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 means 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 e.g. high-interest credit cards, car payments, personal loans, etc,
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 which lacked sustainability.
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. Elon Musk, Jeff Bezos, Bill Gates, and Warren Buffett are all worth multi-billions. (Fun fact: 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 didn’t switch his $20 flip phone for an iPhone until 2020.
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.
1. Net worth
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. The best measure of a person’s wealth is their assets and debt.
In general, a wealthy person will have a large net worth. A rich person might have a high income but if they have a lot of debt, their overall net worth will be low or even negative.
2. Expenses
Rich people tend to 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.
3. Investment
Rich people don’t necessarily adjust their lifestyle to ensure future wealth. They might buy the latest gadgets or increase their lifestyle inflation instead of investing.
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. They focus on making this a sustainable lifestyle.
Expert tip
The quickest way to become wealthy is to pay off your debt. That’s because debt can eat into your disposable income, making it harder for you to save and invest.
Prioritizing your debt repayment by paying more than the minimum and finding ways to earn more to pay off additional debt is key. Don’t forget to put aside emergency savings while you do this.
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.
Keep track of your net worth
Your net worth is what determines your wealth. If you want to become wealthy then you should keep track of your net worth. The higher your net worth, the more wealth you have.
You can track your net worth using a net worth calculator or by deducting your liabilities from your assets. In other words, the things you own minus the debt you owe. If you have a lot of debt, try to pay it off to increase your net worth score.
Save 10 to 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.
Build passive income streams
Another way to build up your wealth is to build passive income streams. Passive income is money you receive without having to go to a day job. For example, dividends from your investments, or rental income from real estate.
Wealthy people often do not have to work traditional jobs because they make income in other ways. With passive income, you can earn money no matter where you are, even if you’re out on the beach.
Is wealthy considered rich?
Being wealthy and being rich are two different things. Being wealthy means being financially independent and having a large net worth. When you’re rich, you have a high income but you could also have a lot of debt so it doesn’t necessarily mean you are also wealthy.
How much money is wealthy?
There’s no set dollar amount that defines someone as wealthy, as wealth is determined by how high your net worth is.
However, according to a wealth survey by Charles Schwab, most Americans consider being wealthy as having a net worth of at least $2.2 million, but most people who say they feel wealthy have a net worth of $560,000.
Can a person be rich and wealthy?
The answer is yes. You can be rich and wealthy, although the two terms are slightly different. If someone has a high income, then they are often considered rich. If that person also has other revenue streams and a lot of high-value assets, then they would also be considered wealthy.
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Wealth is a mindset: Improve yours starting today!
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 money 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.