Everyone dreams of being rich. Most of us would love to be wealthy, but many don’t realize the difference between “rich” and “wealthy”. What does it actually mean to be rich? What about what it means to be wealthy? In this article, we’ll delve into the differences, and by the end, you’ll probably reconsider how you view personal finance.
Although people typically associate being rich and being wealthy, they are quite different concepts. While both revolve around an individual's personal financial situation, one is temporary and fleeting, the other is long-term. So, what does it mean to be rich? Any individual can become rich, you could hit the lottery or become famous. Being rich is simply having an excess of income, showing off or spending that money, and may even include large amounts of money in bank accounts. All this sounds great but spending more than earned leads to a negative net worth. If you’re earning $200,000 a year but spend over $250,000, in a blink of an eye you’ll no longer be rich. Debts will continue to overtake income and you could end up with no money and be forced to file for bankruptcy.
We see it often with celebrities; they suddenly have an excess of money but no understanding of how to spend it or no guidance on how to responsibly handle having that much freedom. One shocking example is Johnny Depp. He’s been acting since the 1980s and has had his fair share of star roles and large earnings over the years, even as much as $20 million (per film) for his starring role in the Pirates of the Caribbean movies. That all changed however when he managed to burn through $650 million from 2000 to 2017. It’s rumored during the mid-2010s he was spending $4 million a month on his lavish properties, boats, cars, and lifestyle. If Mr. Depp hadn’t been able to fall back into his continued movie earnings, he would’ve been forced to declare bankruptcy.
To be considered wealthy, you not only need to be making more than you spend, but realistically you’d be able to afford to live without working. True wealth isn’t about throwing lavish parties, buying fancy cars, the newest tech, or the most expensive jewelry. Being wealthy is about making your money work for you by means of assets such as investments, real estate, and saving cold hard cash. True wealth is also often defined as having time, and true freedom to spend your days the way you want to.
The best examples of the wealthy are almost always business owners; 66% of millionaires own their own business. For a great example of a self-made business owner who exudes what it means to be wealthy, we just need to look at Warren Buffet. Long considered to be frugal, his net worth is a cool $80.8 billion. His debts are minimal, still living in the home he purchased in 1958 for just over $31,000. Only ever having purchased one other vacation home for $150,000, he’s since sold it for a profit of just over $7.3 million. Now that’s a way to maintain financial freedom!
After taking a look at the differences between being rich, and wealthy, I’m sure you’re leaning towards wealthy, right? True wealth not only gives you financial freedom, but also allows you to buy your time, health, and happiness. It can be frustrating to see someone making more than you, but it’s important to keep in mind that just because they make more than you, does not mean they are wealthier than you. Net worth is what you should be the focal point, and this should be a long-term goal.
It’s important when it comes to finances to not compare yourself to others unless it’s to gain insight into how they’re handling their personal finances. Don’t stress about the amount of your paycheck, and don’t fall into schemes that claim to make you rich quickly. The best steps you can take to achieve a higher net worth are as follows:
- Save 10-15% of your paycheck every month
- Start chipping away at high-interest debt, the less debt you have the higher your net worth
- Invest as much money as you can every month
- Avoid unnecessary splurges or purchases
- Review your financial goals often and make changes as needed
While these things won’t make you a billionaire overnight, they are great steps to take that will lead you to become wealthier. Remember, it’s about your overall net worth and setting yourself up for success over the long term. Money comes and goes but your time is irreplaceable. Making a conscious decision to curate your finances to get your time back, is what it truly means to be wealthy.