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Being rich and being wealthy are the same thing, right?
Well, not exactly.
While most people believe the two words are interchangeable, there are differences. If you ask most people if they had to choose one or the other, you would probably get some strange looks.
To most, being rich and wealthy means having millions of dollars in the bank, a large mansion to live in, a very high annual income, fancy cars, private jets, and all of that other cliche stuff.
Did you know it’s possible to be rich but not wealthy? And it’s also possible to be wealthy but not rich. The main difference is in how you manage your money.
Is one better than the other?
In my opinion, it’s much better to be wealthy than to be rich. A person’s status can change from rich to poor very quickly, which happened to many during the Great Recession. But it’s possible for a person to suddenly lose his or her income and still be wealthy.
What then is the difference between rich and wealthy? Let’s take a deep dive into the subject to find out.
What Does It Mean to Be Rich?
Being rich simply means that you have a high income – that’s all. I consider anyone who has an income of over $100,000 a year to be rich – but I grew up in a relatively poor coal mining community in the Appalachian Mountains. It’s a matter of perspective.
Maybe you have a different threshold.
An income that is considered high in one area of the country may be considered average in another. For example, Silicon Valley has the highest housing costs in the US. If you earn $100,000 a year in Silicon Valley, your money may not stretch very far because of the high living expenses. An annual income of $100,000 in rural Mississippi, on the other hand, would be considered rich by many because your living expenses would be much lower.
Just because someone is rich, however, it doesn’t also mean that person is wealthy. Remember, the two aren’t the same thing.
Many people who are rich are not wealthy because they spend a lot of money on stuff that goes down in value. They may buy a fancy car, for example, or wear brand-name clothes, eat frequently at expensive restaurants, travel the world, and engage in expensive hobbies (airplanes, horses, golf, etc.).
So then, what does it mean to be rich? It simply means that you earn a lot of money relative to where you live.
Let’s go ahead now and take a look at the other term…
What Does It Mean to Be Wealthy?
Being wealthy means accumulating assets that have value.
Just having a lot of stuff doesn’t make one wealthy. For example, a person can drive a fancy car and not be wealthy.
Why is that?
Because cars go down in value – most cars, that is. Yes, some rare collectible cars do go up in value. But I’m referring to the other 99.9% of vehicles – the type that people actually drive instead of store away in a climate-controlled garage somewhere.
If you buy a brand new car, for example, and drive it off the lot, it immediately goes down in value. It’s no longer a brand new car. It’s officially previously owned. Most cars lose a tremendous amount of value in their first two years.
So, if the accumulation of stuff doesn’t necessarily mean that one is wealthy, what constitutes true wealth?
True wealth is when someone buys things that either hold their value or go up in value over time. Real estate is an example of an asset that tends to go up in value over time. Yes, there are some times when it may go down in value (like during the Great Recession), but in general, real estate is an appreciating asset.
Can You Be Wealthy but Not Rich?
It’s possible to be wealthy but not rich. An example? Sure…
Let’s say someone works as an elementary school teacher. Most teachers are not rich, meaning they don’t have high incomes. But let’s say the teacher in our example also invests in real estate on the side.
Instead of spending her money on things that lose value, she saves her money and every couple of years makes a down payment on a single-family home that she buys and rents out. She then uses the income that her rental houses bring in every month to make the monthly mortgage payments.
The teacher is steadily growing her wealth. Her net worth continues to increase every year because she is careful with her money and invests in assets instead of spending her money on things that lose value.
Can You Be Rich but Not Wealthy?
It’s definitely possible to be rich but not wealthy. Remember, being rich refers to having a high income while being wealthy refers to owning assets.
An example of someone who is rich but not wealthy is a doctor who spends all of her money on frivolous things. Physicians usually earn a lot of money. Most would agree that they are rich. But many doctors also spend a lot of money on fancy things – expensive cars, international travel, clothing, hobbies, and other things.
Someone who earns a lot but also spends a lot on things that either don’t hold their value or are here today and gone tomorrow are not wealthy. Other than their homes, they may not be buying assets.
Can You Be Both Rich and Wealthy?
Being both rich and wealthy at the same time is definitely possible. An example of someone who is both is a company executive who carefully invests the majority of the money he earns from his high-paying job in real estate.
The executive is careful to diversify his real estate holdings. He owns an apartment building and some single-family homes in an area where the demand for rental housing is high. He also owns some mini-storage units.
The executive is also careful about avoiding looking like he lives a rich lifestyle. He drives a good quality car, but it’s not something that would attract attention. His home is also nice, but it’s not a mansion.
Looking Wealthy to Impress Others
By now, you should have a good understanding of the difference between being wealthy and rich. But something that’s worth considering is that it’s possible to look financially prosperous without being either wealthy or rich.
How can this be?
Some people buy things that make them look rich. They do it for different reasons, but it’s usually to impress people.
The interesting thing about this is that it’s possible to look rich without spending a lot of money. For example, it’s possible to buy a used luxury car that’s a few years old with a lot of miles on it for a reasonable price. It’s also possible to buy used name brand clothing at consignment stores for a fraction of their original price.
On the other end of the equation, it’s also possible to be wealthy without looking financially well off. Occasionally, the news will report on the story of someone who lived a totally ordinary life who left millions to charity when he died.
How can this be?
People who do this live very simple lives on purpose. It isn’t that they can’t afford to live better lives, they just don’t want to. They are very careful with their money and invest in assets instead of blowing it on a bunch of stuff they don’t need.
Why It’s Better to Be Wealthy
Being rich sounds great, but it’s possible to lose a high-paying job and be broke overnight. It happens all the time. It happened en masse during the Great Recession. It happened again during the pandemic lock down of 2020 when over 30 million Americans suddenly found themselves unemployed.
It also happens to many celebrities. Just think about all of the celebrities over the years who earned millions and are now broke from spending too much money on things they didn’t need. Who needs a private island anyway?
Many rich people live paycheck to paycheck. They live incredible lifestyles that can completely disappear overnight if they suddenly lose their source of income. And when it happens, it can be devastating when it results in the loss of a home, vehicle, and other possessions.
If you are wealthy instead of rich and something happens to your job, you have something to fall back on. You may not end up destitute as a result. You may be able to sell an investment, for example, to get some much-needed cash until a new job can be found.
How to Build Wealth
If being wealthy is preferable to being rich, how do you build wealth? For many, it’s a matter of changing their relationship with money and how they spend it.
While everyone’s situation is different, there are some common things that many do to build wealth.
Pay off Debt
One of the most important things you can do to build wealth is to get out of debt. It’s hard to invest in assets, for example, if you have a big student loan or car payment hanging over your head.
If paying off debt is difficult or impossible with your current financial situation, you may have to consider working a second job or starting a side hustle to earn more money.
Establish an Emergency Fund
Another important thing you can do towards your goal of building wealth is to establish an emergency fund. This is a fund that you can draw from if something happens to your income.
Both the Great Recession and the mass unemployment of 2020 from the pandemic lock down are two times when millions needed emergency funds. Unemployment benefits are often not enough to cover your mortgage payment, utilities, groceries, and other expenses.
With an emergency fund, however, you have something to draw from for a while. For some, having an emergency fund could mean the difference between keeping or losing a home during difficult financial times.
Another important step you can take to build wealth is to live below your means. Many people think that just because they have a high salary that it’s a license to buy a lot of expensive things they don’t need. They may earn a lot of money, but they may also spend a lot of money.
There are several benefits to living frugally. It allows you to save and invest more. It can also reduce your stress. You may also be able to sleep better at night if you aren’t constantly worried about earning enough money to pay your bills.
One of the more important things about living frugally to consider is that it helps you to save more money. You can then use this money to invest in assets.
Earn More Money
It’s kind of hard to build wealth if you struggle each month to pay your bills. If you’re already living a very frugal life and you’ve cut unnecessary spending from your budget, the only option left is to earn more money. There are several ways you can do this.
In some jobs, it may be possible to earn more money by working more hours. Taking on a second job is another option to consider.
Starting a side hustle is another way to earn more money. A side hustle is a part-time business you operate on the side from your regular job. There are many side hustle possibilities including doing odd jobs for people in your community, mowing lawns, flipping used things for profit on eBay, and other opportunities.
Invest In Assets
Lastly, to build wealth you need to invest in assets. Real estate is one of the most common assets that people invest in. It’s also possible to invest in other types of assets if you don’t have enough money to purchase a rental home, professional building, storage units, or something else.
Company stock is another investment that many people buy. You can purchase stock in one or more companies, but it’s also possible to invest in a mutual fund, which is a professionally managed portfolio of many different stocks.
An important thing to always keep in mind is that it is possible to lose money with any investment. Before investing in any asset, be sure to consult with a financial planning professional.
Similar Words — Different Meanings
There’s definitely a difference between being rich vs wealthy. Although the two terms are often used interchangeably, they don’t refer to exactly the same thing.
To quickly sum up, being rich refers to having a high income. Being wealthy refers to owning assets. Also, not all people who look rich are actually wealthy. Many people drive fancy cars and wear expensive clothes just to look rich. It’s nothing but a show to impress others.
Now that you know the difference between being rich and wealthy, which would you prefer and why?