I sometimes find myself having a conversation with people about the difference between being rich and being wealthy. I find that many people use the terms “rich” and “wealth” synonymously, with both implying “having a lot of money.” Some may think of that as having wealth, but their actions indicate that they are merely rich. To a great extent, it’s a philosophical difference based on people’s perceptions of themselves and the world around them. But there are certain “tells” that reveal whether someone is genuinely wealthy or merely rich.
The Difference Between Wealthy and Rich
There are only four things you can do with money:
- You can buy things you need or want right now. I’m talking about consumables—the items we use every day in our lives, such as food, gas, clothing, dinner out, etc. People spend money on these things that are here today and gone tomorrow, so they need to keep buying them.
- You can buy depreciating assets. These are things you buy today and have for a while, but they eventually become worthless, or at least worth less than what you paid for them. That includes cars, which start depreciating the minute you drive one off the lot. It includes the durable goods we buy, such as washers and dryers or a jacuzzi tub. They all go down in value over time.
- You can buy appreciating assets—things that go up in value. These are the investments you make that have the potential to appreciate in value over time.
- You can give it away. Some people are more charitably inclined than others, preferring to share their money with people who need it more than they do.
I contend that the difference between the rich and the wealthy is the rich spend a significant portion of their money on 1 and 2, while the wealthy focus on 3 and 4.
What it Means to Be Rich
The implication here is that “rich” is the superficial appearance of being wealthy. The rich are not shy about driving expensive cars or living in a massive house with all the luxury trimmings. Everyone starts out with the ambition of wealth but, for some, it turns into the pursuit of “more.” There’s no destination, just finding ways to spend the next dollar. When they fail to appreciate what they have, the risk of “more” increases with no certainty they’ll achieve real happiness. Ultimately, many will experience a slow and painful death of their money over time.
What it Means to be Wealthy
Conversely, building wealth is not based on having more money but knowing how much money you need to create all the situations that result in having a good life. For people of wealth, having and spending more money didn’t necessarily improve their happiness. That’s why a lot of wealthy people live well beneath their means. They drive Buicks, not Lamborghinis. They live unassuming lives, but they live their lives with purpose. They are wealthy in soul and spirit because they realize that their wealth can benefit people less fortunate than them.
Wealth is a Journey, Not a Destination
For people who haven’t clearly defined their ambition of a “good life,” it makes no difference to them which road they take. With no clear destination, they are more likely to remain focused on the here and now, choosing consumption over savings. Without understanding their purpose in life and how having wealth can help them pursue it, they are more likely to take their cues from those around them.
Building true wealth begins with having a clearly defined vision of what a good life looks like and the ambition to achieve it. All you need then is to crunch the numbers and develop a plan along with the strategies to build and preserve your wealth for a good life for the rest of your life.