Rich vs. Wealthy: The Differences and Which Matters

Do you dream about being rich or wealthy?

Most people consider those terms as the same thing. But looking at the differences between being rich and wealthy, and considering what they mean on a deep level can impact your finances significantly.

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 don't worry about outliving their money, but the rich often hold that financial fear.

When you dig a little deeper to understand the rich vs wealth mindset and ask:

• “What does it mean to be a rich person (or wealthy)?”
• “Why do you want to be rich?”
• “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 Does Being Rich Mean?

For this article, “rich” means having a substantial income or tremendous inheritance (or winning the lottery, in rare cases).

A rich household has enough income or monthly cash flow to spend on the finest things money can buy.

Luxuries the average person with a median income can’t necessarily afford. The rich can buy expensive cars, lavish 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.)

You likely know many people living a rich life from outside appearances. But just because they're spending an abundance of money, it doesn't mean they are wealthy.

There are countless stories of actors, professional athletes, and lottery winners, who spent lavishly when the cash was flowing in but failed to manage and protect their money to obtain long-term financial security and build generational wealth.

What Does it Mean to Have Wealth?

Here we're defining “wealthy” as 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 and investments such as real estate, stock market holdings, 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 with Just Living Richly

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.

Wealthy households 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 long term 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 to becoming wealthy include:

1. Understanding your money story. When you think about money, it’s never just about the money. That’s because money is a tool that’s closely connected with our emotions – pride, shame, fear, control, and more.

To make necessary changes in your life as you pursue financial independence and wealth accumulation, it’s essential to understand your “money story” (aka money script) and how it influences your finances and decision-making so you can course correct.

2. Adopting a wealth mindset. Achieving wealth doesn't happen overnight, it's a long game. Having a scarcity mentality can prevent you from taking control of your finances and doing the things necessary to achieve wealth.

Alternatively, developing an abundance mindset can help you gain real financial security because those who think abundantly make things happen and go after what they want. And you’ll enjoy being around them because of their positivity.

3. Naming personal and family core values. Decisions you make about your finances reflect your values. Identifying what's important to you and others in your household helps you focus your financial decisions on what matters most.

4. Determining financial goals. It's time to define what wealth means to you, detail what you want to accumulate, and strategize the goals and methods for achieving it.

Your goals will depend on the net worth you'll focus on attaining and your current financial health.

Short and long term savings goals can be anything from building an emergency fund with 12-months of expenses to becoming a 401(k) millionaire to owning several income-generating rental properties or a six-figure profitable business. 

5. Spending less than you make. Create a budget and start tracking the money coming in and going out of your life.

• Lower your outgoing money flow by practicing a values based spending approach and cutting monthly expenses.

• Increase your job earnings and sources of income. Ask for a raise or change jobs to increase your salary. Take on an additional part-time job or start a side hustle to earn additional income to grow the gap between what you earn and what you spend. Use the extra money to pay off debt, build up emergency savings, and eventually invest in assets.

6. Eliminating high interest debt. Pay off your non-mortgage, high-interest credit card balances, payday loans, and other unsecured debt first. Then use what money was going to debt payments to increase your savings rate. 

7. Save and invest consistently. Put saving on autopilot by sending money to your 401(k), IRA, and sinking funds after every payday or once per month.

Build up enough in your emergency fund to cover unexpected expenses and then focus on other savings and investing goals such as your retirement and child's college education. 

Invest in Assets

Once you're living below your means and you're earning more, have paid off high-interest credit card debt, and established your emergency savings – focus your efforts on building wealth through investing to produce portfolio earnings and passive income.

Investigate 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. 

Develop your investment policy statement (IPS) to help guide you on the path to wealth. Your IPS is your roadmap for investing.

It will document your financial goals and strategies, and note how you'll achieve them. And it will act as guardrails to keep you on track as life happens so you continue to stay on the long term course no matter what the financial markets or others are doing.

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.

Invest in Yourself and Your Family

Several books and articles on the habits and mindset of the wealthy reference the millionaires' commitment to continuing to learn and grow.

This includes not only putting time into growing their knowledge but also a commitment to maintaining or improving their health.

Invest in building your household wealth by continuing to learn about personal finance and teaching your kids and teens about money. Several ways to focus on personal growth include:

• reading money books and blogs
• leveling up your skills
• earning an advanced degree
• following the younger next year philosophy
• practicing self-care
• adopting a gratitude practice as a family

Engage in Estate Planning

Estate planning entails different things for different people. For some, it may involve complex healthcare plans and extensive planning for distributing various types of property. For others, it may be simpler.

No matter your current situation, estate planning is a necessary part of life and increases in importance as you build wealth.

Estate planning involves inventorying your assets, protecting them during your lifetime, and determining what will happen to them when you pass on.

But it also involves strategizing for you and your family's future and planning for taxes, life emergencies, your end-of-life arrangements, and the legacy you want to leave behind.

Our book Estate Planning 101 will help guide you through creating and documenting your estate plan to protect you and your loved ones for a financially secure future.

Pay Attention to Taxes

Optimize taxes when you can since taxes are one of your biggest expenses. Some people only think of taxes when they look at a pay stub or when it’s time to file their return.

But there are several things you can do to help minimize how much you have to pay Uncle Sam each year and during your lifetime.

Be sure you understand the difference between how income from earnings (wages, tips, commissions, etc.) and income from wealth building assets (dividends, rental income, capital gains, etc.) are taxed.

And research how using tax-advantaged accounts and building a business can help you manage your tax liability.

Just be sure to avoid committing tax fraud!

Track Your Progress

“You can’t improve what you don’t measure” is one variation of a quote by Peter Drucker, aka the founder of modern management.

Measuring progress along the way helps keep your focus on your financial goals.

Still, don’t be surprised if your goals or priorities change as you build wealth. As you grow older, have new experiences, and your personal and family situations change – your wealth building efforts and long term goals may adjust too.

Some people will accelerate their plan and accumulate their first million years before they dreamed it possible. Others may need to accept that retiring on their terms at any age is an admirable goal.

Just remember that as long as you don’t abandon your pursuit of wealth, however you define it, there’s a good chance your net worth will continue to improve over time. Small incremental changes add up and sometimes trump big drastic ones.

Create milestones to help ensure you’re making consistent progress towards building your wealth and celebrate those wins along the way to stay motivated.

For example, reaching a positive net worth, becoming debt-free, saving $100,000, $250,000, $500,00, $1 million, etc.

Enjoy Today Too

There's no doubt amassing long-term wealth takes a work, patience, consistency, resiliency, flexibility, a wealthy mindset, and more. Yet, failing to appreciate and enjoy what you have today isn't good for your mental health or your relationships.

Take time to appreciate what you have, be generous with others when you can, and enjoy the journey. Being healthy is wealthy too!

Define what wealth (and health) means to you and your family based on your values. Then go live it.

Closing Thoughts…Rich or Wealthy?

While some desire both, they don't always go hand in hand. Just ‘looking rich' is superficial and likely won't last unless efforts to build wealth exist.

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]