When asked to describe a person with a lot of money, people often use one of two terms: rich or wealthy. Interestingly enough, the word we end up choosing almost always depends on how we perceive that person. A “rich” individual is easy to identify by the size of their house, the make and model of their car, the cost of their wristwatch, etc.. The term “rich” is used by a person who can identify the tangible items another has. On the other hand, a wealthy person does not always have the newest shoes, a lake house, or membership to a prestigious country club. A “wealthy” individual can be a bit tougher to identify. With this being said, there is one important distinction between rich and wealthy. We know with 100% certainty that a “wealthy” individual has lived below their means. That may not always be true with an individual described as “rich”.
Money is a powerful tool, but without the right amount of frugality and guidance, it can be a double-edged sword. We unfortunately see this all too often with celebrities and athletes who are given an incredible amount of money, sometimes before it is even earned. What happens between signing the dotted line and bankruptcy is due largely in part to a hyperinflated ego and desire to “keep up with the Joneses”. The same concept applies to individuals working normal jobs. Everyone can be susceptible to an inflated ego when receiving a large paycheck. The challenge “rich” people encounter is a struggle to live below their means and all too often end up borrowing more than they can afford.
To live a luxurious lifestyle comes at a cost, and if not monitored and controlled has potential to fold like a house of cards.
What is wealth? Aside from the Wikipedia definition, wealth could be described as “the financial security and flexibility resulting from a consistent ability to live below one’s means”. Flexibility is a key word in this definition. Flexibility, in money terms, is “the ability to adapt, pivot, and evolve with relative ease” (Daisyme 2019). To have financial flexibility and be considered “wealthy” implies an ability to refrain from unnecessary purchases now in order to have the opportunity to spend money later. Building wealth does require a six-figure salary, but it does require a reasonable budget; reasonable so that it can be maintained, adjusted if necessary, and used as a tool to create financial security and flexibility.
Someone who is rich may earn a greater salary than someone who is wealthy, but that does not always determine who has a higher net worth. At the end of the day, the difference between the two comes down to self-control, frugality, and having a long-term outlook. Morgan Housel writes in his book, The Psychology of Money, “...you can build wealth without a high income, but have no chance of building wealth without a high savings rate” (Housel 105).
References:
Daisyme, Peter. “Financial Flexibility in Business: How to Establish a Strong Footing.” 7 Apr. 2019, https://due.com/blog/financial-flexibility/.
Housel, Morgan. “Chapter 10.” The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, Harriman House, Hampshire, Great Britain, 2021.