Rich vs. Wealthy: How do they differ?

Do you want to be rich? Or would you prefer to be wealthy instead?

Most people consider rich and wealthy as the same thing. But contrasting them and considering what they mean on a deep level can make a big difference in your finances.

In simple terms, being rich is having the ability to spend lavishly due to a high income or sizable financial windfall.

But once it’s gone, it’s gone.

Wealth, on the other hand, is owning considerable assets providing long-term prosperity.

The wealthy do not live in fear of outliving their money, but the rich often hold that financial fear.

When you dig a little deeper and ask:

“What does it mean to be a rich person (or wealthy)?”
“Why would you want to be rich?”, or
“What would make you feel wealthy?”

The answers would be as different as night and day, depending on who you ask.

How you define wealth vs riches beyond “lots of money” can have a significant impact on your financial goals.

What Exactly is the Difference?

To get to the heart of the rich vs. wealthy differences, we talk about here; the terms need distinction. Comprehending one from the other is crucial to making your money work for you.

By separating the terms, your understanding of “rich” and “wealthy” can affect your thinking and behavior toward money. Knowing the difference between them can mean more options and choices in your life.

• Maybe you don’t want to work full-time until you’re 65 or 70 years old.
• Perhaps you crave financial independence and more time to spend doing the things you love.
• Or you might imagine starting your own business and being your own boss.

What is Rich?

For this article, “rich” means having a substantial income or tremendous inheritance (or winning the lottery, in rare cases). Here we’re defining a rich person as someone having enough income or monthly cash flow to spend on the finest things money can buy.

Luxuries the average person with an average salary can’t necessarily afford. The rich can buy expensive cars, big, modern homes, brand-name clothing, and epic vacations.

For most of us, being rich means spending money in ways that others can see. (Unfortunately, this is how some people keep score and compare themselves to “rich” people.)

What level of income is rich? $100k, $250k, $500k a year or more?

It all depends on who you ask. (Can be dependant on the cost of living where you reside.)

What is Wealthy?

For our purposes here, “wealthy” means having sustainable wealth that’s not necessarily dependent on a paycheck. Those with wealth make, keep and grow their money over time through the ownership of assets.

Assets are investments – in real estate, the stock market, or a business (or many businesses), etc. to create portfolio and passive income. But debt such as mortgages and student loans need to be factored into the equation too.

Most financial professionals use net worth as a measure of wealth. Your net worth is your assets minus your liabilities, or what you own, minus what you owe.

Assets-Liabilities = Net Worth

What level of net worth is wealthy? $1M? $5M? $10M?

Once again, it depends on who you ask.

Appearances Can be Deceiving

The rich aren’t necessarily wealthy. And a wealthy person doesn’t always appear to be rich.

When we think of “rich,” we think of the visible signs of money we’re socialized to recognize, like fancy cars, big homes, and designer clothes. Yet even though the “rich” have a high income, some fall victim to lifestyle creep and spend money as fast as it comes in.

In this sense, being rich can be more difficult to maintain.

It’s highly dependant on money coming in – usually in the form of a paycheck. And, many times, those with all the conspicuous signs of being “rich” have substantial monthly expenses and debt to support their lifestyle.

Riches can disappear as fast as the next paycheck.

But many wealthy people don’t display outward signs of being rich.

They may have the money to buy luxury items, but a high percentage of wealthy people don’t own expensive cars, large modern homes, or designer clothing.

Stealth Wealth

“Stealth wealth” is a term used to describe wealthy people who don’t appear to be rich, but have a high net worth.

In this case, the wealthy delay immediate gratification to create long-term financial security.

The Millionaire Next Door is an entire book devoted to research on the characteristics of the financially free.

The authors discovered most wealthy people lived well below their means, didn’t drive fancy cars or live in mansions, and started investing early in life.

The wealthy focus more on growing their assets to achieve the ultimate goal of creating more options in their lives – by not spending on the things they don’t value.

The Problem

In this case, the critical difference between being rich versus being wealthy is how long the money will last.

The rich are more likely to live paycheck to paycheck. The loss of a job could mean that once the paycheck runs out, that’s it.

Without the income stream from a high-paying employer, they could lose everything they own. At the very least, they would have to downgrade their lifestyle drastically.

As you might guess, the rich are more likely to worry about money.

On the other hand, the wealthy, in essence, create their own multiple streams of income. They invest in assets designed to keep money coming in, even without a job.

They have ample savings to get them through significant life changes and they’ve planned for their money to last well into the future.

The wealthy have achieved financial independence and can often pass their estate on to the next generation.

Wealthy Wins: How to Build Wealth

While being rich sounds like fun sometimes, when defining the terms, most would agree they’d rather have true wealth versus just being rich.

Wealthy offers more – more security, freedom, and options. And less stress to boot.

You can take steps right now to manage your money, increase your financial education, and start building wealth.

The first steps are:

1. Spend less than you make. Create a budget and start tracking the money coming in and going out of your life. Lower your spending and increase your job earnings and sources of income to create a gap between what you earn and what you spend. Use it to pay off debt, build up emergency savings, and eventually invest in assets.
2. Pay off debt. Pay off your non-mortgage, high-interest credit card, and other unsecured debt first.
3. Start saving consistently. Build up enough in your emergency fund to cover unexpected expenses and then focus on other savings goals.

Invest in Assets

Once you start living below your means, pay off high-interest credit card debt, and have emergency savings – you can begin building wealth through investing to produce portfolio earnings and passive income.

You can look at several investment opportunity areas, including real estate, the stock market, a small business, or all the above.

It’s a good idea to diversify your assets, so all your eggs aren’t in one basket. Optimize taxes when you can since taxes are one of your biggest expenses.

As you invest, your assets will start growing – and you’ll be on your way to not only building your bank account but lasting wealth and financial freedom.

Can you be Both Rich and Wealthy?

The short answer is yes (depending on how you define the terms). And though some desire both, they don’t always go hand in hand.

In the end, the key is to know your values and set your priorities accordingly. You have to know what you want out of life in addition to lots of money. And then be willing to take steps to get it.

Most would agree that building true wealth is the way to create a life of financial security, independence, and satisfaction now and in the future.

Read Next: The Mindful Millionaire: It’s About Life, Not Just Money [Book Review]