Being rich vs being wealthy
I was having a great conversation with a client the other day about the concept of being ‘rich’ vs being ‘wealthy’. To the average person, these may seem like the same thing but in reality, they are very different.
I thought it might be helpful to share a blog post outlining the difference, and how you can work towards becoming wealthy.
Being rich largely relates to your income. A rich person may have a high income and a lot of money coming into their accounts. They may also have a very high spending rate leaving them with very little money at the end of each pay period.
It wasn’t long ago that ‘earning 6 figures’ made you rich but this isn’t the case anymore. The average Australian salary has now jumped to over $90k for full-time employees meaning if your salary is not substantially above this, it’s likely you aren’t rich.
Whilst being rich is a great thing, if your spending rate is similar to your salary, you’re never going to get ahead. This is where the concept of being wealthy comes into play.
I’ve heard it described that wealth is the gap between your income and your ego. It’s the amount left over once you’ve paid for all of your lifestyle expenses.
Being rich can definitely help you to be wealthy, but it isn’t compulsory.
A great example of this was an American Janitor and Gas Station Attendant named Ronald Read. Ronald by all accounts was a normal everyday person. He worked as a gas station attendant for over 25 years and then part-time as a janitor in retirement.
When he died in 2014 it was discovered that he had amassed over $8 Million simply by investing all throughout his life and living frugally.
Whilst I don’t necessarily think this is something to aspire to (after all- money is meant to be spent), it does demonstrate that being rich and being wealthy can be very different things.
What I see in my day to day
I work with many different types of people and some of them would definitely be rich, and other’s wealthy. From what I’ve seen, you definitely don’t need to be rich to be wealthy (but it can help).
So how do I get wealthy?
The first step to wealth is having a portion of your income you dedicate to long-term savings. These can’t be savings for things like a holiday or a car purchase but instead savings you don’t intend to touch for decades.
These savings may be put towards paying off your house early, investing or additional amounts into your super.
How much do I need to save?
This is where being rich can be helpful. Regardless of your income, life has some basic expenses. You are always going to need a place to live, food to eat etc. How much you have left after you meet these expenses will determine how much you should save.
If you are considered ‘rich’, your savings should be a lot higher than somebody who isn’t (and doesn’t have as much excess income).
In some instances, people will give a percentage but I believe that this is a personal decision for everyone and should be different.
If you save a lot, you run the risk that you’re putting off life and may not experience the joy of your day-to-day life. If you save too little, you may end up working significantly longer than you need to and not being able to enjoy your life.
Whether you are rich or not, everyone needs a plan on how to build wealth. If you’re looking for someone to help you with this, please reach out. This is what we do best.