It’s not easy to tell the difference between rich and wealthy. Sometimes we use these words interchangeably, but they aren’t always the same. It depends on the individual’s circumstances.
So what is the wealthy and rich definition, and how do you determine between the two? How do the rich and wealthy focus their money and spending habits? Read on to learn about the differences between the two, examples, and answers to frequently asked questions.
What Does Rich vs Wealthy Mean?
Rich vs wealthy: these terms are not synonyms of each other. They have their own unique characteristics. Rich refers to earning an abundance of money, whereas being wealthy goes beyond one’s income.
Wealthy individuals have a lot of money, yes, but they are not in a position to worry about it running out. They can enjoy their money, spend it on things they want to buy, do charitable acts, travel, live comfortably in retirement, etc. A wealthy individual has a high net worth, while those who are rich, while earning a lot of money, may potentially carry a lot of debt as well.
How to Become Rich
There is no one answer or blueprint to becoming rich. It really depends on an individual’s circumstances. However, there are some ideas and tactics that can help you on your way to becoming rich:
- Invest in assets: This could include property, stocks, bonds, etc.
- Create multiple income streams: Having more than one source of income can help you become richer in the long run.
- Be frugal: This doesn’t mean being cheap but instead spending your money wisely and only on important things.
- Stay disciplined: This includes things like budgeting, investing, and saving your money.
No one number decides if someone is rich or not. Many factors are at play from income, cost of living, and debt. Rich people’s income in New York City may look very different from that of rich people in Houston.
Regardless of where you live, you need a high-paying job to be considered a rich person. Some examples of high-paying careers include investment bankers, lawyers, doctors, engineers, CEOs, financial analysts, and professional athletes.
These jobs have in common the high level of skill, education, and training involved in their field to earn a high income. Many of these jobs require additional training or certifications throughout one’s career. With additional training and experience comes higher income.
Lottery and Windfall Wins
While winning the lottery or coming into a large sum of money may make you rich or seem like the ticket to financial freedom, it doesn’t always mean that you’re wealthy. Many people who come into a lot of money suddenly find themselves in a worse financial position than they were before.
Why is this? Well, without the proper knowledge or experience handling large sums of money, it’s easy to make poor decisions that can leave you worse off than you were before. For example, investing in high-risk ventures, not saving enough money, or overspending can quickly deplete a lottery win or windfall.
When finding yourself suddenly in possession of a large sum of money, whether it’s through the lottery or some other windfall win, it’s essential to learn how to manage your money.
If you find yourself lucky enough to win the lottery, here are a few tips on how to handle your newfound riches and set yourself up to become financially free moving forward.
- Talk to a financial advisor: This is a good idea whether you’ve won the lottery or not, as they can help you make intelligent financial decisions with your money.
- Create a budget: This will help you make sure you’re spending your money wisely and not overindulging.
- Pay off debt: Use some of your winnings to pay off any outstanding debts you may have.
- Invest: Use your money to invest in assets that will appreciate over time.
- Create a rainy day fund: It’s always important to have some savings set aside in case of an emergency.
There are several ways to become rich, but one often overlooked method is through side hustles. A side hustle is a way to make additional income outside your primary job.
While it may not seem like much, a side hustle can generate a significant amount of money over time. And, if you’re wise with your money, you can use that extra income to invest in assets that will appreciate over time.
Some examples of side hustles include becoming a rideshare driver, pet-sitting, dog walking, starting a blog and selling advertisements, or becoming a social media influencer. With a bit of creativity, there are endless possibilities for side hustles.
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Example of Being Rich
To be rich is a matter of making a lot of money. For example, Jeffrey earns about $13,000 per month. Jeffrey is a rich person because he has a large sum of money coming in each month from his salary and can afford extravagant experiences.
But is Jeffrey wealthy? Jeffrey bought a brand new house and has a mortgage that eats up about $5,000 per month, finances a luxury car with a payment of about $1,400 per month, is paying back extensive private student loans, has a private gym membership, is a season-ticket holder to his favorite football team, eats out regularly, and takes three expensive vacations every year.
Sounds like the good life, right?
After adding up his monthly living expenses, though, Jeffrey doesn’t have much left to invest or put aside for retirement. So while he lives a lavish lifestyle right now, he is not doing much to invest in his future or using his money in a way that will generate more wealth. Jeffrey is rich, but he is not wealthy.
How to Become Wealthy
There are many ways to become wealthy, but it typically requires more than just earning a high income. Creating a budget, living below your means, investing in assets such as real estate or stocks, and saving for retirement are all critical components to building wealth over time.
Financial Habits and Freedom
There are a number of financial habits that the wealthy use to help them build and maintain their wealth and achieve financial independence. If you’re looking to become wealthy, here are a few tips to help get you started.
- Create a budget: This is one of the most important things you can do to ensure your money is being used wisely.
- Save for retirement: Retirement may seem like a long way off, but it’s never too early to start saving.
- Invest in assets: Investing your money in assets such as real estate or stocks can help you generate more wealth over time.
- Live below your means: One of the best ways to become wealthy is to live below your means and save money.
By following these tips, you can start on the path to becoming wealthy. However, it’s important to remember that wealth building is a journey that takes time. So be patient and stay focused on your goals, and you’ll eventually reach your destination.
Passive Income and Investments
Passive income is money that you earn without actively working for it. Some examples include:
- Stocks: Buying stocks and holding them for the long term can help you build wealth as the value of your shares increase over time.
- Mutual funds: Mutual funds are another great way to invest your money and watch it grow over time.
- Real estate: Investing in rental properties can provide a steady passive income stream.
For example, let’s say you own a rental property. Once the property is paid off, you’ll continue to receive monthly payments from your tenants, even if you’re not actively managing the property.
Investments are a great form of passive income. When you invest your money in these types of assets, you’re giving your money a chance to grow and multiply over time. While there’s no guarantee your investments will go up in value, they typically do. This is why investing is a powerful tool for building wealth.
Examples of Being Wealthy
Being wealthy goes beyond bringing in a large income. Instead, building wealth is about thinking ahead and making your money work for you through investments and financial planning. A few well-known examples of wealthy individuals include:
- Warren Buffet:
Warren Buffet is one of the wealthiest people globally, with a net worth of over $116 billion. How did he become so wealthy? Buffett is a value investor, which means he looks for undervalued companies and has a long-term outlook. He also practices patience and discipline, which has helped him become one of the most successful investors of all time.
- Bill Gates:
Bill Gates, a co-founder of Microsoft, is another wealthy individual. He has a net worth of over $128 billion and is often considered the wealthiest person in the world. Gates is also a value investor and has been very successful in his investments. In addition to his investment savvy, Gates has also been a prominent philanthropist, donating billions of dollars to charitable causes.
- Mark Zuckerberg:
Mark Zuckerberg, co-founder and CEO of Facebook became wealthy through his business ventures. He has a net worth of over $67 billion and is one of the youngest billionaires in the world. Zuckerberg has been very successful in his business endeavors and has built Facebook into one of the largest companies in the world.
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Wealthy vs. Rich Mindset
There is a noticeable difference in mindsets between a rich vs wealthy person. Yes, they both earn a larger income, but the way they use that income sets them apart.
Rich people spend the money that they earn. Wealthy people focus on putting the money they earn to work through investments and plan and save for future endeavors.
If you want to start building wealth:
- Change your mindset to incorporate a strategy to help make your money do more of the heavy lifting
- Talk to an advisor
- Research investing strategies
- Make intelligent, mindful money moves
- Set goals and follow-through
Can I Be Both Rich and Wealthy?
Both rich and wealthy people bring in a larger income. However, rich individuals that do not put their money to work, live lavishly in the moment, and don’t plan ahead for the future are not wealthy.
On the other hand, wealthy individuals are rich, but they take it a step further by ensuring that their money is working hard and setting them up for future success and financial independence.
Think back to middle school math: squares are rectangles, but rectangles aren’t squares. As a result, the wealthy are rich in financial success, but the rich aren’t wealthy.
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How Do I Build Lifelong Wealth?
Follow these tips to start building sustainable wealth.
1. Invest early and often: The earlier you start investing, the longer your money will have to grow. If you’re unsure where to start, consider investing in a low-cost index fund that tracks a broad market index like the S&P 500. Talk to an expert to strategize which investments will work best for you.
2. Make saving money a priority: Besides investing, building up a cash cushion that can help you weather difficult economic times or cover unexpected expenses is crucial. A good rule of thumb is to save at least 10% of your income.
3. Live below your means: One of the best ways to create wealth is to avoid unnecessary spending and live below your means. This doesn’t mean you have to deprive yourself, but it does mean being mindful of your spending and only buying what you truly need.
4. Be patient: Time and patience are needed to build wealth. It’s important to remember that Rome wasn’t built in a day, and you rarely become wealthy overnight.
5. Stay disciplined: To achieve long-term financial success, it’s important to be disciplined with your spending and save as much as possible. This may not be easy, but it will pay off in the long run.
Rich vs. Wealthy FAQ
Is Being Wealthy Better Than Being Rich?
Yes, being wealthy is better than being rich. Rich individuals earn money and use it, while wealthy individuals earn money and put it to work through investments and savings. This difference in mindset sets the two groups apart.
What Is Considered Wealthy and Rich?
There isn’t a specific number that sets these apart, as they vary depending on your location and lifestyle. However, in general, to be considered wealthy, you would need a net worth of at least $1 million, while to be considered rich, you would need an annual income of at least $200,000.
Can You Go Broke Being Rich?
Yes, it’s possible to go broke even if you’re rich. This can happen if you make poor financial decisions or lose a large portion of your income or savings suddenly or unexpectedly. For example, if you have an unexpected medical emergency or are let go from your job.
Exactly How Rich Are the Top 1%?
In the United States, the top 1% of earners bring in an annual income of about $500,000. This group comprises individuals who have an average net worth of about $11 million. While this may seem like a lot of money, it’s important to remember that there is an extensive range within the top 1%.
Rich vs wealthy: both individuals are able to bring in a larger income. However, there is a clear distinction between the two groups. Rich individuals don’t put their money to work, live lavishly in the moment, and don’t plan ahead for the future.
Wealthy individuals take their money and make it work for them. They invest in themselves and their futures, setting them up for financial security and comfortable life. While being rich is good, being wealthy is better. So do your research and use your newfound wealth mindset to start your journey today!
Samantha Hawrylack is a personal finance expert and full-time entrepreneur with a passion for writing and SEO. She holds a Bachelor’s in Finance and Master’s in Business Administration and previously worked for Vanguard, where she held Series 7 and 63 licenses. Her work has been featured in publications like Grow, MSN, CNBC, Ladders, Rocket Mortgage, Quicken Loans, Clever Girl Finance, Credit Donkey, Crediful, Investing Answers, Well Kept Wallet, AllCards, Mama and Money, and Concreit, among others. She writes in personal finance, real estate, credit, entrepreneurship, credit card, student loan, mortgage, personal loan, insurance, debt management, business, productivity, and career niches.