This article/post contains references to the products or services of one or more advertisers or partners.We may receive compensation for clicking links to these products or services
![wealthy versus rich](https://investorjunkie.com/wp-content/uploads/2022/11/Shutterstock_211037998-300x173.jpg)
High net worth and high net worth – aren’t these two terms for the same thing? Maybe. But maybe not.
Indeed, both terms describe financial conditions at the individual or national level. And if you ask most people, they want to consider themselves rich and wealthy.
But the similarities are mostly superficial. Let’s delve into the differences between the rich and the wealthy and what separates them.
short version
- The rich and the wealthy may look alike, but the two have vastly different incomes, assets, spending patterns, and liabilities.
- The rich may appear wealthy, but the term primarily describes the group of people who live at the top of what we loosely call the “middle class.”
- Wealthy people own income-generating assets and live on those assets rather than on their earned income.
- It is possible for people of average means to become richer by following the same habits and lifestyles of the wealthy.
Wealthy vs Wealthy: What’s the Difference?
The best illustration of the difference between the rich and the wealthy is a conversation I had with a wise friend a few years ago.
We were driving through a neighborhood that could be described as wealthy by almost any standard. I commented that the neighborhood represented “real wealth”.
My friend immediately disputed my assessment.
“No,” he replied quickly. high incomeThere is a difference between the two. ”
That was the first time I touched the difference between the rich and the rich. I hadn’t really thought about it until then.
At least superficially, the rich have many of the same characteristics as those with true wealth. Rich people and wealthy people can look alike to untrained people. But underneath the surface, they’re nothing.
A snapshot of what it means to be rich
An affluent lifestyle places individuals, couples or families in the upper middle class. They are more successful than most others in this category, but they are still very much middle class.
? Income
Rich people are high earners, but they live on their current income. It can be income earned, gifts from wealthy parents, or even financial windfalls such as legal settlements or the sale of real estate.
? assets
Wealthy people generally own consumer assets. This may include primary residence, vacation homes, latest model vehicles, recreational equipment, and jewelry. “McMansions” are often a must-have.
? consumption patterns
The rich usually “invest” in consumption. This includes all the usual suspects, such as expensive vacations, frequent dining out, participating in expensive hobbies, and splurge on a constant stream of the latest and greatest.
? debt
Make great use of numbers in a rich lifestyle. Large mortgages are used to purchase McMansions, but multiple car payments are not uncommon, not to mention high levels of perpetual credit card debt.
This debt can actually put the rich in a precarious financial situation, but the consumer goods and luxuries make them look wealthy.
A snapshot of what it means to be wealthy
While the rich focus primarily on the appearance of prosperity, wealth represents their true essence. For example, wealthy people live in luxury apartments and wealthy people own the buildings.
? Income
The rich live on the income from their jobs, but the rich live on their assets. This could include income from passive business income, rental properties and investment portfolios. Wealthy people may look like traditional jobs, but they are usually in a position of dominance and are not dependent on the income it provides.
? assets
This is perhaps the fundamental difference between rich and wealthy. Wealthy people tend to accumulate large asset bases, resulting in very generous net worths. But instead of investing in consumer goods, HNWIs invest in income-generating assets. This includes companies, income properties, stocks and bonds.
? consumption patterns
Many wealthy people live as much or more than wealthy people, but that’s usually not the defining motivator. For example, they may not be interested in buying his McMansion. Warren Buffett famously lived in the same house he bought in 1958, even though he later became a multi-millionaire.
? debt
When wealthy people use debt, it is usually used to buy income-generating assets. And they tend to be the type of assets that generate positive cash flow despite their liabilities.
Which is better, being rich or being wealthy?
The answer to this question is subjective, but I’m sure most people think being wealthy is the better option. That’s because wealthy people have more control over their income and assets and are usually the final decision makers in their lives.
The rich may look a lot like the rich in the eyes of the non-rich, but they often carry most of the stresses associated with middle-class life.
For example, job security is always a threat because the rich depend on their jobs. In fact, for most members of the middle class, it may be even more serious as well-paying jobs are not as common as middle- and lower-income jobs.
The rich also have the stress of inadequate financial security. Not only are they seemingly prosperous, but even the wealthy live in heavy debt and have relatively few income-generating assets, making their futures much like those of the middle class. You can easily worry about
Finally, rich people tend to be overly concerned with their lifestyle simply because they are top of the upper middle class. They may have consumption patterns that limit their ability to build long-term wealth.
In contrast, those who are truly wealthy tend to be uninterested in flaunting their lifestyle, and competition with others is not a significant factor. After all, once you can comfortably live without a job, you naturally become less concerned with social trends and consumer patterns.
How to get rich from where you are
In addition to being curious about the differences between the rich and the wealthy, I believe this is why you clicked through this article and read all the way here.
With that in mind, below are common multi-step strategies that can help you get wealthy from where you are. Gradually get closer to the wealthy camp than the rich.
1. Practice living within your means
Learn to live on less than how much you earn. Having a budget will help you achieve that.
This is actually the most important strategy if you want to practice the pattern of the wealthy. I can.
That way, you can get enough income from your assets to accelerate the day when you can quit your job. This is a true sign of being wealthy.
read more >>> Budgeting Strategies — Which is Best for You?
2. Stay away from popular consumption patterns
You don’t need the latest and greatest toys and widgets. Refraining from them will help you live within your means.
3. Be a devoted saver
Start by saving 5% of your salary. Gradually increase the percentage with each raise. The higher your savings rate, the closer you are to wealth. 10%, 15%, 20%, or more are worthwhile long-term goals.
By depositing in the bank rather than spending the windfall, you can revitalize your savings and investment efforts. And if you’re really ambitious, develop a side hustle or hone your work skills to put yourself in a better position to get a higher paying job or promotion.
read more >>> Best High Yield Savings Accounts for 2022
4. Start investing as soon as possible
Make sure you have enough emergency funds to cover 3 and 6 months of living expenses. Then invest everything else. No need to be elaborate. Dollar cost averaging to index funds does the job.
The sooner you start investing, the better. Your investment portfolio grows faster and broader. Therefore, you should avoid delaying the decision to start investing until “someday”. For the wealthy, someday is always today.
Also, don’t worry too much about the return on your investment. Yes, there will be years when financial markets generate negative returns. But statistically speaking, years that produced positive returns outnumbered negative returns by about 2 to 1. You play average in your investments—not looking for a magic formula.
read more >>> How to Invest in Index Funds: Do It Right
5. Avoid and eliminate debt
Outside of your primary residence and car, you should avoid debt. If you need debt to shop, admit that you can’t afford everything you want.
Whatever debt you have, whether it’s a mortgage or a car loan, have a workable plan to pay it off ahead of schedule. The less debt you have, the more control you have over your income and the more money you have available to save and invest.
read more >>> what’s next?A Guide to Setting Long-Term Goals After Paying Off Debt
Lesson Learned: Anyone Can Start Making Wealth
If you’re worried that you’re not “rich,” it might be time to put those worries aside and aim higher. After all, the rich are still middle class, just higher numbers.
Instead, focus on getting rich. That doesn’t mean you can’t be a millionaire, or even a millionaire, and fail. Adopting the strategies and habits of the wealthy is a reward in itself. At least you will be richer than you are now and it will be worth the effort.
More reading for the rich and famous: