Rich vs Wealthy: What’s the Difference and Why Does it Matter?
Most people may assume that “rich” and “wealthy” are synonymous with each other. After all, they both mean a person has money, right?
However, there’s an odd — but important — distinction between the two: being rich means you have money, whereas being wealthy means you don’t have to worry about money, at all.
For example, people that make six or seven figure paychecks — doctors, computer technicians, CEOs, etc — are people that are rich. They have a lot of money coming in, but they still have to pay bills, be smart about their spending, and they might even have student loans they still need to pay off.
On the other hand, people like the Koch brothers, Jeff Bezos, and Bill Gates are wealthy. They have made so much money in their lifetime (or, as in the case of the Koch brothers, were born into so much money) that they don’t even have to stress about it. Essentially, they have so much passive income, that they can make money even while they’re on vacation or sleeping.
The difference between rich and wealthy might be semantics and based on social concepts, but it’s still important to understand. What does it mean to be rich, what does it mean to be wealthy, and what can this distinction teach you about money and personal finance?
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What Does “Wealthy” Mean?
Does wealth mean having a specific dollar amount, or is it a state of mind? Many argue that it’s the latter, but ultimately being wealthy means you have a lot more financial freedom — no matter how much money you make. You don’t have to worry about living paycheck to paycheck, and chances are you can go many days without working, and it won’t ultimately hurt your bank account.
For some people, being wealthy doesn’t mean they have the amount of money that Jeff Bezos or Bill Gates has, but just that they have enough money to live very comfortably and feel wealthy. One of the most common quotes that you can find about wealth is this: “Wealth is measured in time, not dollars.” In other words, feeling wealthy simply means you have more time to do what you love. Those who work for an hourly wage may live with a tension between how they would like to spend their time, and how much time they must sell for income. This can make wealth of time elusive, since their time is earmarked for work to make ends meet.
The Definition of Wealth
For many people, wealthy is often seen as a specific number. However, being wealthy — possessing true wealth — is actually much simpler. Wealthiness is defined as the number of days you can spend not working and still sustain your desired standard of living. It’s all about your ability to sustain your lifestyle, and not about what you can buy or what you can do with your money.
Wealth is all about security and time, and having the ability to simply exist off of what you have. Some people consider themselves wealthy when they’ve retired: they’ve saved up enough money and downsized to the point where their retirement savings are just enough to sustain them for the next 30 or so years, and they no longer have outstanding debts. Sure, they still have to pay utility or tax bills, but they don’t have to work, and they don’t have to stress about not having enough money. They’re wealthy simply for being able to live comfortably.
Another example is when someone can sustain themselves on their investments. Say a person has about a million dollars that’s invested in the stock exchange. If they only take out about 4 percent every year, and keep the rest invested to accrue compounding interest, then they can still sustain themselves on about $40,000 a year. The money they have invested will grow at a higher or equal rate to what they are pulling out, so they will be able to live comfortably as long as their investments continue to grow and they’re smart about their spending.
Wealth doesn’t always have to be about an exact money amount, it just has to be about living comfortably and the amount of time you have to do that without working. Assets, security, lack of debt, and having family money can all help a person sustain a wealthy lifestyle, but wealth is entirely measured on your free time.
Having Wealth Versus Income
Having an income can help you become wealthy, but being wealthy does not mean you have an income.
There are quite a few people that are born into wealth, and many will never have to work a day in their life. They can be wealthy and have no income or job. The money that they have can sustain them.
However, there are also people who will work the majority of their life, make a large paycheck, and will properly save a portion of their income for retirement. Once they retire, they can have enough money saved up to allow them to be wealthy for decades. Their income helped them get there, but they no longer need an income when they’re wealthy.
Of course, there are also many rich people that have passive income, or the sort of income that comes from investments and business growth. Jeff Bezos is a perfect example of this, as he can make billions of dollars every hour of the day — without lifting a finger. He also came from a family with a lot of inherited wealth. He simply is wealthy, and it’s almost as if his income works for him, as opposed to him having to work to earn an income.
Then there are also those that are arguably rich, but are still working. Their income is needed to sustain their lifestyle. Without it, they may only last a few days or months before they have to go back to work again.
What is Considered “Rich?”
Many people may aspire to be rich someday, but what they should really aim for is to be wealthy. Even rich people — those that make large sums of money every paycheck — can struggle to make ends meet if they don’t work. They may have high incomes, but that doesn’t mean they can sustain themselves for very long if that income suddenly dries up.
There are business owners who will work for decades to ensure that their cash flow is steady so that they can retire early and start to live a wealthy lifestyle. But there are also those that will work hard, become rich, but then squander all of their money on glitzy purchases and eventually run themselves into insurmountable debt. There are far too many celebrity stories of people doing just that: making a lot of money in a short amount of time, and then quickly losing it by not being responsible with their spending.
Unfortunately, being rich can still mean you have bad credit, no assets, and not a lot of wealth. That doesn’t mean rich people are incapable of becoming wealthy, just that the two words are not as synonymous as they may seem.
Luckily, there’s a lesson to learn from all of this: you don’t have to be making a substantial income to become wealthy. Wealthy is a state of mind, and you can be wealthy simply by being comfortable with the money you have and the lifestyle you have. You don’t have to be a millionaire to be wealthy, and many millionaires will come to find that having money doesn’t mean they are wealthy.
What is a Millionaire?
In the 80’s and 90’s, being a millionaire meant you were one of the richest people in the world, with at least a million dollars to your name. However, politicians often refer to millionaires as those that “make a million dollars” every year, but not those that simply have a million dollars to their name. Now some of the richest people in the world are billionaires, trillionaires, and quadrillionaires! Here’s that drawn out for scale:
- Millionaire (6 zeros): 1,000,000
- Billionaire (9 zeros): 1,000,000,000
- Trillionaire (12 zeros): 1,000,000,000,000
- Quadrillionaire (15 zeros): 1,000,000,000,000,000
Unfortunately, being a millionaire no longer is synonymous with being rich. Plus, a million dollars in assets now is not as much as it was 50 years ago. As NPR noted: “Even 50 years ago, $1 million was worth a lot more than today: In 1961, $1 million had the same buying power as $7.5 million today.” So the definition of millionaire is changing, but so is the buying power of a million dollars.
However, as described above, you can be wealthy as a millionaire if your lifestyle is kept in control. Wealth is all about being able to sustain yourself and enjoying the time you have to do what you love with the money you have. With that in mind, would you consider yourself wealthy, or are you still on the path to finding wealth?
The best thing you can do is start saving now, working on budgeting and controlling your impulse purchases, avoid overspending, cut back on your outstanding debts as soon as possible, and ultimately find a balance between the life you want to live and the life you can afford. You don’t have to be rich to be wealthy, but when you’re wealthy you’ll have all the time in the world to enjoy your riches.
Image Source: https://depositphotos.com/
Katie McBeth is a researcher and writer out of Boise, ID, with experience in marketing for small businesses and management. Her favorite subject of study is millennials, and she has been featured on Fortune Magazine and the Quiet Revolution. She researches SEO strategies during the day, and freelances at night. You can follow her writing adventures on Instagram or Twitter: @ktmcbeth
This post was updated November 8, 2018. It was originally published November 8, 2018.