It is frequently assumed that being rich and wealthy are synonymous. Similarly, many people believe that all rich people are wealthy, and all wealthy people are rich, but this is not true when broken down to its core components.
Rich and wealthy people frequently have very different stories to tell and live very different lives. They also have different objectives, ambitions, and plans for the future.
They do, however, share a few similarities, which we will discuss further.
There is one key factor that wealthy people do not typically share with those who are wealthy, which we will discuss further below.
It’s well worth the read, but feel free to skip ahead to the good stuff!
We’ll be focusing primarily on financial wealth, but while you’re here, we recommend you also learn about the Different Types of Wealth!
What Is the Difference Between Rich and Wealthy?
The primary distinction between the rich and the wealthy is their source of income. The wealthy have money work for them, while the wealthy have money work for them.
People are frequently surprised to learn that being rich and wealthy do not always go hand in hand. There’s no denying that both groups of people have a lot of money.
Consider the profession of a surgeon. Assume this is a specialized surgeon, such as a cardiothoracic or neurosurgeon.
They are employed in a high-paying field.
They have a high income and (please excuse the stereotyping) a large house, a few nice cars, and possibly a boat or a vacation home.
These people are wealthy. They have a lot of money and some fun toys to help feed that “work hard, play hard” mentality.
This same surgeon most likely did not pay cash for their high-6, low-7 figure home. Unless they’ve been in the field for decades, they’re unlikely to have paid off their hundreds of thousands of dollars in college and medical school loans.
They most likely have a few car payments. But what if this surgeon is no longer able to perform surgery? How will they pay their bills?
How will they maintain their lavish lifestyle? They’re wealthy, but how long can they keep it up without their source of income?
The same could be said about someone who created an internet startup and sold it for $10 million.
They can go out and buy some nice things, but if they can’t make that money work for them, that windfall or nest egg will eventually run out.
You can probably guess where I’m going with this.
A wealthy person can also have whatever they want. Their lifestyle, however, is not dependent on their source of income or nest egg.
Instead, they’ve meticulously planned out where every dollar goes in order to make their money work for them.
A wealthy person does not have to be concerned about losing their job. They don’t have to worry about going into debt or spending their savings.
Do you believe Warren Buffett or Jeff Bezos have a mortgage?
Do you think they go to the Capital One Auto Finance website once a month to make a payment on their car?
Certainly not!
They are debt-free and have true wealth. Furthermore, their wealth is likely to be diverse and will continue to work for them regardless of what happens in their lives or economic downturns.
The Evolution of Rich vs. Wealthy
Rich and wealthy people both have large sums of money that ordinary people would consider life-changing. Consider how they got there as a straightforward procedure.
Unless you are extremely fortunate or were born into wealth, you must go through a process.
The average Joe would go through the following steps:
Normal person —> Rich person —> Wealthy person
Someone who has it more difficult than most will have an extra step:
Poverty —> Average Person —> Rich Person —> Wealthy Person
In the preceding example, the surgeon was just a regular medical student. They got a high-paying job and became wealthy.
Many people who have made it this far stop here.
Some of them may even have some F-You Money, but not enough to sustain their current lifestyle in the long run.
This is because they make the critical mistake of succumbing to Lifestyle Inflation and failing to use their newly-found wealth to transition into becoming wealthy by investing in their future.
What Exactly Does It Mean To Be Rich?
“Qwabs, why would you even bother putting this in here?” you’re probably thinking.
Everyone understands that being wealthy means having more money than the average person.” And, yes, you are correct. But, as you may have noticed in the preceding example, I want everyone to understand that a wealthy person’s money is conditional.
It’s conditional on hard work, keeping their job or running their business, and when that windfall or nest egg will dry up.
Rich people frequently have to work (and work hard!) to maintain their standard of living. OR they must exercise extreme caution if they are dealing with a windfall or nest egg.
A rich person’s money is limited and at risk of running out. They frequently have high debt and expenses in relation to their income. A rich person’s assets are frequently cash and materialistic items.
A rich person does not necessarily engage in financial planning or even plan out their long-term retirement goals, and this is where they fall short.
What Is the Definition of Wealth?
Being wealthy is a completely different thing than being rich. It is much more difficult to become wealthy from the ground up, but it is also much more sustainable and pays much better in the long run.
It should also be noted that being wealthy vs. rich does not simply imply having a higher net worth.
For example, one person with $10 million in liquidity and assets may be rich, while another with the same amount may be wealthy.
The focus of a wealthy person is on longevity and long-term goals.
They understand the value of their time. A wealthy person takes the necessary precautions to ensure that they are prepared for life and can weather any storm that may arise.
A wealthy person’s money and assets will generate more money and assets, and that income will almost always be passive or primarily hands-off.
They will also meticulously track every single dollar spent.
Keeping track of your expenses is simpler than you think. Personal Capital is a program that I use to keep track of my expenses. It’s been a lifeline for me on my path to financial independence.
Wealthy people have enough money to meet their needs without having to go out and work to maintain their net worth. Instead, they invest their time and money in assets that will generate income.
THE ONE FEATURE THAT ALL WEALTHY PEOPLE SHARE
Wealthy people understand the value of TIME.
They value their time and understand how much it is worth. They strive to have their assets generate a living so that they can spend time doing what they enjoy, whether it’s spending time with loved ones, pursuing a passion, or diving headfirst into a hobby.
Wealthy people value their time.
Rich people may claim to value their time, but they are most likely working long hours in order to make more money to buy more things.
As a result, they are not putting forth much effort to amass a collection of wealth-generating assets.
What is the value of your time? Divide your income by the number of hours you work. How much do you earn per hour if you make $50,000 per year?
If you earn $50,000 and want to buy a new iPhone, it will take you more than 40 hours of work to pay for it! When you start breaking down your purchases like this, you’ll realize how valuable your time is!
Let’s take another look at the surgeon from above (as if we haven’t already picked on him!) He works inhumane hours and has done nothing to prepare for a prosperous future.
He would have worked harder for wealth if he had valued his time more. Unfortunately, some people are content with their wealth, regardless of how much time it consumes.
If you want to think like a wealthy person, you must consider how valuable your time is.
How Does Someone Become Rich?
The easy part is becoming Rich!
“If getting rich is so simple, Chris, why am I reading a finance blog written by a pharmacist?”
Let me say that again! When it comes to becoming wealthy vs. becoming rich, becoming wealthy is the easier of the two! Being wealthy is defined by how much money you have in the bank and how many flashy items and cool toys you own.
You must find a source (or sources) of income whether you are getting rich or becoming wealthy. Then, how you spend your money determines whether you’re rich or wealthy.
If you’re young and have the necessary resources and social support, the obvious first step is to attend college and major in a high-paying field.
But not everyone is capable of doing so, and some of us may be past our prime. We may not be able to change careers or return to school, so what now?
I could write for hours about ways to make money, but that’s not the point of this article. Simply put, you must return to the fundamentals.
Pay down your high-interest debt, prioritize your investments, and devote time to creating a passive income stream.
The internet is a fantastic resource, with tons of free information available all over the place. You may even come across hidden gems like How to Trick Yourself Into Becoming Rich!
How Does Someone become Wealthy?
Unless you’re born into it or are the lucky South Carolina resident who won the $1.5 billion Mega Millions jackpot. Becoming wealthy will require some effort.
A lot of effort. However, it is not impossible!
Remember that being wealthy does not imply having a specific amount of money in the bank. Instead, being wealthy is the result of many different factors, the most important of which is having the right mindset and determination.
There are a few pointers on which all wealthy people can agree. Some of these are related to the section above titled “How Does Someone Get Rich?”
Value Your Time
As previously stated, wealthy people understand the value of their time. Procrastination is something that all wealthy people avoid.
People in their twenties and even thirties frequently believe that retirement and wealth-building will appear magically later in life. As a result, they want to enjoy their money now and save or invest later.
They’ve missed out on a decade of market favorability and compounded interest before they realize it.
YOU ALWAYS COME FIRST
It may sound corny, but INVEST IN YOURSELF! You are the only person who will have control over your wealth. Spend time learning new skills, meeting new people, or improving your mental health (like learning how to move past prior insecurities).
The better educated, connected, and mentally strong you are, the more options and opportunities you will have.
Stop Trying to Find Shortcuts
There is no working magic formula or get-rich-quick scheme.
Every minute you spend searching for the next shortcut is a minute you could have spent doing something more productive.
Pay off or reduce your debts
Leave the debts to the wealthy. Paying off your debts means you’ll need less money to live a wealthy lifestyle if you truly want to be wealthy.
There are numerous tried-and-true debt strategies available, ranging from using the snowball method to pay off high-interest debts first to using your home equity to consolidate all of your debt into a low-interest payment.
Make a Budget Plan
This appears to be easier said than done, but it is likely one of the most difficult steps here. Creating and sticking to a budget requires a great deal of self-control.
To become wealthy, you must earn more money, spend less, and invest wisely. Maintaining a strict budget now will give you a leg up in the future.
When Should You Take Risks?
When it comes to taking risks, the younger you are, the more advantage you have. A 25-year-old taking a risk is less risky than a 65-year-old taking a risk because the 25-year-old has more time to recoup the money if the risk fails.
Older people frequently take risks with a lower reward potential, but they are calculated risks.
When the time is right, all wealthy people take risks. However, regardless of your age, taking some risks would be beneficial.
The higher your risk: reward ratio can safely be, the younger you are.
Diversify
Your money must work for you, and it can do so in a variety of ways. Wealthy people frequently have multiple income streams from various sources.
Diversification protects wealthy individuals from market swings and losses.
Furthermore, by diversifying your investments, you increase your chances of finding a successful venture by attempting different approaches.
Rich vs. Wealthy: Successful People’s Personalities
As you can see, being rich and being wealthy require very different lifestyles and mindsets. Despite these differences, there are some psychological characteristics that both groups share. A study published in the British Journal of Psychology in 2018 revealed personality traits of high-net-worth individuals.
Those interested in psychology can download a document containing the study’s supporting data.
Individuals with a high net worth are more likely to be:
- Emotionally stable people – base their decisions on facts, research, and data. Investing money based on emotions may work out occasionally, but it can be disastrous in the long run. The sunk cost fallacy is an example of emotions getting in the way.
- Extroverted – Have you ever heard the phrase “Closed mouths don’t get fed”? High-net-worth individuals are frequently extroverted. They are not afraid to meet new people, make connections, network, and speak up when necessary.
- Narcissistic and self-centered – We frequently associate narcissism with being a bad thing, and in many cases, it is. When it comes to accumulating wealth, however, narcissists almost always win. Why is this the case? Because narcissists have EXTREMELY high expectations for their own success. They aspire to be the best and to be at the top of the economic food chain. They have a unique drive and determination that cannot be taught or learned.
- Conscientious – It’s simple: wealthy people do what needs to be done rather than what they want to do. They make sound decisions, prioritize long-term goals, and avoid instant gratification. Even marrying a conscientious person can lead to a more successful lifestyle because their traits often rub off on their spouse.
- Less neurotic – This is related to being emotionally stable. Successful people are less likely to react negatively quickly or to let anxiety or fear drive their emotions. Instead, each step they take is calculated and deliberate. Being less neurotic also makes wealthy people feel more at ease taking calculated risks.
Okay, I understand that you weren’t born with a unique combination of traits, such as a humble narcissist who is immune to mood swings, but that doesn’t mean you have to change who you are!
You’re probably an adult with strong opinions. You can’t change your personality, but you can change your behaviors and who you associate with.
If you are introverted, you cannot “trick” yourself into becoming an extrovert. However, you can push yourself to find new ways to communicate and collaborate with others. If you’re an introvert looking for a partner, try to find someone who is extroverted.
Again, it may feel awkward, but try to emulate some of the behaviors of rich and wealthy people because their actions have been scientifically proven to generate a high income.
