Being rich also has a tendency to flaunt a lot of material possessions, including a big house, nice cars, expensive clothing, etc. While having these possessions are not only had by the rich, the rich buy them so they can “look” rich but don’t necessarily have the means to own them.
A popular term originated from the title of a comic strip beginning in 1913 that depicted the McGinis family who were diligently trying to climb the social ladder and struggled to “keep pace” with their neighbors, the Joneses. What was the title of the comic strip? “Keeping Up with the Joneses”. This is a popular term still used today referring to comparing yourself to your neighbors or others around you for the accumulation of material possessions.
Wealthy
On the other hand, to be wealthy goes beyond material possessions. When you are wealthy, you are not spending all your money on acquiring material possessions to “look” rich, instead you are looking to accumulate assets that will increase in value over time.
While the wealthy may spend on some material possessions, it is not what defines them. In fact, you may not even know that they are wealthy by looking at them. A popular book,The Millionaire Next Door, researches the concept of wealth and found that many millionaires were grouped around middle-class and blue-collar neighborhoods and not in more affluent and white-collar areas.
When you are wealthy, you are focused on the most valuable and scarce asset we all have–Time.
In order to take back more of that time, the wealthy looks to build long-term wealth through increasing net worth, building multiple streams of income, and spending less than you make. Your ultimate goal is to build enough streams of income, preferably passive streams, so you can make work optional and live purposeful lives.
Differences between wealthy and rich
The primary differences between being wealthy and rich are time and freedom. When you are wealthy, you have the time and freedom to do whatever you choose to do.
When you are rich, your time is sucked up trying to make more money to stay ahead of the Joneses and keep up the look without drowning in debt.
In short, a rich person is not necessarily wealthy; however, if you are wealthy, then you are also rich.
What does it take to be wealthy?
Schwab’s 2023 Modern Wealth Surveydiscovered that people in the U.S. believed they needed a net worth of $2.2 million in order to be wealthy. What’s interesting is the same surveyed believed they needed a net worth of $560,000 to feel wealthy.
Schwab Modern Wealth Survey 2023: https://www.aboutschwab.com/schwab-modern-wealth-survey-2023
I don’t believe there is a specific number that determines whether or not you are wealthy. Wealth is personal and is determined by your lifestyle and personal spending habits.
How to increase wealth?
If you are looking to increase wealth, there are 4 immediate actions I recommend you take starting today.
- Create a budget
- Save 15% of your income
- Pay off unhealthy debt
- Develop multiple streams of income
Create A Budget
If you want to start building wealth, then you must know your current financial situation. In order to best understand this, you need tocreate a budget. This includes knowing your exact amount and the source of the income, and your amount and the type of expenses.
For some, it may come as a shock that your income can’t cover your expenses. It’s good that you catch this before the situation gets any worse.
Once you know your income and expenses, you can create a budget keeping you within your income limits and help you with the following two actions.
Save At Least 15% of Your Income
This is the key to financial independence and building wealth. If you spend everything you make, then there is zero chance you will ever make it to financial independence.
I recommend starting by saving at least 15% of your income to start. If you really want to accelerate the journey to financial independence and make work optional, then I you should make it a goal to save at least 50% of your income.
This will likely require you to sacrifice and eliminate certain expenses or activities you enjoy. The other option is to work onincreasing your income.
Pay Off Unhealthy Debt
There is a time and place for debt and not all debt isbadunhealthy.Unhealthy debtdecreases your net worth and reduces your wealth. Coincidentally, unhealthy debt is what is often used by the “rich” to show off their presumed wealth.
Examples of unhealthy debt include credit card debt, student loan debt, business debt, and personal debt, etc. To build wealth, you mustget rid of this unhealthy debt as soon as possible.
Healthy debt, on the other hand, helps to build wealth and increases your net worth. Healthy debt can include a housing mortgage and any other debt with an underlying asset that increases in value.
While a mortgage is debt, it is considered healthy debt when used correctly. If you are underwater in a mortgage, meaning paying more than what the property is worth, then it becomes unhealthy debt. When used responsibly, mortgage debt is powerful leverage to help build wealth.
Develop Multiple Streams of Income
When building wealth, it will be difficult to rely solely on a single or dual income. Multiple streams of income are necessary, and it doesn’t need to take a lot of time to develop.
For example, weinvest in real estateand every property we own is considered a separate business stream; therefore, one source of income. This is because you run every property differently and how you operate one property has little to no effect on the other properties. Therefore, you shouldn’t clump them into one single stream of income.
For us to develop multiple streams of income without having to be in the day-to-day of our properties, we invest in real estate syndications. A syndication is a pooling of funds by multiple investors to purchase an investment together. There are general partners, aka sponsors, and limited partners, aka passive investors.
By being a passive investor in a real estate syndication, you do not work in the day-to-day operations and only contribute capital to the investment. Syndications are heavily regulated by the Securities and Exchange Commission (SEC) and harsh fines and jail time can await those who do not follow the rules or try to take advantage of investors.
Real estate syndications are one of the primary methods we used to accelerate our journey to financial independence and made work optional.
You should look for your ownmultiple streams of income, so you aren’t relying solely upon one or two sources, like your W-2/1099 job. The goal should be to develop enough income streams to replace your primary source of income, so you can have wealth and financial independence.
Conclusion
It can be easy to mix up rich and wealth as they are close cousins. While being rich focuses on the outer appearance through the flaunting of material possessions, wealth is not as flashy and does not focus on the haves and have nots.
Wealth is focused on acquiring assets and building net worth. For many who are wealthy, you may not even know they are wealthy by looking at them.
For the rich, this keeping up with the Joneses attitude will only lead to more unhealthy debt and less wealth in the long run.
By aiming for wealth, you will gain more of the most precious asset we have, which is our time and freedom. With this time and freedom, you will be able to focus on living a purposeful life with meaning. You will be less concerned about what others think and more on how you can make a difference.
What are you doing to build wealth?
Discussing how to improve your personal finances is one of the things I discuss in myFREE Financial Independence Plan Frameworkguide that you can download below.
If you are serious about financial independence or are still thinking or learning about it, then you should get this free download. What do you have to lose? It’s FREE!
