Being Rich vs Being Wealthy: Is there a difference?

For a long time I thought that being rich and wealthy were the same thing as they are often used interchangeably. However, along my 'wealth-learning' journey I’ve come to the realisation just how fundamentally different these two words are.?Understanding the difference is critical as what most of us really want is to become wealthy but we often get caught up trying to get and look rich.

Here are some key differences between being rich versus being wealthy:

• Having a high cash-flow is typical a characteristic of both the rich and the wealthy, however, whilst the rich are generally still working for their money, the wealthy have their money working for them. They have used their riches to create income-generating assets (properties, shares, investments) which covers their liabilities (car payments, mortgages, lifestyle expenses) giving them the option not to work, they are financially free.

'the wealthy have their money working for them'

• Another key difference between the rich and the wealthy is net worth -assets minus liabilities (the things they own that bring them money minus the things that cost them money). There are many stories of the once-rich footballer seemingly going broke overnight or the lottery winner who reversed their fortune in a few short years as a result of lifestyle inflation -the creeping up of expenses directly behind an increasing income. For instance, with a yearly income of ￡1mm and expenses of $950k, a 10% loss in income could lead to bankruptcy. However, the wealthy have focused on building their assets way above their expenses, making them High Net Worth Individuals, due to this they are also better able to weather losses. In other words, the wealthy have sustainable riches.
• Given the above, the most important difference between being rich and being wealthy [to me] is legacy. Wealth can be passed on. The depreciating assets and liabilities the rich often acquire (flashy cars, designer handbags, expensive rental apartments) cannot be passed on, at least not often with lasting or increasing value.

In Netflix's hit documentary Bling Empire which follows the lives of rich/wealthy Asian American's in LA, the materialistic rivalry between Christine and Anna Shay was summed up well when Anna said "She [Christine] cannot compete with what I was born into". For context, Anna is the heiress of a billionaire father who built his wealth from an arms business in the mid-90's, Christine, on the other hand, co-owns a successful plastic surgery business with her husband. Whilst they both may be making millions now, Anna does not need to work to sustain her lifestyle because she was born into her father's wealth.

In summation, if your goal is to build wealth that lasts for generations, by all means get rich, but don't forget to keep your expenses relatively low so you can turn residual income into income-generation assets which eventually work for you. Even if you don't want to build generational wealth keeping expenses low relative to income will also better allow you to weather unexpected storms, retire early and live a more stress free life. I will also note that being wealthy doesn't have to start with being rich, a modest earner can be wealthier than someone who is 'richer' on paper due to a different choices in acquiring assets versus liabilities.

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