow these nine steps:

1. Avoid debt and focus on living within your means.
2. Invest in personal growth through mentors, courses, and building relationships.
3. Build an emergency fund to cover unexpected expenses.
4. Create a supportive team of professionals and like-minded individuals.
5. Invest at least 20% of your income in various assets.
6. Create streams of passive income.
7. Set and pursue both short-term and long-term financial goals.
8. Learn to be content with what you have and prioritize meaningful relationships.
9. Give back through charity, mentoring, and community involvement.

Ultimately, true wealth extends beyond money, encompassing freedom, security, and a fulfilling life with those you love. Becoming wealthy allows you to give back generously and find immense satisfaction in contributing to others’ well-being. Enjoy the journey toward financial peace of mind and a purposeful, intentional life.