What is the Difference Between Being Rich and Being Wealthy?
When I was growing up, I wanted to be rich, but I think we all have a different idea of what rich means. I wasn’t envisioning private jets or huge houses in different parts of the world. As silly as it sounds, my idea of “rich” was owning a black range rover. That’s it. I saw people driving black range rovers and I was like, “Wow. They got money.”
As I grew up, that idea obviously has evolved quite a bit. Although, I still admire black range rovers just out of habit I think. But as I’ve learned more and more about money, I’ve found there is a huge difference between being rich and being wealthy.
Quick Overview
I believe being financially rich is a snapshot of a given moment in time based on money expectations.
I believe being financially wealthy means your money is set up to work for you in the long run for your future self and future generations of your family.
What “Wealth” is Not
There’s an old commercial that I’ve always found hilarious. It shows a man named Stanley Johnson with a big smile on his face telling us all about his great life. He has a “great family, a four-bedroom house in a great community, a new car, and even belongs to the local golf club.” With a big smile on his face, he then says, “How do I do it? I’m in debt up to my eyeballs.”
You can watch the 30-second clip here: https://www.youtube.com/watch?v=r0HX4a5P8eE
Often, we think people like Stanley Johnson are wealthy. At first glance, he has everything. And matched with his smile and no-worries attitude, we’d think his financial situation is in a great spot. The truth is, most of what we see doesn’t tell the full story.
Why It Is So Hard to Build Wealth
When Kanye West was first starting out, he recited a spoken word poem for Def Poetry Jam 2004. He later used these words for his song, All Falls Down. He describes his early thoughts of money.
Man I promise, I’m so self-conscious
That’s why you always see me with at least one of my watches…
And I can’t even go to the grocery store
Without some ones thats clean and a shirt with a team
It seems we living the American dream
But the people highest up got the lowest self-esteem
The prettiest people do the ugliest things
For the road to riches and diamond rings…
We got a problem with spending before we get it
We all self-conscious I’m just the first to admit it.
I always admired NBA players. They seemed like they had it all: playing the game they loved for a living; getting paid more money than I could probably count up to in a week. Then I learned that 60% of NBA players go broke within 5 years of leaving the league.
The Gap Between Being Rich and Being Wealthy
We have a giant gap between being rich and being wealthy.
We think Stanley Johnson is wealthy; he’s not. He’s in debt. We admire NBA players who live like they’re rich only for them to lose it all within five years because they’ve been living a lavish lifestyle.
So what’s the difference?
No, I’m not about to get all sentimental about how people can be rich in love and have a wealthy abundance of friends. I believe there is a financial difference between being rich and being wealthy.
I believe being rich is a snapshot of money in a given moment. This means that if, in a given moment, you can take a photo of your accounts and think to yourself, “I could buy anything I want to buy,” you would most definitely be considered rich.
Being wealthy is a healthier approach to viewing finances. Being wealthy means you’ve set up your money to work for you in the long run. It means your financial stability and buying power is growing over time. This is what I’m talking about when I describe building wealth. When your financial stability and buying power grows over time, you’re becoming more wealthy every day.
How Do We Become Wealthy?
The huge issue in our current society is that most people want to live like they’re rich, even before they have it. We all fantasize about buying something. It might be a new TV, or new shoes, or a trip somewhere exotic (where we can definitely post lots of pictures of it online). People think about their fashion and what other people think of them. We’re all, like Kanye described, a bit self-conscious.
And the problem with living like you’re rich is that you take away the most important tool you can provide for your money to grow: time.
Your money needs time in investment accounts growing at a higher interest rate than if you kept it in a bank. Your money needs to start compounding on itself for your financial future to start taking shape.
However, most Americans become so saddled with debt like Stanley Johnson that thinking about “investing” becomes something only rich people can accomplish. This is not true. By creating a budget, living more simply, eliminating debt, and developing an emergency fund, you could put yourself in a position to start investing and become wealthy in the future. You could allow your money to start working for you to create a better life for yourself and your future wife/husband and kids.
Be Careful Who You Admire
Next time you start admiring someone from afar and thinking about the type of money they must have to be able to do what they’ve done, remember a few things. They may have taken out heavy debt to get the things you’re admiring – they may have maxed out credit cards to get the new clothes or the new video game system. Maybe, just maybe, they’re even more self-conscious than you are. They might be sacrificing their own future happiness so they can spend money on things they don’t really need right now. The people you’re admiring may be trying to look rich without really building wealth.
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Have you seen examples of this in action? Leave a comment about your experience with rich vs. wealthy in the comments below. And for more money videos and blogs, be sure to subscribe to the Teaching You Money channel on YouTube and the Teaching You Money newsletter.
