Rich vs Wealth

[Tom Goans]

Rich vs Wealth

As I have been taught, the difference between rich and wealth is rich people work for money; wealthy people have their money work for them.

To illustrate, some professional U.S. athletes are paid millions each year to play their sport - they are rich; the owners of the teams are wealthy.

"Rich Dad Poor Dad" and "The Millionaire Next Door" are two of my favorite books. Many other books, seminars, audio recordings, my grandfather, and father have also taught me the importance of the differences between being rich and wealthy.

I recall one of the most impressionable times when my father demonstrated the difference. We were at the summit of a Colorado mountain pass admiring the beauty of the mountain scenery all around and the valleys below - the photo for my profile was taken at this location. It felt as if we were on top of the world. My father turned to me and stated he was making money as we were standing there. We reviewed how. It was no longer necessary for him to pursue income. His primary task is making deposits 6 days a week.

Although my father is wealthy, he remains very active in the real estate business. Seven days a week, he is reviewing his operation, expanding his knowledge, and considering new investment opportunities. My grandfather was the same. It would appear money was the reward and not the reason for what they did and the contributions they made to society. Perhaps this philosophy is a better path to seek.

[Jon Holdman]

"Rich" and "wealth" are just words. To some extent, they can be defined as you wish. I think that's what your father's definitions are doing. Dictionary.com's first definition for rich is:

And for wealth:

So, arguably the two words are synonyms. And neither is very precise. I do think that rich is often thought of as relating to income while wealth is thought of in terms of assets. Your father's definitions are sort of like this. But he's taking it a step further and saying rich people are actually working for their income. I believe most people would be broader in their definition and say a rich person has high income regardless of the source.

Your dad was illustrating what I would call being a capitalist. Someone who is receiving returns from money they have invested. Another term for that is rentier. While that's a perfectly valid idea and its hard to do without some accumulation of assets, I would argue its independent of "rich" and "wealth".

Many folks live off the income from their assets. So that fits your father's definition of "have their money work for them." But a lot of folks in that category have very limited assets and very limited income. They wouldn't be considered rich or wealthy by most people.

If your underlying point here is not to argue over the meanings of these terms but to illustrate that accumulating assets is the key to achieving what's often called "financial freedom", then I fully agree. When I give someone one tidbit of financial advise its simple: "Spend less than you make". Doesn't matter how much you make if you heed this advice you will accumulate assets. If you don't you will be in trouble.

I'd also agree with your point that its possible to have a lot of income and yet have very few assets. You may be able to live high on the hog for a while, but if the income disappears your lifestyle will suddenly change. By using that income to accumulate assets ("do what other people can't" to use Dave Ramsey's words) you can build up an second income stream that won't go away if the original source of income does. Allowing you to "do what other people can't."

But whether you ever achieve being rich or wealthy does strongly depend on how much you make. Someone born to money, which, from your descriptions of your father and grandfather, sounds like you were, has a huge leg up vs. someone born to poverty. Its fully possible for someone born into poverty to achieve being rich (high income) and wealthy (lots of assets) but they have a much longer trek to achieve than than someone who starts from a better position. And no matter how diligent of a saver you are, working a lifetime at a minimum wage job is unlikely to allow you to accumulate any significant assets.