Rich vs Wealthy: Definition
Wealthy and Rich are often used interchangeably, but they represent very different things. There are a lot of rich people but far fewer wealthy people.
Rich and Wealthy people both have a lot of money. The difference is that the rich have lots of money, but the wealthy don’t worry about money.
Rich is transitory; Wealth is permanent. Wealthy people plan to be wealthy not just in their lifetime but for generations. On the other hand, there are many stories of rich people going bankrupt.
Mike Tyson, the famous boxer, was rich with over $300 million in earnings. He lived in a 21 bedroom house, owned a fleet of luxury cars, and even had a pet tiger! Eventually, he filed for bankruptcy with a debt of $23 million.
Going from rich to wealthy requires a different mindset about money.
Rich people have lots of money.
Wealthy people don’t worry about money.
Assets vs Liabilities
Elsa is a successful marketing executive who is making $200,000 a year. By any measure, she is rich.
Elsa owns a big house, a luxury car, fancy clothes, and an assortment of other expensive items. She considers them to be ‘assets’.
However, are they really assets?
The definition of an asset is that it makes money for you. Her luxury car is not an asset. Instead of making her money, the car needs her money – for gas, maintenance, insurance, etc.
And the car loses its value every year.
The car is, in fact, a liability!
Mindset Shift
Rich people buy liabilities mistakenly thinking that they are buying assets. Thus they never become wealthy.
After realizing this, Elsa changes her ways and starts buying real assets – stocks, bonds, real estate, etc. Pretty soon, her portfolio of assets grows, and she starts making money in the form of dividends and rental income.
Eventually, her portfolio generates enough income to cover her living expenses, and she does not have to worry about money anymore. Although she still has her job, she is not dependent on it.
Elsa has now transitioned from rich to wealthy!
A salary can make you rich.
What you do with that salary determines if you become wealthy.
Rich vs Wealthy: Key Differences
| Rich | Wealthy |
| Depend on their income/job to stay rich | Have enough assets to sustain their lifestyle |
| Understand how to make money | Understand how money works |
| Worry about money (e.g., losing job) | Do not worry about money |
| Buy liabilities | Buy assets |
| Spend money to impress others | Spend money on what makes them happy |
| Work for money | Make money work for them |
How to Become Wealthy?
Spend less than you earn and invest the difference. That’s it! It does not have to be any more complicated than this.
We followed this simple path – we focused on saving a large portion of our income and invested the savings in a low-cost index fund and a few stocks.
As our income grew, we did not get caught up in lifestyle inflation, which allowed us to invest even more every year.
Over time the investments grew due to the power of compounding.
Becoming wealthy is really not that hard – it takes a bit of planning and a lot of patience. Good luck!
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It Good. Especially the young generation needs to understand difference between being Rich and Wealthy. A decade or two back, I have gone through the book “Rich Dad Poor Dad ” Your article reminds me that book. Keep it up. Nice article. I am sharing it with my Son.
Thank you for your comment and for sharing it with the next generation. They have a lot of time in front of them to make good financial decisions.