by: F Micheal Bridges
Over the last several months I've noticed quite a lot of chatter on
the internet regarding the "differences" between being RICH vs.
WEALTHY so I thought I'd weigh in with a few thoughts of my own
especially since I promote wealth building not building riches.
For the purposes of this article we will not be talking about
emotional or spiritual wealth, though they are certainly important.
Those are entirely different topics and warrant their own discussion.
So do you want to be rich or wealthy and is there really a difference?
I must preference this discussion by stating that it is certainly
better to be either of them than neither of them. With that said, we
will first want to get a rough idea of what the two definitions mean
so let's pull out the old dictionary. "The Lexicon Webster Dictionary"
defines "rich" as having abundant material possessions; well supplied;
abounding; producing abundantly; productive; wealthy.
Well that didn't really clarify the definition for me so let's look up
"wealthy". The same dictionary defines "wealthy" as having wealth;
affluent; opulent; ample; material possessions in all their variety;
"a collective term for riches." It appears that Mr. Webster didn't
have a firm grasp on the differences either.
OK, I guess the differences are in the "eye of the beholder" so to
speak. So let's try to define them ourselves. First think about being
rich. Imagine that you wake up tomorrow, your wish was granted and you
are now among the "newly rich". What images immediately come to mind?
Next take just a moment to jot down what being rich would mean to you.
Would it mean a new car, bigger house, a boat, long vacations?
Now repeat these two steps but this time your genie was very good to
you and "poof" now you wake up "wealthy". Did you upgrade your list of
material things? This time instead of thinking about a new car were
you imaging a Ferrari, Bentley or Lamborghini? And the bigger house is
now a mansion and the vacations are now on your yacht aren't they?
Sustaining your riches makes you wealthy.
Now comes the most important question, the one that I believe really
distinguishes the rich from wealthy. Was your wealth sustainable? Did
you still see yourself on that yacht in your "golden" years? Wealth is
sustainable. Wealth can endure for generations. Rather than working
for their money wealthy people know how to make their money work for
them.
Being Rich is a very good thing but when you stop working for the
money you will eventually run out of it unless you have studied the
"science" of making your money work for you. With the right
investments your money can work for you 24 hours a day, 7 days per
week. When you learn to make your money work harder for you than you
work for it, you will be well on your way to becoming wealthy.
The Invest To Retire website promotes your wealth building education
rather than an education in building riches. Riches can often be
fleeting. As a familiar example, it is widely reported that 7 out of
10 lottery winners are bankrupt within a few short years after they
win. Remember that all 10 were "rich" but 70% didn't know how to stay
that way. They didn't understand or perhaps even care to learn how to
turn their riches into long term wealth.
Let's assume that the day before you woke up "rich" you were within
the average of American households earning a salary of around $43,000
annually. Chances are that you may consider a $1,000,000 lottery
jackpot as being rich. Would you quit your job?
In order to maintain your current average income of $43,000 per year,
your $1 million jackpot would be depleted in 23 years. Remember, a
majority of lottery winners are flat broke within a few years after
winning. Assuming you did not change your lifestyle or spending
habits, you'd have 23 years of "income" at the same level you're used
to.
Twenty three years may seem like a long time, but if you hit the
jackpot in your early twenties, you'll be out of money by age 50.
Still thinking of quitting your job? Probably not.
So, what does it take to maintain the same $43,000 per year, allow you
to quit your job, and still be able to keep $1 million for posterity?
The simple answer is investing your windfall and earning compound
interest on your investments. A modest 4.3% will keep you at your
current income level (before taxes), allow you to quit your job and be
able to maintain $1 million. The most important thing to remember is
that the $1 million drives your interest earnings and you'll never
want to tap into that principal.
But, who wins the lottery and just wants to maintain their current
lifestyle? I'm willing to bet its not you.
If you want to double your current income, quit your job and maintain
that $1 million, you'll have to earn a consistent 9% on your
principal. Again, the difference between being rich and wealthy is
sustainability. Without sustaining your principal, you'll be rich but
not wealthy and your riches will surely deplete to nothing.
Odds are that you won't win the lottery or even inherit a large sum of
money. No worries, though, you can still amass wealth starting with
what you currently have.
Just like when you were a baby you had to crawl before you could walk,
the same is true with investing. You will need to educate yourself
about the basics of making investments that produce safe, secure,
consistent returns, making your investments work for you. Remember the
proverb: "Give a man a fish and you feed him for a day. Teach a man to
fish and you feed him for a lifetime". Nowhere does this hold truer
than with building your wealth.
Even if you are not currently a high income earner you can become rich
in a relatively short time if you actually implement investing
strategies that produce high and consistent returns on your
investments. And if you learn to mange your investments to make them
work for you, you will be on your way to becoming wealthy.
Being rich is a function of how much you earn. Don't confuse being
rich with earning a high income but at the same time drowning in debt.
Becoming rich requires the knowledge to make money or in some cases
luck. Becoming wealthy requires the knowledge to use that money to
make even more.
Recently I heard a straight forward definition of rich vs. wealthy
that I like. It was defined as "a pro athlete is rich and the guy that
signs his check (team owner) is wealthy". I sort of think of Wealthy
as Rich on steroids.
About The Author
There is definitely a difference in the two meanings and I get into
more details of create wealth at my website, Invest To Retire.
Please visit the site http://www.investtoretire.net for instant access
to additional wealth building tips, techniques and secrets.
Mike Bridges
Invest To Retire
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