Many people use these two words interchangeably. It’s common to think they mean the same thing. To be fair, there is some overlap, but the essential difference lies in your mentality. Your relationship with money is what determines whether you are wealthy versus rich.
Rich Versus Wealthy
Before we break down the difference, let’s establish a true definition of each of these words. We will reference the online version of Merriam-Webster dictionary to do so.
having abundant possessions and especially material wealth
abundance of valuable material possessions or resources
Looking at these two words side by side, it’s clear to see why these words are used so interchangeably. They are defined using the same words – “possession,” “material,” “abundance.” It involves ownership of material items that have an intrinsic and inherent economic value, typically in excess of what is considered to be socially “normal.”
The key word that greatly separates these two definitions from one another is the word “resources” that define the word “wealthy.” I know you probably don’t need a vocabulary lesson, but to tie everything together, let’s look at the definition of the word “resource.”
a natural source of wealth or revenue
You’ll notice that the definition of rich does not include this value. Rich is only limited to possession of material things, while wealth is deeper. Wealth includes a natural source of revenue, of income. It’s a tappable source of riches that can keep on giving, without the need to seek out new riches.
If you haven’t guessed which one is the better to be, strive to be wealthy. Not to be rich. Wealth can support your desires, riches can not. Wealth can allow you to retire, riches can not. Wealth can grow and expand, while riches can only depreciate.
Being Rich is Easy.
Don’t believe me? Ask yourself this question: How much of your paycheck do you devote to your wealth, and how much of it do you devote to your riches? Do you invest before you spend? Do you even invest your money at all? If you answered no, you’re rich! If you answered yes, you are wealthy.
If you devote your paycheck to material items first – clothes, new phones, gifts for yourself or others, nights out, meals out, new cars, new apartments, impulse purchases on amazon – you have a lot of riches. But these things provide nothing of economic value in return. They are not a resource you can depend on. They are short lived experiences whose only achievement is giving the outward appearance that you make money and can spend it, too.
On the flip side, if you invest your paycheck before you spend, then your hard earned money is devoted to growing your wealth. Investing it into stocks, real estate, education, new skills and relationships, all provide an economic return and have an inherent value to you (and to others).
These resources can compound and grow into wealth over time. Your riches, on the other hand, will only serve to depreciate over time. They simply can’t give back any value over the course of their lifespan.
Exchanging Riches for Wealth
How does one start working on their wealth instead of their riches? Half of the answer is found in your Money Mindset, while the other half can be found through understanding of financial principles.
Choosing to invest your money into resources, versus spending your money on material items, is a discipline. It is very easy to buy riches, but it takes extreme discipline to grow wealth. Riches come as quickly as they go, wealth accumulates slowly and can last a lifetime. Being disciplined enough to invest before you spend is a trait that separates the wealthy from the rich.
Your Money Mindset
You can develop your Money Mindset to acquire the disciplines necessary to grow your wealth. Start small and work your way up. Start by stashing away a small percentage of your paycheck. Next, take small amounts of that stash and invest it. Keep track of your progress and reflect on it every day, every week, every month, every year. After time has passed, you’ll be able to physically see how your progress has grown your wealth.
Understanding financial principles is the second half to growing your wealth. There are two types of investments; appreciative and depreciative. One grows in economic value, the other diminishes in economic value.
An example of an appreciative investment is real estate. It gives you the opportunity to buy a house at one price, and sell it for a higher price a few years later. Or maybe you rent it out to another person and use the rent money as income.
An example of a depreciative investment is a car. As soon as you purchase a car, its economic value immediately goes down. As you continue to drive the car, adding on miles, burning through gas and oil, changing the tires and paying a mechanic for repairs, you’ve sunken so much money into it yet it provides you with no economic value in return. You will rarely find that an older car will sell for more than a new car of the same model.
Understanding the differences between investments and developing a disciplined money mindset is what separates the wealthy from the rich. The more you devote your time on your wealth, the greater potential you have to build a fortune. The more you devote your times to your riches, the greater risk you run to never achieve true wealth.