The difference between being rich and being wealthy
You don’t want to be rich.
I often say that there is a massive difference between financial advice, and financial literacy – and the same goes for the differences between being rich and being wealthy. Many people think that being rich and being wealthy are the same thing. However, there is a difference between the two, the rich have lots of money – but the wealthy don’t worry about money.
Lots of people can become rich. But only financially intelligent people can become wealthy, this takes a strong financial education that over time will allow them to build cash flow producing assets. Becoming wealthy is not complicated, in saying that though – it is also not easy, which is why many people never become wealthy.
What’s the difference?
Being rich is giving the illusion of being wealthy – without actually being wealthy. Expensive cars, designer clothing, that new Chanel bag you’ve been lusting over, large houses and massive amounts of debt. Real wealth is the accumulation of assets over time. Not just having fancy objects that make you look like you’re doing better than your friends financially.
Wealthy people are normal people, who have accumulated enough wealth that they no longer need to work for money. They are financially free. And are free to choose their pathway, instead of needing to work to survive.
To simplify wealth even further – we define wealth as the number of days you can survive without physically working, and still be able to maintain your standard of living. It’s quite simple. It’s not about how many fancy things you can purchase – but rather how long you are able to sustain your existence without working.
“Being rich is having money. Being wealthy is having time. ”
What does it take to be wealthy?
If your total monthly expenses are $5,000 and you currently have $20,000 in savings – your wealth will last approximately four months or 120 days. However, if your monthly expenses are $5,000 – and you have investments that provide you with $5,000 a month – you are infinitely wealthy. At the point in time when your income from your assets becomes greater than your expenses – you are wealthy, not just rich.
This is why we say wealth is measured in time, not dollars as everyone’s financial freedom number is going to be different as the cost of living varies from person to person.
Ultimate wealth is not about how much money you make (in fact, some of my wealthiest clients have far lower incomes than you’d expect!) but rather how much money you keep – and how long that money works for you. As a financial adviser, I meet people everyday who make a lot of money, all of it being spent each month on their expenses. People often match their lifestyle to their income, so with each pay rise they justify a newer car, a bigger house or a holiday as a reward. Purchasing expensive things to “reward yourself for working hard” actually has the opposite effect – by spending money on things you’re guaranteeing that you’re going to have to keep working hard – instead of working towards not working at all. This leaves nothing for their assets, and this is the type of behaviour that separates the rich from the wealthy.
I still like the finer things in life just like everyone else, the difference is I ensure I’m investing for my future wealth first. I take the time to be smart with my money, work hard, and build a business and investments that will ultimately provide me with enough cash flow each month to cover my expenses, including the fun things so one day I won’t have to work for money, it will be working for me.