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Rich Vs Wealthy: Here’s Why It’s Better To Be Wealthy

There's a BIG difference between being rich vs wealthy. But most people don't realize that.

At some point in time the meanings of the words ‘wealthy’ and ‘rich’ merged.

Ask your friends the difference between wealthy and rich and you'll be met with blank stares.

Nowadays, most people think that they mean the same thing. But they don’t. At least we don’t think so.

Between the two of us, we graduated from Harvard, Wharton (UPenn), and the Mayo Clinic School of Medicine. Put simply, we've had the opportunity to live with, study with, and spend time with a lot of people who are rich or wealthy.

At first we didn't see the difference, but it slowly became more clear and the distinction is important.

As you'll see in this article (and yes, we will share a couple eye opening stories from things we've seen), there's a few reasons why everyone should strive to be wealthy. In fact, we found that being rich can actually prevent you from becoming wealthy.

But first, Chris Rock seems to have a pretty good understanding between the two (the video is funny but it does have some colorful language not suitable for kiddos!)

What Does Being Wealthy Mean?

Simply put, wealth is the accumulation of assets.

So does being wealthy just mean someone who has a lot of assets? Not exactly, but you're getting warmer.

To begin, a wealthy individual follows most of the principles we have described in our beginners guide to personal finance.

This means that they save at least 15%  of their paychecks (usually more), have little debt, have their retirement portfolio in smart investments, and live well within their means.

But the most important distinction is that a wealthy person has a huge net worth.

Most people would not be able to recognize these people as being wealthy because it isn't based on a flashy lifestyle.

If you are thinking, “well, what about all the billionaires with private jets, mansions and crazy lifestyles?!?!”, the fact is that they are outliers. There are less than 600 billionaires in the entire country, and nearly 330,000,000 residents in the US. That's right, there are less billionaires in the US than the number of people you are friends with on Facebook or went to high school with.

For everyone else, the good news is that the key to becoming wealthy is not complicated, but that doesn’t mean it’s easy. Which is why most people never truly become wealthy.

What Does Being Rich Mean?

Being rich simply means having a high income.

But the reason that having a lot of money doesn't make you wealthy is because the rich also spend a lot of money.

Instead of investing all of that money, they buy expensive cars and jewelry (they often need to use loans).

For that reason, it doesn't matter if you are making $250,000 per year if you are spending $225,000.

You'd be better off only making $80,000 and saving half of it!

This is why you shouldn't judge a book by its cover. You might see someone driving a brand new BMW, but that doesn't mean that they have a fat bank account.

Can You Actually Go Broke Being Rich?

Absolutely. There are ton of celebrities that are known to have blown through crazy amounts of money and gone into bankruptcy.

Nicholas Cage at one point had a fortune of $150 million and lived the lifestyle expected of the rich and famous. After buying 10+ houses, an island, and rare collectibles, he found himself in financial trouble. He had to foreclose some homes and owed over $6 million in back taxes to the government. Ouch.

Compare that to finance guru and billionaire Warren Buffett, who doesn’t let his wealth go to waste. He still lives in the same house in Nebraska that he purchased back in the 1950s for just over $30,000!

Buffet drives the same Cadillac for years, but prefers to spend his money by flying in private jets, because he truly understands which things bring him the most happiness. It certainly isn’t having the flashiest car. Just remember that you can't see the outside of a car from the driver's seat. Paying for that sexy car is a waste.

Being Wealthy Isn’t Only About Sacrifice

Many people think that to create wealth they need to skip out on all of the fun in life. However, that’s just not true.

The key to building wealth isn’t so much about being cheap as it is about prioritizing happiness.

Research by Harvard Business School Professor Michael Norton has shown that spending our money on experiences, rather than material goods, brings us more sustained happiness!

Instead of buying the new jacket that just came out, pay for an experience (a show, an art class, a fun trip, etc.).

If you are already responsible with your money and want to spend it, just be wise with it. You’ll see that avoiding the things that make you appear rich will allow you to focus on the things that actually make you happy, while building wealth.

Experiences can be a lot more cost effective than buying the latest gadgets too. Once you realize which things you actually need you’ll see that you’ll slowly begin to yearn less for the things you once thought you had to have. All the while becoming wealthy.

If You Can Afford It, You Can Still Have The Life Of Your Dreams

As we mentioned at the beginning, we had the chance to meet and become friends with truly wealthy people due to having gone to Ivy League universities.

We met people who would take weekend trips on private jets, drive $150,000 cars, and eat at the nicest restaurants at the world. We were even lucky enough to be invited on some of these trips on their planes.

But these same people were very careful with the way they spent money. They realized that money can't buy happiness so they prioritized experiences. When they would shop for clothes they got extremely excited about sales and finding a good deal. They were experts at saving money even though they didn't have to be.

In fact, they had amassed enough wealth that as a percentage of their net worth, they spent very little of it. This means that even though they lived an ‘expensive' life, they still had more money at the end of the year than they started with every single year.

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Camilo Maldonado

Camilo is a personal finance expert who was raised in poverty by a single mother and had to learn everything about personal finance on his own. In addition to running The Finance Twins with his twin brother, he has been featured on ForbesBusiness InsiderCNBCUS NewsThe Simple Dollar and other top publications. Camilo began his career as an investment banking analyst on Wall Street at J.P. Morgan. He has a master of business administration (M.B.A.) degree from Harvard University and a Bachelor of Science in finance from the Wharton School of Business at the University of Pennsylvania. You can contact Camilo here or via Instagram @thefinancetwins.

46 thoughts to “Rich Vs Wealthy: Here’s Why It’s Better To Be Wealthy”

  1. Love this post!! Really puts things into perspective. And I definitely agree that experiences are truly the source of happiness. Thanks for sharing this great insight!

    1. You’re welcome! And thanks for taking the time to read. This is one of those lessons that everyone needs to learn!

      1. Hi Camilo, I came across your post and love it! is there something you recommend for my 16 year old son to study or review? he had mentioned a while back he wanted to own many business but is not motivated. His dad past away last year and it hasn’t been easy. I am a broker of real estate but don’t have that much education. I worked 8 years in the California fields and had to work hard at coming out of that. Your story motivates me, to motivate my son. I also have a 20 year old daughter that am trying to motivate as well. I appreciate any information. Thank you

        1. Hi Alma, I’m so sorry to hear that your son lost his father. I lost my dad as a child as well so I am sorry to hear that. For you son, I think one of the most important things is for him to surround himself with friends who are ambitious and motivated to succeed. If he wants to read a book that could inspire him, I recommend Shoe Dog by Phil Knight. It’s about how the company Nike was started and how they got it off the ground. It could help inspire him. I would also see if he can find a role model to help him. If he ever has questions as he navigates colleges or anything like that please have him email us and we will see how we can help him. Thank you for reaching out.

      1. Wow. I am actually still 11 but I think what you said inspired and motivated me to be a wealthy man instead of a rich person.

  2. This! So true and so many people think that the point of having money is run around and blow it faster than they made it. Then they wonder where it all went. smh.

  3. I think part of what drives this is what we get shown on tv. I was just watching the bachelor a couple of weeks ago (#bachelornation whatup) and it almost makes it seem like we should all be striving to go on dates in all of these exotic places and drive fancy cars and fly private jets. But then you realize when they always break up at the end, that those material things never brought them happiness. Just my 2cents anyway lol

    1. We couldn’t agree more. Even on the drive or ride to work we are already bombarded with ads. Heck, even on your Instagram feed in the morning you begin to see ads pushed for products and things you don’t need. It never ends. Glad you enjoyed reading.

  4. Great read! I would love to see another perspective added or some variation of this idea (i.e. how could struggling millennials become “wealthy.”) I viewed the explanation of “the rich” as those who are financially irresponsible, which could be anyone with high or low income. But there are many people in their 20s to even early 30s who are financially responsible but unable to live that “wealthy life” still because of student loans or low income jobs.

    1. Thanks for reading! The reality is that most people never feel like they have enough money. For those that are responsible and struggling financially it’s important to stick with it and establish good habits early on. As your paychecks go up over your life you will use that increasing income to build wealth and avoid lifestyle inflation. The reality is that most people choose the rich lifestyle and never attain wealth, and those that do attain wealth do so by making wise responsible financial choices over many years.

  5. Absolutely enlightening! I once said to someone that I would prefer to be rich than looking rich. Reading across your blog really put my words into proper perspective.

  6. Yes! This makes perfect sense. Put another way it’s the difference between having assets (that make you money and income. I don’t know if you came across that Thomas Piketty book ‘Capital’ that everyone was drooling over a year or two ago but there’s a similar idea there.

    The only point that doesn’t fully work for me is what you say about experiences. I agree (as does the research) that they make you happier than material things. But I want to try to avoid tying my into happiness into experience as that is still something that is external and predicated on, at least some, money. My goal is to try to root my happiness in myself – but if I can’t do that then to root it in family and friends and simple things like reading, or listening to the radio or going for walks. Whether I manage it or not is for time to tell!

    1. Totally agree with you. With regards to experiences, we don’t mean that you should spend on experiences. Something as simple as a walk with a spouse or working on a school project together is a type of experience that will bring you more happiness than buying a new toy that will only get used for a week.

  7. A modest house in Adelaide Soouth Astralia cost 3,500 pounds in 1950’s ,it is now worth 350,000 dollars. By that reckoning Buffetts house is now worth 3 million dollars. Guess that might still be considered modest.

    1. No house in Nebraska can ever be worth that much, because Nebraska is not nearly as desirable a place to live, as say, Laguna Beach, California, where Buffet’s business offices (Berkshire Hathaway) are located. Whereas you could have bought a condo in Laguna Beach in the 1950’s, and have it worth over three million dollars now, that can never happen in Nebraska because of its location. And that’s how Warren Buffet became wealthy – by understanding that when you invest in real estate, it’s location determines appreciation.

  8. This reminds me about an episode of Seinfeld who says to the car rental executive, “you know how to make reservations but you don’t know how to keep it.” Well, your article sums it up beautifully like that. My inspiration comes from my father whose was a rags-to-riches story, enjoyed a flamboyant life, was a philanthropist, but the best part was he knew how to keep his hard-earned wealth – invested in assets that fetched him fantastic returns. Provided us excellent education with a sense of responsibility towards maintaining wealth and that keeps us on with our own contributions.

  9. Wonderful article!!! We have an only child and as you can imagine she has always been provided with everything she needs, she’s 20 now. We live in a very nice city in California, she attended a charter school with kids that were children of a couple of millionaire celebrities and some that were children of a famous producer and director. (It isn’t Beverly Hills or Rancho Palos Verdes) At the Mall at one time seeing most teens and adults carrying trendy bags, I asked “Would you like one of those bags? She answered “No thank you Mom, first I’m not going to walk around with a $400 bag that everyone is carrying and second I’d rather have a nice good leather bag that is cheaper and of good quality and have in my bag the $400 “, the kid was 15 at the time!. She started a habit a while back, going to Thrift stores to buy clothes.. after a while I was a bit irritated and told her that we weren’t rich but we weren’t poor either, she told me that she didn’t do it because of that, she said “It is my way of recycling”. She owns dresses, pants etc., bought with original price tags that aren’t out of style, with original prices of $300, $800 or less… all brand new. She owns a Loro Piana scarf that right now in the market is worth $275 and she bought it for $1.99 BRAND NEW. She’s a straight A student, she has been taught to not be cheap but frugal. A trip to Rome is coming from school with her Art class, we asked how much we had to pay and she said “nothing” she told us she will pay for it herself. We asked how much she had in savings, she said $8,000, I couldn’t believe it!!! not bad for her age, she only works 15 hrs a week, we cover all the school expenses and give her an allowance enough for a trip to the movies and to go out with her friends once in a a while, she was taught to always save, it is a habit she has had since she could understand the use of money. We are proud of her because she enjoys the great things in life and once in a while she rewards herself with something a bit pricey but it has to be earned, she has goals of getting a good grade in a hard class, or other things like helping others or finishing two or three books in a certain amount of time… when I’m shopping with her and I grab something she asks me what I did ask her growing up , Do you need it or you want it? She’s our money police LOL!!!
    We aren’t perfect parents but we feel that we have taught her good habits with how to respect money, she controls her money and not the other way around. She’ll be thrilled to read this article I have been able to understand by reading it that even though I don’t do bad managing money… My Cadillac is 8 yrs old, It is old but a nice car and my husband and I made many mistakes financially but have slowly recovered and after reading your article I’m keep in it longer. Thank you for such great advice.

    1. Hi Lyn! Thank you SO much for sharing this! It sounds like your 20 year old is very mature and level headed, which is a testament to the guidance and parenting she’s had throughout her life. In today’s world it’s so easy to get distracted by everything thrown at us via social media, but it must be comforting to know she’s confident and appreciates the things that matter most to her. Congrats!

  10. I really enjoyed your article, and am going to give it to my sons to read. I’ve been struggling to explain to them how it is that I’m not poor but that I also don’t have money to go out for coffee every day. I have no debt (besides a mortgage on one of my three properties, which is a rental so the mortgage is covered). I own 2 vehicles which are older and I don’t use my credit card except for Netflix and house insurance because I have to use that payment method. I had to start again after a divorce, so I don’t have a lot of disposable income once I put money into the appropriate accounts for the appropriate expenses. I hope that by reading your article, my kids will understand why there’s not an excess of “stuff”. I will also say there’s a deep feeling of security when you are living within your means and putting money aside for the the ‘unexpected’, which should be expected, instead of hoping that nothing will ever go wrong.

    1. So glad you found it helpful, and hope it helps your sons! They’re lucky to have you as an example.

  11. My top 10.5 success habits: 1. Live beneath my means., 2. New tires for my old car, 3. Learned to make many home repairs myself (a rewarding ‘experience’), 4. Got to know a reputable mechanic, dentist and doctor (in that order), 5. Rarely eat at restaurants (make my lunch and morning coffee), 6. Use our kitchen frequently, 7. Read for insight and ideas, 8. Pre-record TV shows so I can skip over commercials, 9. Pay credit card bills off monthly, 10. Chose a career I can do forever. 10.5 Get plenty of rest.

    1. Steve, this list is wonderful. Not only because it is clearly effective, but also sensible. Living a full life isn’t rocket science if you stick to the basics. Everything else is simply a bonus!

      1. The financial twins in my life are named Income and Outgo.
        I live quite well on very little. Zero debt.
        No mortgage, car loan, card balance etc.
        A lot of what you said rings true.

  12. I guess the difference really is the lifestyle. Another great example is former Pres. Jimmy Carter. It was reported that he still lives in his home that he built in the early ’60s and that he shops at a dollar store. Frugal living at it’s best!

    1. Yup, the lifestyle is so important. If you can afford the shiny new things, then go for it, but if you can’t it’s important to realize you can still live a full and awesome life while living within your means.

  13. We paid off our student loans in under 2 years. I’m now 6 years out of school and friends are refinancing so they can afford their debt payment and to have a family. Gratefully I don’t have to make that choice because we buckled down and paid them off quickly and ferociously! $82,000 gone!

    BTW- congrats on your success. I knew in high school you both would do great things.

    1. Hey Trina, huge congrats on crushing your $82,000 of loans! What an amazing accomplishment. If you’re ever interested in sharing your story on our site, feel free to reach out to us! I think it would inspire a lot of people. Thanks so much for the kind words, that means a lot!

  14. Hi guys,
    I’m the mother of 4 year-old twins and have been a single mother for a significant portion of their lives. So, hats off to your mother: it ain’t as easy as it looks–kids don’t raise themselves!
    I am trying so hard to get wealthy, not rich! Paying off debt is a priority!! I am actually grateful for the opportunity to pay off my debt at the rate I am, thanks to making more money recently. It’s very stressful to have a ton of student loan debt and no way of paying it off.
    thanks for the post

    1. Hi Alida! It’s incredibly impressive and heroic that you are raising 4 year old twins alone. I can’t imagine. So glad to hear you are working hard to get out of debt. You’re setting a wonderful example for your twins. Please let us know if you need anything on your journey.

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