Most of us think we want to be rich.
What we really want is to be wealthy.
In this article, I break down the critical distinctions between the two (somewhat) interchangeable terms.
Rich vs. Wealthy: A Brief Overview
A quick Google search would tell you that “rich” and “wealthy” mean exactly the same thing.
Typing “rich definition” into Google’s search bar actually returns the word “wealthy” on the right-hand side.
Objectively, they do (hence their interchangeable use).
It’s the nuances of the English language that add subtle but important differences to these words.
What does it mean to be “rich”?
“Rich” implies a person who has an abundance of money, usually acquired through hard work and diligence.
This is the stereotypical concept we think of when someone says “rich”:
- A CEO in a tailored suit
- A famous singer, actor, or influencer
- An NFL athlete
Someone who has made it to the top and is reaping their rewards.
Income is often used as a standard when measuring what it means to be a rich person.
According to the IRS, to be considered among the top 1% of earners, you’d need an annual income of at least $540,009. The Economic Policy Institute (EPI) describes this group as those earning $819,324 or more.
What about the top 5%?
The top 20%?
If you think of top-5% earners as rich, you’d have to earn $335,891 annually, according to EPI data. And cracking the top 20% means earning $130,545, according to a SmartAsset analysis.
Remember: Being rich is not just about how much money you make. Even if someone earns a high income, they may still be poor if they spend recklessly or have a lot of debt. In other words, it’s possible to live a luxurious life while still struggling financially.
If you wanted to get rich, you would focus on activities that grow your income, such as starting a business, learning a high-value skill, or building a social media audience.
What does it mean to be “wealthy”?
“Wealthy” is a bit more nuanced. When someone has the resources (financial or otherwise) to pursue their passions and live life on their terms, they are considered wealthy.
In a financial context, wealth is defined in terms of net worth—the total value of assets, minus any liabilities.
Typically, having a liquid net worth of $1 million would classify you as a high net worth (HNW) individual. Attaining “very high net worth” status would require a net worth of between $5 million and $10 million. Those with a net worth of over $30 million are considered as ultra-high net worth.
These numbers indicate the financial industry’s general view of wealth. You’d need a net worth of $2.2 million to be wealthy by the average American’s standards.
If you wanted to build wealth, you would focus on activities that expand your income, such as investing, buying income-producing assets, and creating multiple streams of income.
5 Critical Differences Between the Rich and the Wealthy
I’m a financial coach, not a philosopher.
Now that you have a baseline understanding of rich vs. wealthy, let’s talk about money.
The main differences between rich people and wealthy people can be broken into five main categories:
- How they view money
- How they spend their money
- How they earn income
- How they approach debt
- How they plan for the future
1. How they view money
A money mindset is the foundation of any successful financial journey. And both rich and wealthy people have their own set of beliefs about money and how to use it.
Rich people view money as a means to an end or a way to give them access to luxuries. They spend freely to enjoy their desired lifestyle and will save what’s left over—if anything.
And rightfully so—it is much harder to get rich than it is to become wealthy. Most millionaires have never earned six figures in a calendar year. If I made seven or eight, I wouldn’t know what to do with myself! (Hint: Many of them don’t, either)
Wealthy people see money as a tool to help them achieve their goals. They will spend on what they need and invest the rest for long-term growth. They’re less concerned with luxuries and more focused on progress.
2. How they spend their money
Rich and wealthy people have some overlap in their spending habits. They might both own Lamborghinis, shop at Louis Vuitton, and spend their summer in Positano.
But that’s all rich people tend to spend their money on.
A rich person’s spending often keeps them in a perpetual state of debt. They buy nice things without planning much for the future, so their money is always on its way out.
Wealthy people often have the same luxuries rich people do. But their mindset and approach are different.
A wealthy person prefers to spend their money on experiences and investments—things that will help them grow their wealth over time. By investing in property, businesses, or stocks, wealthy people can grow their net worth over time.
3. How they earn income
There are two main differences between rich income and wealthy income:
- Single-source vs. multi-source
- Active vs. passive
Rich people earn a large amount of their income from one source—often their job or business. They usually need to work hard to keep their income at a certain level, which comes with a certain level of implied risk.
Rich people have very little in the way of passive income. They’re reliant on their active income—that is, money they earn from working—to sustain them.
Wealthy people use multiple streams of income to maximize their earnings potential. Even if their day-to-day involves hard work, they also have an online business, rental properties that create additional cash flow, artwork, and other investments that make them money while they sleep.
4. How they approach debt
Rich people use the same kinds of debt as the rest of us (albeit, with a higher cost of living).
- They use credit cards to supplement their lifestyle
- They lease or finance multiple cars
- They buy expensive homes in upscale neighborhoods (to live in)
Wealthy people look at credit cards as a convenience. They don’t need the additional float, they just use them to simplify their finances and earn cash back on everything they buy.
Wealthy people also understand how debt works, so they tend to incur it when the numbers make sense. A wealthy person’s debt is usually linked to assets that grow in value or generate passive income that pays off the debt.
For example, a wealthy person may take out a $250,000 loan to invest in a multifamily property. The rent they collect from tenants will pay off the loan (plus its interest) and leave them with a steady stream of income. All the while, they had the money to purchase it outright. They just used it for leverage.
5. How they plan for the future
Rich people often have reserves for the future (e.g., an emergency fund). They might also have diversified investments in the form of retirement accounts, stocks, cryptocurrency, and ETFs.
Wealthy people are forward thinkers. They understand that money has to be managed carefully in order to provide for a comfortable retirement—or multiple generations of wealth. Their portfolios are much more extensive, containing a greater variety of investments, including real estate and venture capital.
Truly wealthy people also diversify their investments and liquid assets across multiple countries, businesses, or places of ownership to hedge against currency fluctuations and political instability and protect it from taxes and personal liability.
A common example of this is the ‘offshore trust’—a legally sound structure used by wealthy people to hold assets outside of their own country.
Rich people need to make the right investments to become wealthy.
But that’s just the beginning. The key to real wealth is in having a plan, so they can make sure their money is working for them and their future generations.
By understanding the differences between rich and wealthy, you can make better decisions to create real financial freedom—no matter your current level of income.