Rich Vs Wealthy – Which One Do You Want To Be?
Rich And Wealthy are two words that get bandied around a lot but actually equate to quite different realities.
Sure, you can be rich AND wealthy but just because you are one, doesn’t always mean you are the other.
Rich refers the amount of money and possessions you currently have while being wealthy is more about freedom, mindset and sustainability.
Wealth is defined as: How Long You Could Survive If You Had To Stop Working Today
Rich is defined as: Having A Great Deal Of Money Or Assets
Being rich is all about the money you posses and how many cars and houses you have.
Rich doesn’t take into account how you live your life, whether you are a savvy investor or a reckless party animal with a drug habit, it is simply concerned with how much you have right now.
Wealth is all about the mindset, about earning passive income and making sure you live on less than you earn while you are in your sleep.
Wealthy people have the freedom to go where they want, do what they want and work on the projects that give them the highest returns, whether that is spiritual.
Wealth is about having a good family and assets that money can’t buy but it is mostly concerned with your freedom and sustainability.
Wealth is about having abundance is every area of your life including money, love and happiness.
Being Rich And Not Wealthy
The most famous example of people who are rich but not wealthy are sports stars. They earn huge amounts of money and they use it to live lavish lifestyles, ignoring taxes and neglecting to make solid investments for their future.
They have a lot of money flowing in but their careers are short and before they know it, their main source of income is gone and problems start to arise.
The maintenance on their mansion is $20k per month, the IRS pops up with surprise tax bill, they get sued and suddenly they realize that there is not enough money coming in to maintain their lifestyle.
If they had lived below their means, made smart investments, kept their expenses down and stayed humble, they could have built generational wealth.
They are forced to eat humble pie and forego the luxuries they enjoyed during their career into retirement.
A prime example of this is Mike Tyson. He earned, huge amounts, spent foolishly, was robbed by his promoter and ended up back at rock bottom.
Luckily for Mike, he turned his life around and got it back but is often not the case with Athletes.
Think Floyd Mayweather, he fights for huge money, throws it all at strippers and ends up broke again.
Even though he has smart investments, it is still foolish and we will surely see some humble pie in the future.
It is not limited to boxers either, there are plenty of stars who achieve riches quickly, act irresponsibly and end up broke later on in life.
Enough said although they appear to be wising up!
Think about Lottery winners, they go from zero to millions in a split second but it is often a poison chalice.
Suddenly, they realize that they are surrounded by jealous people who want a slice of the pie.
They start to buy stupid luxury items like sports cars not realizing just how quickly you can burn through a couple of million. You can make a couple of mistakes but too many will ruin you.
Fast forward a couple of years in plenty of Lottery winners lives and they are worse off then before they won the money.
They have often destroyed their relationships, got into serious financial difficulty and even become dependent on drugs.
This happens because they don’t have the mentality of a wealthy person which needs to be built up over time.
High Earning Professionals
Another example of rich but not wealthy are the high earning professionals of this world like doctors, surgeons, accountants and lawyers.
They earn a lot of money, have high expenses and have no choice but to wake up and go to work each morning.
They may have gotten themselves into debt, have large mortgages, student loans or other crippling expenses.
When they move up the ladder and become a partner etc they increase their expenditure by upgrading the car or moving to a nicer place.
Many of them couldn’t survive 2 months if they were no longer able to work so even though they earn a lot, they are far from wealthy by our definition.
They Have No Passive Income.
Learn to earn while you sleep or you will work until you die – Warren Buffet
This obviously isn’t going to apply to all high earning professionals, but it will apply to enough to illustrate the point.
To build wealth our income has to exceed our expenditure and we have to develop passive income.
Being Wealthy But Rich
The wealthy stay rich by spending like the poor and investing non-stop while the poor stay poor by spending like the rich and investing nothing
Tom The Blogger
Meet Tom, he started a blog around his passion a few years back.
At the start it was just a hobby but after 18 months he was making enough to quit his job.
He lives in a nice yet modest house, spends his days doing what he likes around his blog and he has a wife and kids.
Income Exceeds Expenditure
His income far exceeds his expenditure and money is building up in his bank account that he uses to hire writers to grow his blog and he starts a Youtube channel.
At the end of year 3, he is earning $20k per year and has started investing in a ton of dividend paying stocks so that his income continues to grow even if he doesn’t have to physically go to work for it.
So he does what he likes with his time and uses it to build more income.
On the outside he looks like a regular guy, there is no lavish expenditure, no fancy cars and no mansions in sight.
Lots Of Holidays
He and his family however do go on 4 or 5 holidays per year where they enjoy the good life.
It doesn’t matter to Tom how much he earns, his lifestyle is not going to change, he has abundance in every area of his life without any desire to spend money on unnecessary luxuries or habits.
That is a key to knowing if you have achieved wealth:
When no amount of money added to your bank account has any impact on the way you live your life, you have probably achieved wealth.
Look at Warren Buffet, he spends $3 on breakfast, lives in a modest house that he has had for 30 years and drives a very ordinary car. And yet he is one of the richest and wealthiest men on the planet.
Wealth is a mentality that has to be built up over time and the Cash Flow/Passive Income are the kings of building wealth.
Passive Income Is The Key To Building Wealth
Remember our definition of wealth:
“How long you can survive if you stopped working today”
Let’s look At How Our Examples Of Rich But Not Wealth Can Develop Wealth
The Sports Star
It is easy for the sports start to build wealth because he has so much disposable income, if he is in any way sensible, he can make smart investments.
Investing in rental properties, good stocks that pay dividends like Amazon and Coca Cola and index funds.
They can still enjoy their earnings, they just need to make sure they have a nice portfolio of income generating assets to keep them going once their career ends.
The High Paying Professional
The high paying professional needs to ignore the urge to “keep up with the Jones’s” and make sure her income is exceeding her expenditure.
As quickly as she can, she needs to put her money into investments that will generate passive income like rental properties.
She needs to keep her expenditure under control by living below her means in a modest apartment with a modest car.
As she earns more and more she can develop a portfolio of rental properties that generate passive income every month and she will free herself from the shackles of selling her time for money.
Key Downfalls To Avoid
Spending More Than You Earn
Spending more than you earn is a nightmare scenario when it comes to someone who is considering building wealth, obviously.
Debt begins to pile up in credit cards and bills go unpaid.
Don’t think this is something that happens to low income earners exclusively, plenty of people who earn a lot spend more then they make and you will never be able to build wealth in this manner.
Keeping Up With The Jones’s
If you are selling your time for money in a job, the path to failure is the one that is more commonly travelled.
As you get an increase or bonus, you upgrade the car or the house or you splash out on holidays and luxuries until there is no money left to save.
Selling your time for money is the enemy of wealth, despite what your teachers, parent and society at large tells you.
If you don’t earn while you sleep, you will work until you die
You need to start investing your left over money from work into passive income as quickly as you can. The longer you leave it, the harder it will get.
Bad Habits And Addictions
If you pick up a bad habit like gambling or alcohol addiction, it can be almost impossible to built wealth.
The self destructive behaviours will ensure that you never have surplus money in the long run.
Even high earnings who engage in self destructive and bad habits will reap the consequences at some time down the line.
This is why so many wealthy people drink rarely and never gamble, because there is no limit to the amount of damage you can do to yourself and your wealth.
Ways To Build Passive Income
There are plenty of ways to build passive income, some require a lot more work than others so it depends how much time you have to invest in building your portfolio of cash generating assets.
Blogging and Youtube
Of course I am going to be biased, this is where I built my first passive income.
Blogs and Youtube channels are great for producing passive income because you do the work once and you get regular payouts every month well into the future.
Blogging takes lot of time and effort. Google wont rank your site properly for at least 3 – 6 months but the good thing is you can write the content yourself or pay others to do it for you.
You always want to pick a nice where people have disposable income and are willing to spend it on your subject.
Don’t start a blog without knowing what you are doing, check out youtube channels or blogging courses to set off on the right foot.
You will need to monetize through:
- Affiliate Marketing
- Display Ads
- Digital Products And Online Courses
Youtube is quicker than blogging to build an audience but you have to create content people want to watch and you can monetize in much the same way as with blogging.
Investing In Stocks
We are not talking about investing in Crypto and hoping the price goes up, that is simply gambling.
What we want to do is pick solid stocks that we think are likely to grow in the long run and start investing in them.
We also want stocks that pay dividends if possible and this is a completely passive way to create income and eventually wealth.
While Covid has decimated the commercial property sector one thing remains the same, people need a place to live and America has become a nation of renters.
Buying apartments where families can live year round is a great investment because the money come in will often exceed to cash outflow and it will generate passive income immediately.
You can then remortgage the property or pay it off an own the asset.
Another solid way to build up a portfolio of passive income generating wealth.
Being rich is all about have a lot of money but it doesn’t cover the holistic nature of overall wealth.
Wealth is about accumulating abundance in every area of your life and living below your means.
Sure, a lot of rich people are wealthy and a lot of wealthy people are rich but you don’t have to be one to be the other.