Are you rich or wealthy Knowing the difference could change your life

We often hear the terms rich and wealthy used interchangeably, but they actually have very different meanings. If you’ve read Morgan Housel’s book, The Psychology of Money, he describes being rich as a function of how much money you earn, while wealthy refers to having the freedom to do what you want with your time. Unfortunately, too many rich people use their income as a way of validating who they are as people, putting the emphasis on acquiring stuff instead of building wealth.

Our perception of wealth is often influenced by our upbringing. How did your parents talk about money? Were they always worried about bills? Did they always seem to be buying the latest and greatest devices or did they focus on saving and investing for the future? And then, as we get older, our peers and their material possessions can impact our perception of wealth. If you're constantly surrounded by people who drive fancy cars and live in big houses, it’s easy to equate wealth with having these things. You can feel like you have to keep up, and that influences lifestyle choices and spending habits. Social media has also played into this notion.

So let’s get back to defining the difference between being rich and being wealthy.
Being rich is having a high enough income to spend money freely. It’s more about what you earn and what you can buy. A lot of it is about living for today.
Being wealthy, on the other hand is having a high enough net worth that it gives you financial freedom. It’s about what you save and invest over time.

You might be thinking, "Can’t someone be both?" Absolutely! Many people with high incomes manage to translate that into a high net worth. That’s ideal. But it’s not a given. We’ve all heard stories of households with high incomes that live beyond their means, leading to financial stress despite outward appearances of being "rich." And on the flip side, there are those with more modest incomes who manage to live well below their means, allowing them to accumulate a solid net worth and achieve a sense of security and freedom that some high-income earners never experience.

We’ve all heard the saying, “Money doesn’t buy happiness,” but we live in a consumer-driven economy where we are constantly being told that more, bigger and better is the path toward happiness. The truth is that money can provide comfort, convenience, and the ability to enjoy amazing experiences. But, if you're fundamentally unhappy, no amount of money will fill that void.

A study from the University of Pennsylvania backs this up. Researchers found that unhappy people see their happiness increase up to an income of $100,000 a year. After that point, more money doesn't lead to more happiness.

So, what does this all mean? To me, it suggests that while money can certainly make life easier and more enjoyable, it’s not the be-all and end-all of happiness. There’s so much more that goes into the equation—our relationships, our health, our sense of purpose. And it’s worth remembering that these factors don’t have a direct price tag.

Personally, I care more about building wealth than being considered rich. But I also recognize that increasing your income can make your life a whole lot easier—if you manage it wisely. The hard part about money is being content with what you have. And that’s something I think we all struggle with at times. We often experience lifestyle creep as our income rises. We might buy a bigger home, a more luxurious car or go on fancier vacations. Of course, there should be a balance between living for today and investing in the future – but before you automatically buy more ‘things’ think about your goals in life. What is it that will bring you more peace. More joy. More security and happiness.

To me, that means getting to a point where money isn’t our biggest worry in life. If you’re constantly worried about money, it’s hard to feel truly rich or wealthy, no matter how much you make or how much you’ve saved.