The words “rich” and “wealthy” are often used (incorrectly) as synonyms, but would it surprise you that they’re quite different? What we assume to be a rich person may have no wealth. And often, wealthy people don’t look rich at all. In this article, we’ll explain the difference between rich and wealthy. We’ll also discuss why creating sustainable wealth should ultimately be your financial goal.
What does “Rich” look like?
Someone who Is deemed as “rich” may make a lot of money, but then spends it frivolously. They might:
- Drive an expensive sports car
- Wear designer outfits
- Buy expensive properties
- Drop a lot of money on a bottle of wine
People often think of themselves as “rich” because they can afford a new smartphone every year. But unfortunately, this type of lifestyle is only sustainable if the person’s income (or credit cards) can keep up. If their company downsizes, they might suddenly find themselves in debt, with no income.
We’ve all seen the story of the lottery winner, famous actor, or number one draft pick that suddenly found themselves with a lot of money. Yet as time goes by, after years of living large, their funds dry up and they end up filing for bankruptcy. Unfortunately, without good money management skills, people can easily spend more than they earn (on mansions, sports cars, and lavish parties). So, while it’s great to have a high income, it’s even more essential to manage, save, and invest what you earn.
What does “Wealthy” look like?
While income defines “rich,” it doesn’t define “wealthy.” Regardless of the dollar amount, wealthy people take their income and churn it into assets that will help them during their lifetime. Investing in a condo and having passive rental income on top of a salary is one of the most popular examples of owning assets that pay you back. Another example could be sitting down with a Williams Financial advisor and creating an investment plan that will yield good returns in the long run. Even if a wealthy person loses their job, they have enough assets that they won’t suddenly find themselves having to change their lifestyle and habits drastically.
In general, wealthy people may not wear flashy clothes, drive luxury cars, or even live in huge mansions. They manage their income by:
- Being frugal
- Saving as much as possible
- Converting their income into assets
- Creating multiple streams of passive income
- Not spending more than they earn
What’s the best way to go from rich to wealthy?
To go from rich to wealthy, you’ll need to convert your income into assets. Assets generate a passive income stream that will sustain your lifestyle, even if you suddenly lose your job. It’s also a good idea to have multiple passive income streams. Some examples include:
- Rental income from properties that you own
- Proceeds from a book you wrote
- Owning part of a business
- Patenting or licensing a piece of technology or software
- Creating digital content and earning income via subscriptions or internet ads
- Having solid, long-term investments
In short, assets equal wealth. Assets don’t just go away since they’re not immediately liquid. Simply having a lot of cash doesn’t make you wealthy since that cash can disappear overnight depending on how you spend it. At the end of the day, it doesn’t matter how much money you make; it matters how much you spend and your long-term investment strategy. Our suggestion is to spend wildly on the things you truly love and cut back significantly on those that don’t matter as much to you.
Financial Goal: Sustainable Wealth
At Williams Financial, we want to help you build sustainable wealth. Sustainable wealth means you have assets in your name that generate passive income to sustain your financial lifestyle for the rest of your life. When you sit down with a Williams Financial advisor, we first show you how much you spend on your current lifestyle. Then, we will run three to four other scenarios on strengthening your financial situation and increasing wealth.
With sustainable wealth, you’ll get the most important thing in life back: time. Earning money while you’re sleeping without lifting a finger means you have more time to devote to things you love. If you decide to take six months out of the year to travel, you’ll have the time, financial stability, and freedom to do so.
If you’re looking to maximize your wealth, we can help! Contact us today to speak with a Williams Financial advisor.