Rich Vs Wealthy: Why The Distinction Is Important
When you are new to the personal finance world, you will find that there are many terms you will need to become acquainted with. Some, such as “rich” and “wealthy”, you will feel like you already know. Chances are, you think these terms are interchangeable.
However, you will quickly realize that this isn’t the case! When it comes to the finance world, these terms are actually very different, and it’s important to understand the differences if you want to reach your financial goals.
Luckily, we are here to help! In this article, we will discuss the differences between the terms rich and wealthy. We will also discuss why understanding the distinction between them is important. So, if this is of interest to you, read on for more!
Also read:What Is ACH Payment?
Rich: What Does It Mean?
First, to understand the differences, we need to define what each term means. To put it in simple words, to be rich means to have money. However, this does not necessarily mean that they understand money. A rich person earns a lot of money and they own many things. However, they often have very high costs of living or many expenses to pay which makes the money that they have far less sustainable.
To be rich is to be defined by your “status” and income.
However, there is a limited amount of time that a rich person will have that money, and this can change from rich household to rich household. So, even though a rich person is in a great financial position, it is temporary and therefore quite unstable. To put it simply, rich people have not truly achieved independence financially.
So, you may find that many rich people are in debt or still living paycheck to paycheck, but the amount of money on the paycheck is simply higher than the average person.
For example, winners of the lottery are people who find themselves to be very rich very quickly. They can suddenly afford a new lifestyle and their quality of life jumps up. However, their expenses will increase over time and if they have no other means of income, their lifestyle is unsustainable. Even with their new riches, they do not have financial freedom.
Also read: How you can Calculate Retained Earnings
Wealthy: What Does It Mean?
All rich people are not wealthy, but every single wealthy person is rich. To be wealthy, a person must not only have a lot of money but must also know how to manage it. This means they are creating a sustainable lifestyle for themselves and can enjoy their riches without any time limitations.
Wealthy people, now that they have obtained their riches, will not spend their time living lavishly and recklessly spend their money. Instead, they will spend their time working out how to increase their riches to extend their wealth well above their means.
This means that they will spend a lot of time making investments to become even wealthier over time. They will also spend time trying to maximize their income streams and focus on growing their net worth. Wealthy people are financially independent.
When someone is rich, they’ll make sure you know about it. However, when someone is wealthy, they are not as flashy and will not show off their wealth as much, meaning you may not even realize how much money they have just by looking at them.
Also read: What is Annual Income?
What Is The Difference Between Being Rich And Being Wealthy?
To summarize all of the above, being rich and wealthy means having enough money to live a lavish lifestyle. However, rich people are not truly financially independent, because there is a time limit on their money and they will often not plan financially to make their money last, meaning it will run out. Rich people often live paycheck to paycheck and show off their lifestyle.
However, wealthy people are financially independent and will have many strategies in place to maintain their wealth, such as investments. Wealthy people will also create multiple streams of revenue, and are less flashy with their money, so you may not even realize they have it.
Also read: Raise Your Credit Score
Why Is The Distinction Between Rich And Wealthy Important?
The distinction between rich and wealthy is important because when you enter the personal finance industry you want to ensure you are engaging in sustainable practices to ensure your wealth is going to last. Many people have the idea of “getting rich” and living a lavish lifestyle but have no idea how to make their money last.
However, if people focused on becoming wealthy instead, then they will almost guarantee financial security and independence for themselves and their families. They will also learn how to be disciplined with money and see just how valuable it is to save your money and generate income for security, rather than spending it all on a flashy lifestyle with little substance.
What Is The Best Way To Become Wealthy?
There are many great ways to become wealthy. However, it is important to remember that wealth is never a guarantee and you will need to ensure your expenses are always lower than your income, as well as ensure you are leaving time for your investments to garner interest.
Here are some ways to try and generate wealth!
Save Money Each Month
Begin by saving 10% of your income, and then build a bank account worth around 3 to 6 months of your living expenses. You can do this by trying to increase your income or decrease your expenses. This method requires a lot of discipline.
Get Rid Of Any Debt
If you want to build your net worth, then you need to remove any accumulated debt as quickly as possible. You can also pay above the minimum amount of student loans or credit cards.
When you are close to being debt-free, you can begin to invest. Invest as much as you can as soon as you can. This way, maximum interest will flow and this is much better long-term.
Also read: How To Apply For a PPP Loan
Being rich is to have a lot of money but living recklessly and unsustainably, showing off a luxurious lifestyle. However, to be wealthy is to accumulate wealth by investing your money and having multiple streams of income, so you are financially independent and almost guaranteed security. An individual should aim to be wealthy, rather than rich.
Your check stubs can be used as part of tracking your finances, use them to your advantage.
Create Your Pay Stub Now!
It takes an average of less than 5 minutes.