Is there a difference between rich and wealthy? It’s easy to mistake them for being the same thing. As it turns out, they’re not. The key difference between wealthy and being rich is determined by your net worth vs your cash on hand.
What is considered rich in Australia?
Being rich is about your bank balance and how much money you have to spend. It’s about living from one pay to the next. A rich person could easily be living above their means. While they have a healthy income, their expenses and debts might exceed it. In fact, this is often the case as we tend to increase our spending as our income increases.
It’s possible to seem wealthy when you’re rich, but you’re not. Being rich is about the fancy house, the cars, the boat (and other status symbols). But, in reality if you lost your job tomorrow, you’d be in a heap of financial pain.
What does it mean to be wealthy?
Being wealthy is about your ability to work as much or as little as you’d like to because you have the financial freedom to support the lifestyle you choose. Being wealthy is really about time; it’s about how long you can sustain your lifestyle without working.
But here’s the great news. You don’t have to be rich to start building your wealth.
Wealth is possible for everyone because it’s accumulated over time by being financially savvy. Wealthy people invest and save. They make careful spending decisions, set financial goals and meet them.
An example of wealth
Now that we’ve unpacked the difference between rich and wealthy let’s consider some examples of wealth.
If you currently have $35,000 in savings and your monthly expenses are $5,000, you have enough savings to sustain your lifestyle for 7 months. Therefore, you would be considered rich.
However, if you have investments generating a passive income of $5,000 per month – without working – you are wealthy. In other words, when the income from your assets and investments are greater than your monthly expenses, you are wealthy and financially free.
Wealth is a mindset. It’s understanding that the size of your salary does not define your wealth. In fact, some people on lower incomes have been able to accumulate wealth. Instead, wealth is about how much money you keep and how hard that money works for you.
How do you accumulate wealth?
There is no perfect formula for accumulating wealth. Instead, it’s about diversifying and trying different things.
Our top tips to help you build your wealth include:
- Consistently putting a realistic and appropriate percentage of your wage aside.
- Paying off your debts – keeping in mind that there is ‘Good Debt’ and ‘Bad Debt’
- Investing in your financial education.
- Working with a financial advisor to help you plan your path to financial freedom.
- Building a healthy financial mindset. Keeping those long-term financial goals in mind when you spend your money.
You don’t have to go it alone
Planning for a wealthy future, an early retirement, travel or other goals can be challenging if you don’t know how to make your money work hard for you. But you don’t need to wait until you earn a better income.
At Treysta, we work with you to develop a financial plan that considers your current situation, your desired lifestyle and, most importantly, your values.
We’ll also take the time to guide you, educate you and protect you from making investment decisions that will set you back. However, the final decision will always be yours.
Disclaimer: any information we share is general in nature and does not consider your personal situation. You should consider if the information is appropriate for your needs and, where appropriate, seek professional advice.