Rich Vs Wealthy: Are They Really Synonymous?

People often use the terms “rich” and “wealthy” interchangeably, but are they the same?   synonymous

This article explores the rich vs. wealthy dichotomy and what it really means. Keep reading to find out: 

• What it means to be rich   
• What it means to be wealthy
• The difference between being rich and wealthy
• The wealthy mindset
• How you can become wealthy 

Rich vs. Wealthy: Are Rich and Wealthy the Same Thing? 

In the eyes of many, wealthy and rich are not synonyms. That’s why the rich vs. wealthy meaning debate is so intense. Instinctively, people know that there is a difference, but they can’t articulate it very well.                      

One of the best rich vs. wealthy quotes comes from Robert Kiyosaki of Rich Dad, Poor Dad fame. He says that “the rich have lots of money, but the wealthy don’t worry about money.”

In other words, a rich person has money for a short period of time, but a wealthy person has sustainable money.               

Suppose you have two people, both with $2 million in their bank account. Under this definition, you could label one as rich and the other as wealthy.      

The “rich” person in this example would be the one who spends all their money on consumption. For instance, they might buy lavish cars, luxury holidays, expensive food, and other consumables that lose value over time.                    

By contrast, the “wealthy” person would be the one who lived more modestly. They would invest the $2 million in productive assets, such as real estate, stocks, bonds, businesses and private equity, to generate an income. They would then be able to generate perhaps $200,000 per year from the capital, whereas the rich person would see theirs whittled away.      

Another angle in the well off rich vs. wealthy debate is that the wealthy know how to make more money, whereas the rich and merely well off don’t.                

Imagine you have two people with a net worth of $10 million. One achieved that figure by growing a successful business, while another did it by playing the lottery.             

Under the definition of a wealthy person as “being someone who knows how to make money,” only the business owner is wealthy. The lottery winner knows nothing about making money, building an enterprise, or investing in the stock market. They just gambled and won, so they are rich.              

Therefore, asking “who has more money: a rich person or a wealthy person?” doesn’t make a lot of sense under this definition. Both can have the same amount of money, but the wealthy person is less likely to lose it over time. 

What Does It Mean to Be Rich?  

Americans define “being rich” as having a net worth of around $2.4 million. That amount of money affords a passive income of approximately $100,000 per year under the 4% rule.     

Very rich meaning is somewhat difficult to define. In the US, there are different tiers of “rich.” 

• To be a high net worth individual, you need $1.5 million in total assets and $750,000 in investable assets.              
• To be a very high net worth individual, you need a net worth of around $5 million. 
• To gain ultra-high net worth status, you require around $30 million or more in investable assets.  

With concerted effort and sacrifice, most people can become high net worth individuals in the US. However, to become this rich from scratch, you’ll need to think like a wealthy person—a topic we discuss below.                             

Practically speaking, what it means to be rich really depends on who you ask. However, some general principles apply in most cases. Financial independence—the ability to escape reliance on an employer, family member, friend, or benefactor—is a recurring theme. Rich people are financially free and comfortable (at least for a time).               

They can make decisions without having to consider the money. For instance, that might mean being able to:           

• Take a break from work whenever you like without it affecting your lifestyle
• Retire early   
• Walk away from a job with no financial consequences
• Invest more time in passions and hobbies   
• Walk away from an unhappy relationship or marriage 

According to financial planners, being rich also means being able to meet all needs and wants. A person who has a lot of money has more chances of meeting their life aspirations and goals. They can plow money into projects that other people simply couldn’t afford.   

What Does It Mean to Be Wealthy?  

When pondering the meaning of wealthy vs. rich, the easiest distinction is to look at their spending habits. Rich people focus on income and expenditure, while wealthy people focus on assets and liabilities.                       

Let’s say, for instance, that a rich person earns $200,000 per year and spends $220,000 per year. Compared to the average person’s income, they are doing extremely well. However, because of their expenditure, they are accumulating $20,000 of debt per year. After five years, their net worth is actually −$100,000, not including any interest charged by creditors!                    

Now take a wealthy person earning the same salary. They spend $20,000 per year and save the remaining $180,000. After five years, they have a net worth of $920,000, again excluding interest earned in the interim. They can now use their surplus to generate even more income. For example, a stock market investment of $920,000, earning 8% per year, will generate a passive income of $73,600 every 12 months going forward.                             

As you can see, the rich vs. wealthy divide is stark. The meaning of a wealthy family or person is the individual who doesn’t touch the principal. Instead, they grow their assets over time to generate higher income in the future.          

Instead of focusing on profit and loss (income and expenditure), they take note of their net position, comparing their assets to their liabilities. What interests them most are income-generating assets since these provide a stream of cash over time (which they can then spend or reinvest).                      

This chimes with the definition of wealth in economics. Wealth, according to economists, is the accumulation of valuable economic resources, measurable in terms of tangible goods or money. It directly relates to the net worth of the person.    

Wealthy synonyms such as affluent, well-to-do, propertied, and moneyed don’t capture what wealth really means. At root, it is a fundamental understanding of making money and ensuring sustainable passive cash flows.      

Of course, definitions of wealth change from culture to culture. Wealthy meaning in Urdu is different from in the US, for instance.     

You can also define wealth in non-financial terms. Other wealth examples include a person who has achieved inner peace, wisdom, and health may also be considered wealthy. 

You could also have somebody with low net worth but a great lifestyle as wealthy. For instance, a person with a $300,000 net worth generating $30,000 in passive income every year is better off than somebody going to a nine to five job, 48 weeks of the year, to earn the same income after tax.         

The Differences Between Being Rich and Wealthy

So, summarizing the discussion so far, a rich person is somebody who has a lot of money in their bank account right now. In contrast, a wealthy person uses their money to generate cash flow in the future. 

Check out the various rich and wealthy differences in the following table: 

Rich people: 

• Spend money on consumer goods, such as cars, holidays, food, and gadgets.
• Primarily consider income as the definition of financial success.  
• Do not understand how investments, business, or compound interest works.    
• Often lose their money over time because of imprudent financial strategies.
• Have high incomes but don’t increase their net worth over time. 
• Regularly go into debt to finance consumption.     

By contrast, wealthy people:    

• Spend money on assets that generate future cash flows, including rental homes, corporate equities, private equities, and bonds. 
• Primarily consider having a certain net worth as the definition of financial success (say, more than $750,000 in investable assets).  
• Have a good understanding of how business, investments, and compound interest works.
• Keep their money over time through financial responsibility and sound investment strategies.    
• Focus on increasing returns to capital rather than boosting labor-derived income.
• Never go into debt to finance consumption.        
• Use leverage to buy real estate (and sometimes financial assets) when the time is right to do so.       

Wealthy Mindset

As you can probably see, there is a big difference between being rich and being wealthy. Most people would prefer to be wealthy: create sustainable cash incomes that don’t involve trading your time and labor.          

The key to this is developing a wealthy mindset. But how do you get one? The following are seven steps to developing a wealthy mindset:     

1. Commit to being wealthy: change how your brain works and get out of the unconscious belief that you will always be poor. 
2. Set out what wealth is to you: don’t fall into the trap of chasing ever more money. Write down what being wealthy would mean to you so that you have something to shoot for.   
3. Make small changes to your life: as the Daoist sage Lao Tzu once remarked, “a journey of a thousand miles begins with a single step.” Doing the little things today will produce significant results in 10 to 20 years.       
4. Reduce your expenditure and become comfortable with less: you need a surplus of your income to build wealth. If you don’t have any money left over at the end of the month, you have nothing to invest. You must consistently and sustainably invest over the long term to build substantial wealth in the future.   
5. Give yourself a “why:” some  motivations for wealth could be financial freedom, being able to travel, not having to worry about money, or quitting your day job.     
6. Never give up: wealthy people don’t stop until they achieve their goals. Sometimes, in doing so, they make significant sacrifices. They live in small houses and don’t buy cars. They work weekends and holidays, and they avoid going on vacation, sometimes for decades at a time.                   
7. Don’t dwell on failure: lastly, the route to becoming wealthy is rarely a straight line. Instead, there are numerous ups and downs along the way. When wealthy people make mistakes, they accept them and move on.   

Millionaires have a particular way of approaching money. Wealthy mindset examples include: 

• Focusing on results, not what they hope might happen
• Engaging in productive routines that make success more likely
• Avoiding working for money and instead leveraging capital, people or technology
• Using mentors to support their ongoing success   
• Looking for new opportunities to leverage their existing wealth for even greater success in the future 
• Delaying gratification and waiting for rewards to arrive

Billionaire wealth building mentality tends to be slightly different again. These individuals tend to believe in abundance—the idea that there are almost infinite resources available. They also tend to have a deep passion for their work and innate confidence in their ability to perform it. Again, these differ from the characteristics of a millionaire mindset where hard work and sacrifice take center stage.            

Robert Kiyosaki wrote a rich vs poor mindset book: Rich Dad, Poor Dad. His “poor dad” worked in a regular salaried job and put a little bit of money into his pension pot every year, while his “rich dad” funneled all of his resources into assets and leveraged up using debt. In it, he identified the key difference between wealthy people and those who are just getting by: the wealthy accumulate assets, whereas the poor don’t.    

Once you achieve a wealthy lifestyle, you will do things that you couldn’t do before. The main benefits are:   

• More time away from work doing what’s important
• Psychological security from having more money
• Ability to engage in new projects  
• Buying everything that you need without having to earn money first

How You Can Become Wealthy 

Learning how to get rich from nothing is possible, but you have to get your approach right. How to get rich in 2021 is different from even 10 years ago.   

Becoming wealthy is generally a long game. Most millionaires take 28 years to reach that milestone.        

However, you can take shortcuts. Here’s how to become wealthy in five years: 

• Live off a very small portion of your income (usually less than 30%)
• Eliminate all debt  
• Invest the excess in high-return assets, such as a diversified portfolio of stocks

Learning how to become rich from a poor background is great for people who don’t have any wealth in the family. Here’s how to do it: 

• Improve your skills and educational background
• Offer companies short-term, free internships that allow you to showcase your skills
• Earn a regular salary and live well below your means 
• Invest excess income in tax-advantaged interest-bearing assets
• Set up a business that generates cash    

Here’s how to get rich with a normal job: 

• Ensure that your job is secure
• Allocate a large chunk of your income towards investments for a decade or more
• Wait until interest from your investments dwarfs the amount that you can save yearly through your salary

If anyone tries to teach you how to become rich overnight, ignore them. Get rich quick schemes only work on rare occasions and usually by accident. 

In Conclusion

In this article, we went into depth on the rich vs wealthy debate. We discovered that they are two different things. Rich people focus on income, while wealthy people focus on their net asset position. The rich spend money while the wealthy invest it to increase passive income flows in the future.