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The short version

  • Wealthy and rich might seem like the same thing, but the two have deep differences in income, assets, consumption patterns and debt.
  • Though the rich can look wealthy, the term mainly describes a group of people who live at the top of what we loosely refer to as “the middle class.”
  • Wealthy people own income-producing assets and live out of their wealth, not out of earned income.
  • It is possible for people of average means to become wealthier by following the same practices and lifestyle habits as the wealthy.

Wealthy vs. rich people: What’s the difference?

Perhaps the best description of the difference between wealthy vs. rich comes from an exchange I had with a wise friend some years ago.

We were driving through a neighborhood that could be described as well-to-do by just about any standard. I commented that the neighborhood represented “real wealth.”

My friend immediately took issue with my assessment.

“Nope,” he shot back quickly, “This neighborhood isn’t real wealth – it's high income. There’s a difference between the two.”

That was my first exposure to the distinction between wealthy vs. rich. I never actually thought about it before then.

Superficially at least, the rich have many of the same characteristics as those with true wealth. To the untrained eye, the rich and wealthy can appear to be the same. But beneath the surface, they’re anything but.

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Snapshot of what it means to be rich

The rich lifestyle puts the individual, couple or family near the top of the upper middle class They’re more successful than most others in the category – but still very much middle class.

Income

Rich people are high income earners but live on their current income. That can be earned income, gifts from wealthy parents, or even financial windfalls, like a legal settlement or the sale of the property.

Assets

Rich people commonly hold consumer assets. This might include a primary residence, a vacation home, late-model cars, entertainment equipment, and jewelry. “McMansions” are often a must-have.

Consumption Patterns

The rich typically “invest” in consumption. That includes all the usual suspects, like expensive vacations, frequent dining out, participation in expensive hobbies, and lavishing themselves with a steady stream of the latest and greatest stuff.

Debt

Leverage figures substantially in the rich lifestyle. Oversized mortgages will be used to purchase McMansions, while multiple car payments are hardly unusual, to say nothing of a high level of perpetual credit card debt.

This debt can actually put the rich in a precarious financial situation, all while appearing to be prosperous on the outside because of their apparent consumer goods and luxuries.

Snapshot of what it means to be wealthy

While the rich focus mainly on the outward appearance of prosperity, wealth represents its true substance. For example, a rich person lives in a luxury apartment building, while a wealthy person owns the building.

Income

While the rich live off their income from their job, the wealthy live off their assets. This could include income from passive business interestsrental real estate, and their investment portfolio. Though the wealthy may hold what looks like a traditional job, they're usually in a controlling position and are not reliant on the income it provides.

Assets

This is perhaps the fundamental difference between wealthy and rich. The wealthy tend to accumulate a large asset base, resulting in a very generous net worth. But rather than investing in consumer goods, the wealthy invest in assets that produce income. This can include businessesincome property, and stocks and bonds.

Consumption patterns

Though many wealthy people live levels at or above that of the rich, it’s not usually a defining drive. For example, they might not care about buying a McMansion. Warren Buffett is famous for living in the same house he purchased in 1958, despite later becoming a billionaire many times over.

Debt

If the wealthy use debt, it’s typically used to purchase income-generating assets. And they tend to be the type of assets that will generate a positive cash flow despite the debt. Large consumer goods, like a personal residence or a car, are usually bought with cash.

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Is it better to be rich or wealthy?

The answer to this question is subjective, but I’m pretty sure most people would consider the wealthy to be the better option of the two. That’s because the wealthy have more control of their income and assets and are usually the final decision-makers in their own lives.

The rich might look very similar to the wealthy through the eyes of the person who isn’t rich, but they frequently have most of the stresses associated with middle-class life.

For example, job security is a constant threat because the rich are job-dependent. In fact, it may be even more so than it is for most members of the middle class since high-paying positions are not as common as moderate- and low-income jobs.

The rich also have the stress of inadequate financial security. Despite the outward appearance of prosperity – or even wealth – the high level of debt they live with, and the relative absence of income-generating assets, can easily leave them just as concerned about their futures as people in the middle class.

Finally, the rich tend to be overly concerned with their lifestyle precisely because they are at the top of the upper-middle class. They might have patterns of consumption that limit their ability to build long-term wealth.

By contrast, the genuinely wealthy tend to be unconcerned with showing off their lifestyle and competition with others isn’t a significant factor. After all, when you reach a point where you can earn a comfortable living without having a job, you naturally tend to be less focused on social trends and consumer patterns.

How to get wealthy from where you are now

Next to being curious about the difference between wealthy vs. rich people, I’m guessing this is why you clicked on this article and have read it this far.

With that in mind, below is a general multi-step strategy to help you get to wealthy from where you are now. While these tips aren’t likely to make you as wealthy as Elon Musk, they will gradually move you closer to the wealthy camp than the rich one.

1. Practice living within your means

No matter how much you earn, learn to live on less. Getting on a budget can help make that happen.

This is actually the single most important strategy if you want to practice the patterns of the wealthy. By learning to live on less than you earn, you will be able to save more money and reduce the amount of money you need to live on.

That will speed up the day when you may be able to generate enough income from your assets that you can quit your job – which is the true sign of being wealthy.

More: Budgeting strategies — which one is best for you?

2. Divorce yourself from popular consumption patterns

You don’t need the latest and greatest toy or widget. Forgoing them will help you live within your means. It will also lower the temptation to go deeper into debt since that’s a critical part of how people consume these days.

3. Become a committed saver

Start by saving 5% of your pay. Gradually increase it by raising the percentage each time you get a pay raise. The higher the percentage you save, the closer you are to wealth. 10%, 15%, 20% or more is a worthy long-term goal.

Banking windfalls, rather than spending them, will jumpstart your saving and investing effort. And if you’re really ambitious, develop a side hustle or sharpen your job skills to put yourself into a better position to get a higher-paying job or promotion.

More: Best high-yield savings accounts

4. Begin investing as soon as possible

Make sure you have enough emergency funds to cover three- and six-month living expenses. Then invest everything else. You don’t need to get fancy; dollar cost averaging into index funds will do the job.

The sooner you begin investing; the faster and more extensive your investment portfolio will grow. For that reason, you should avoid delaying the decision to start investing until “someday.” For the wealthy, someday is always today.

Also, don’t become overly concerned with investment returns. Yes, there will be years when the financial markets will produce negative returns. But statistically speaking, the years creating positive returns outnumber the negative ones by about 2-to-1. You play the averages with investing — you're not looking for a magic formula.

More: How to invest in index funds

5. Avoid and eliminate debt

Other than your primary residence and your car, you should avoid debt. If the debt is necessary to make a purchase, admit to yourself that you can’t afford whatever you want.

Whatever debt you have, including your mortgage and car loan, set up a workable plan to pay it off ahead of schedule. The less debt you owe, the more control you’ll have over your income, and the more you’ll have available to save and invest.

More: What's next? A guide to setting long-term goals after paying off debt

The Takeaway: Anyone can start building wealth

If you’ve been worried that you’re not “rich,” it may be time to ditch that concern and aim higher. Rich is, after all, still middle class — just with higher numbers.

Instead, focus on being wealthy. That doesn’t mean you’ll fail if you don’t become a billionaire or even a millionaire. Adopting the strategies and habits of the wealthy is its own reward. At a minimum, you'll be wealthier than you are right now, making it worth the effort.

More reading for the rich and famous:

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About the Author

Kevin Mercadante

Kevin Mercadante

Freelance Contributor

Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com.

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