The main difference between being rich and being wealthy is that rich people generate short-term riches they spend on material possessions while wealthy people generate sustained wealth they invest in appreciating assets. Rich people measure success by the amount they spend while wealthy people measure success by growth and their relative level of happiness.
However, you can also become wealthy in other ways, such as earning “time wealth”, which represents the freedom to pursue your hobbies or passions. In this article, we discuss the similarities and differences between rich and wealthy, including how to define wealth as well as how to achieve it.
The Difference Between Rich & Wealthy
When someone says they want to be “rich”, what they’re really saying is they want to spend a lot of money. Conversely, when someone says they want to be wealthy, they typically mean they want financial freedom so they can invest in the things that matter to them. You can see how they’re different and yet can see how easy it is to confuse the two.
You see, being rich is all about material possessions. It’s about driving fast cars, taking lavish vacations, and sleeping in big houses. What being rich doesn’t consider, however, is relative level of happiness, placing more weight on the value of things. For example, if you lease a sports car but need to keep an 80-hour a week job to make the payments, you feel rich, but is it worth it?
To some, yes, but to many, no way. On the other side of the equation is wealth, which is all about quality of life. Wealth takes into account things like emotional control and abundance, location-based freedoms, financial success, and the amount of free time available to you as key measures of success. For example, if you start a business that requires a few hours of work but pays your rent, you can’t lease that sports car, but you’re probably happier overall.
This is because wealth is all about sustained abundance. It’s a multi-pronged approach to life that takes money into account, yes, but only so much as a resource necessary to achieve the types of successes you want. It’s the act of achieving your unique version of freedom so you can build the type of life you desire – financial, location, emotional, and otherwise.
How to Become Wealthy in 6 Steps
Becoming wealthy is the act of identifying what matters to you and achieving the freedom necessary to pursue those interests. Things like travel, networking, personal relationships, meaningful work, and more are all things that make people wealthy. However, while many believe you need to get rich first, wealth is more about lifestyle design than anything else.
You can become wealthy by following these six steps:
1. Define What “Wealthy” Means to You
The term wealthy can mean different things to different people. While “rich” is pretty standard across people – i.e. if you want to get rich, everyone knows you want to make money – wealth is measured in sustained levels of happiness and is therefore unique to the person.
For example, some people might love working a low-key job that never worked them past 5pm, never required take-home work, and always approved their vacation requests so they could spend quality time with their family. Others might love working fast-paced jobs that are challenging and force them to consistently grow and evolve. Wealth is the relative level of happiness gleaned from each of these jobs – one would be more wealthy for each.
When becoming wealthy, define your wealth in the following four ways:
- Financial – What does financial success look like to you? Some people really do want to drive nice cars and earn big paychecks, which is totally fine. Others, however, want something as simple as a few thousand in recurring dollars each month that covers rent.
- Emotional – Assess the level of control over your emotions, whether they spike or remain smooth, as well as the source of your positive emotions. What makes you happy and emotionally stable? Often, it’s meaningful work and relationships.
- Location – What does true freedom look like for you? Are you more of a homebody, looking to invest time in a community, or are you more of a rambler, wanting to travel and live in many different places?
- Reciprocity or value – How valuable do you feel to the people in your life? How do you give back to them? Giving back is one of the best ways to generate happiness.
I consider these the four pillars of true wealth. If you’re interested in better designing your life, check out my book, The New Meaning of Rich, which includes tips on how to identify what matters to you and how to go get it.
2. Start a Business or Invest in Private Equity
Look, while wealth isn’t all about money, you can’t really live in today’s world without it. In fact, much of becoming wealthy is finding out exactly how to achieve some level of financial freedom so you can invest your time in the things you actually want, rather than working for a paycheck. The good thing is there are many ways to generate enough income to become wealthy, and you don’t even have to be rich to do it.
The best way to achieve financial freedom so you can pursue your interests is to start some sort of business or invest in someone else’s private equity. The idea here, from a financial perspective, is that you need to either generate enough recurring cash with low maintenance to cover your lifestyle, or achieve a windfall like a lump sum payout when a company is sold.
In fact, according to M.J. DeMarco of The Millionaire Fastlane, you can have both. A great approach, albeit a challenging one, is to start a business that doesn’t take up much of your time, generates recurring cash flow, and also grows in value so you can sell it eventually for a lump sum. The idea here is to achieve financial freedom, either through recurring income or a large windfall so you can pursue the types of wealth you identified in step one.
3. Invest in Real Estate & Public Equity
Once you have some cash coming in, it’s time to start making your money work for you. The best way to do that is to invest in appreciating assets like real estate and stocks to grow your nest egg over time and give you continued financial peace of mind so you can focus on what matters.
However, remember that not all appreciating assets are sure things, and always assess your risk tolerance threshold, setting aside a rainy day fund that grows in proportion to your overall net worth. This rainy day fund should consist of cash and cash equivalents like government bonds as well as cash in high-interest savings accounts. This ensures you’re never over-exposed and lose the freedom you’ve gained.
4. Use Existing Retirement Accounts
Once you have your financial machine going, a combination of a lump sum nest egg and rainy day fund mixed with incoming cash flow streams, it’s time to hedge your bets a little more and invest in retirement accounts. I say hedge because retirement accounts aren’t the end-all-be-all of safe retiring. Instead, they’re another tool in the financial toolbelt, a tax-advantaged account you should use within your larger wealth-building strategy.
I think of retirement account as outsmarting my future self. For example, if I make a bad bet or if I somehow become financially unfrugal and overextend myself, I know I have a future nest egg waiting for me. In this way, I don’t count on my 401(k) for retirement alone, but rather use a holistic approach that ends with freedom of time and peace of mind far before retirement age.
5. Create a Schedule That Allows for Free Time
So, now that you’ve achieved financial freedom, it’s all about giving yourself the gift of time. You see, even people who don’t need to worry about finances anymore often can’t get off the treadmill, deciding to stay spinning on their hamster wheel even when they don’t have to.
Now, maybe your work truly is your passion and your source of wealth. If so, great, but be honest with yourself. Because if it isn’t, then it’s about time you shift your focus and invest your efforts elsewhere. Assess the amount of time you need to free up in your schedule to pursue your unique meaning of wealth. Then, create a system that frees up that time so you can achieve the highest level of happiness possible.
6. Pursue Your Meaning of Wealth
Now that you have the financial freedom and time to spare, you can pursue your unique meaning of wealth. Whether that be traveling or staying put, buying clothes or giving them away, or anything in between, you now have a lifestyle designed so you can do it. Remember that you don’t need to be rich to live the life you want, all you need to do is be intentional, and then go out and get the wealth you deserve.
How to Identify if You’re Becoming Wealthy
Wealth can be defined in any number of ways. Ultimately, becoming wealthy is the act of defining what happiness means to you, and then generating enough sustained income or a large enough lump sum to achieve that happiness. For some, this means becoming a millionaire or building generational wealth. For others, it might be as simple as $5k in passive income which will generate wealth in the form of free time.
To help you identify if you’re wealthy, consider the following:
- You have enjoyable hobbies and the time/means to pursue those hobbies passionately
- You have enough money to weather rainy days
- You invest your additional income or funds in appreciating assets
- You are focused on generating passive income as well as multiple income streams
- You are happy and content with life and confidently pursuing your overall life vision
The bullets above are a good starting point if you want to verify if you’re on the path to wealth. However, this is only a short list, and the ways you can verify wealth can be endless and dependent on your definition of what it means to be “wealthy”. Ultimately, if you have appreciating assets and enough time to pursue your dreams, you can consider yourself wealthy.
Frequently Asked Questions (FAQ)
What is the Definition of Wealth?
The dictionary defines “wealth” as an abundance of valuable resources. When people talk about building their wealth, what they’re saying is that they want to build or invest in a set of appreciating assets, giving them freedom. Unlike being rich, becoming wealthy is the act of creating sustainable cash flows rather than spending money on material possessions.
What is the Definition of Rich?
The dictionary defines “rich” as having a lot of money or possessions. This means that a person is typically considered rich if he or she has a lot of money. However, people can also be considered rich if there’s a perception that they have a lot of money. Therefore, the idea of becoming “rich” is an unmeasurable threshold based on some undefined level of monetary assets, meaning that it’s never fulfilling or satisfying.
Is Rich & Wealthy the Same Thing?
When a person says they want to be rich vs wealthy, what they’re really saying is that they want to spend a lot of money. They want to flaunt their “abundant possessions” and “material wealth” so everyone knows how much cash they have (or pretend to have). And that’s all that being rich really is: the ability to flaunt material possessions.
The definitions of both rich vs wealthy contain the word “abundance.” But while becoming rich is the act of spending money on material abundance, becoming wealthy is the act of using existing resources to create new resources. This means that people who become wealthy don’t invest in motor vehicles, but rather investment vehicles that appreciate in price as well as pay dividends, giving them more freedom over their lives and their actions.
Who Has More Money, a Rich Person or a Wealthy Person?
It depends. A rich person might have a lot of things like a fast car and a big house, but that doesn’t mean he or she is happy. Conversely, a janitor could make minimum wage and be happier than a millionaire. There’s no correlation between rich vs wealthy. In fact, you can have a lot of money and be wealthy too, as long as you do it the right way.
What is the Net Worth Needed to Be Considered Wealthy?
If you simply focus on the numbers, a wealthy person has a total net worth between 2-3 million dollars or more. However, remember that wealth is defined by you, and you can also be wealthy in other ways, such as gaining time wealth and the freedom to pursue your hobbies, passions, or dreams.
Conclusion: Rich vs Wealthy
The key to building wealth isn’t a desire to become rich. In fact, it’s quite the opposite. Because while “big ballers” talk about being filthy rich and blowing cash, smart people are quietly building sustainable wealth in the background. This is due to the fact that true wealth is created by investing in the things that matter.