There’s a difference between being wealthy and rich.
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.
Here’s a few reasons why everyone should strive to be wealthy, and how being rich can prevent you from becoming wealthy.
What Does Being Wealthy Mean?
Simply put, wealth is the accumulation of assets. A wealthy individual follows most of the principles we have described here at The Finance Twins. They save at least 15% (usually more) of their paychecks, have no debt, have their retirement portfolio in smart investments, and live well within their means. A wealthy person has a high net worth. Most people would not be able to recognize these people as being wealthy because it isn’t based on a flashy lifestyle.
The guide 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?
As opposed to being wealthy, it is much easier to be rich. We all know rich people. Many of us have them in our own families. These are the people that give the illusion of wealth. They drive a really nice new luxury car, wear the trendiest clothes, and have the latest and greatest gadgets.
If you take a look at the financial health of these individuals you would be surprised that they often live paycheck-to-paycheck and carry significant amounts of debt. They don’t save nearly enough for emergencies and definitely not enough for an awesome retirement.
In fact, many rich people are included in the 44% of Americans who don’t have $400 for an unexpected emergency, according to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households. Driving a Telsa isn’t cool when you don’t have a nickel saved for retirement. By now you are probably beginning to see the difference between wealthy and rich, but there’s still more.
Can You 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! He 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.). So if you are already being 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.
So, would you rather be wealthy or rich? Share your thoughts below.
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