When I was a kid, I made all kinds of promises to my family about what I would buy for them when I became rich and famous. A WWII fighter jet for my dad, luxurious vacations for my mom, and cars… lots of cars.
Getting Rich vs. Building Wealth
While many people use these terms interchangeably, I think the way that we talk about being rich vs being wealthy clearly indicates that they have subtle, but meaningful differences.
Being “rich” is more about signaling the amount of money you have to the people around you. Usually this is done through increased consumption and showing off your higher income. “Wealth” is all about quietly building up a nest egg that can provide you with long lasting financial freedom and security. It’s harder to spot because that money isn’t being spent.
Earning more money can certainly come with a lot of benefits. And we want you to increase your income! Still, so much of personal finance is affected by how we view our money and the world around us. On the surface it might seem trivial, but placing a greater focus on being rich can actually stifle our ability to build long term wealth and achieve financial freedom.
What does it mean to “get rich?”
When you think about being rich, what images come to your mind? Maybe you imagine yourself with flashy watches, fancy cars, or even of winning the lottery. Maybe it’s getting lucky with a stock trade and making millions of dollars in a second. Or maybe it’s striking it big and landing a job with a multi-million dollar salary. It could even be winning the main event at the World Series of Poker.
If any or all of those images came to you when thinking about what it means to be rich, it’s safe to say that the word itself comes with connotations of higher income, increased consumption, and a lack of financial planning or forethought. It’s more about stumbling into a ton of money and spending it in various vain ways than thinking about how this influx of cash could help you achieve more freedom over the long haul.
What does it mean to “build wealth?”
Building wealth, on the other hand, implies taking a longer view of your finances. The word “building” implies that this is something you plan to accomplish with some elbow grease. And over a period of time, likely many years.
Being wealthy is not about showing people how much money you make. You’re not flaunting the results. It’s about working towards enjoying the quality of life benefits that come with having strong money management skills, more money in the bank, and a good work ethic.
Want to go on a hike on a random Tuesday instead of being stuck in the office? Want to stop worrying about money altogether? Then you’re after wealth, not riches. It’s all about funding the lifestyle that fits your vision for your future.
Lifestyle & Mindset Differences
Getting rich vs building wealth differ beyond just definitions. In practice, they require entirely different behaviors, and the pursuit of one over the other typically yields extremely different results.
Here are a few key differences to look out for along your personal finance journey.
Focus on Income vs. Net Worth
One of the biggest differences between getting rich vs building wealth is making money vs. keeping money. Being rich, in our opinion, focuses on making as much money as possible. Growing wealth places more focus on increasing your net worth, which largely happens through the habit of investing regularly. It means having a high savings rate and socking away money into investment accounts.
Sure, for both getting rich vs building wealth, a massive income can be helpful. But if you only focus on bringing money IN, and never pay attention to where it goes OUT, you’re likely to continue living paycheck to paycheck.
Don’t believe me? More than half of Americans who make more than six figures claim they’re living paycheck to paycheck. Income isn’t everything!
People seeking to be rich typically buy depreciating assets. Like fancy cars, designer clothes, or any item that signals to others that money is no object.. On the other hand, someone focused on building wealth is more likely to buy appreciating assets. Like rental properties or a highly diversified investment portfolio. This will help to grow your net worth over time. You’re thinking more about your own future freedom than impressing the people around you.
In the long term, someone who’s trying to build wealth will have their assets working for them. Whereas someone looking to get rich will have to pursue a higher and higher income to keep up with their never-ending expensive tastes.
Related: Steps to build wealth with a small income
Different Timelines
The phrases “getting rich” vs “building wealth” also imply a difference in timeline. To “get” something happens instantaneously… You get a gift or a massive bonus check, or an inheritance. Whereas “building” something takes more time.
People in pursuit of riches often want them as quickly as possible. Unfortunately, that can lead to riskier behavior, and even sometimes getting scammed. More on that later.
That’s why building wealth, and taking a more balanced and patient approach to your money can help to protect you in the long run.
Another timeline difference is how fast money leaves your life. Usually when people get rich really quickly, they go broke just as quick when the gravy train runs out. Look at the statistics of lottery winners and you’ll notice a distinct trend. Wealthy people accumulate valuable assets over long periods of time. And it’s very rare for them to blow all their money overnight.
Keeping Up Appearances
It may sound cliche, but everything truly is not what it seems.
You might think that someone has a lot of money when you see them with designer bags, oversized homes, and ornate jewelry. But the truth is, unless you see their bank and investment accounts, you really don’t know what their finances actually look like. They could be funding their lifestyle entirely with debt! They might have lots of fancy things but still be living paycheck to paycheck.
On the other hand, with phrases like “stealth wealth” trending over the past few years, those on a wealth building journey tend to be a little more low key. With the rise of 401(k) millionaires, anyone you see out and about on a daily basis could be wealthy. Without showing any outward signs. Even that guy driving the beat up minivan could have millions stashed away in retirement accounts and you would never be the wiser!
Instead of spending money on things that make them look rich, everyday wealth builders might instead enjoy lifestyle benefits. Luxuries like only working part time, being able to travel regularly, or just feeling less money anxiety. They know they will be set in retirement with little stress. All of this is made possible by their ability to stop caring about what other people think and to do what is right for themselves and their finances.
Related: How to become a Roth IRA Millionaire
Rich vs. Wealthy Behavior Differences
Perhaps one of the greatest differences between trying to get rich and working to build wealth is that people tend to behave differently depending on which path they are pursuing.
Have you ever gotten one of those pre roll ads on YouTube where a young person is filming in front of a multi-million dollar mansion, promising to teach you the skills you need to start making a million dollars a year if you’d only sign up for their one month course?
Personally, I hate these ads because they prey on vulnerable people who are hoping to strike it rich. People pay these guys thousands of dollars to teach them skills like dropshipping and affiliate marketing. But instead of making more each year, they struggle to make back the money they used to purchase these courses. They’re treading water at best, financially sinking at worst.
These “businesses” you see ads for are usually scams, and the pursuit of riches can make you all the more likely to fall for them.
Trying to get rich can also lead you to take a riskier approach to getting money. Things like trying to time the market, or sinking everything you have into cryptocurrency. These behaviors often exhibited by people trying to get rich quickly. Folks on wealth building journeys are more likely to use tried and true slower methods of growing their money. Like dollar cost averaging, which means investing with every paycheck like clockwork.
And when you’re trying to get rich, you’re more likely to experience financial FOMO when you see other people seemingly striking it big. But in the pursuit of wealth, you can look past those flukes because you know that if you stay the course, good things are coming your way.
Sacrifices and Delayed Gratification:
Strong money habits can have an outsized impact on our lives outside of just our personal finances. They can help you grow as a person.
When you build wealth over time, it requires sacrifices and delayed gratification. Saying no to yourself when you want to get takeout some nights because it doesn’t fit into your goals, or living with roommates for a short period of time to set yourself up for financial success help you to get comfortable being uncomfortable. That’s a skill that can take you far in life. It can help you push yourself to grow as an individual, stay healthy through regular exercise, and to make decisions from a more objective perspective.
Conversely, striking it rich doesn’t necessarily help you to build discipline or practice delayed gratification. You want to make money as quickly as possible, without necessarily considering your future.
Related:
Relationship with Money
Lastly, humans tend to develop differing relationships with money based on their specific financial goals.
If you’re constantly splurging on fancy products to live a rich lifestyle, you’ll need to continue your pursuit of more money to cover those ever-growing expenses. It’s a toxic cycle of needing to make more so you can spend more. Like a treadmill that’s only getting faster and faster.
However, building wealth is all about getting your money to work for you, not the other way around. When you build wealth through avenues like investing in tax-advantaged accounts, you get to sit back and relax as your money grows via the magic of compounding returns.
How Do You Build Wealth?
So now that we’ve learned about why you should shoot for building wealth over striking it rich, here are a few things you can do to get started on your wealth building journey.
1. Set Goals
It’s tough to chase your dreams if you’re not sure what they are!
Do you want to save up a down payment so that you can start investing in real estate, or just build up enough of a retirement nest egg to live comfortably after leaving work? Spend some time thinking about what you want your life to look like 5, 10, even 30 years down the road. What part do you want your finances to play in your future?
Once you’ve given it some thought, break down your bigger goals into smaller, actionable steps so you can make some serious moves towards accomplishing your greatest money dreams!
2. Budget and Track Your Expenses
You can’t get your money working for you if you don’t know where it’s all going. That’s why budgeting and tracking your expenses are such an important part of your wealth building journey.
Consider trying one of these 4 Easy Approaches to Budgeting, or use an app like YNAB to seamlessly track your spending for you. When it comes to budgeting, it’s all about finding a system that works best for you, so don’t be afraid to make changes and adjustments to your budgeting method along the way!
3. Increase your Margin
The next step in wealth building is finding the funds within your budget to start saving and investing. You do this by increasing the amount of margin in your life. In other words, you want to slash your expenses so that each month you have more money left over after expenses.
If you’re living paycheck to paycheck, you’ll want to take these steps to break the cycle. But if you just want to increase your savings percentage, you can start by negotiating your bills and give these 7 ways to save more money this week a try.
Another way to increase the margin is to increase your income. Side hustles, career advancement, or asking for a raise will all help with this. But remember, chasing more income should happen in tandem with mindful spending. We’re not trying to make more just so we can fuel our current consumption habits!
4. Start Investing
The most important step in building long term wealth is making your money work for you.
If you were trying to get rich, you might be tempted to try and time the stock market, or go whole hog on an individual company’s stock. But that’s not you! Instead, since you’re focused on building wealth in a sustainable way, you’ll want to invest your money in tax-advantaged accounts like your Roth IRA or workplace 401k plan. Within those accounts, you can invest every month in highly diversified index funds!
Unsure of where to start when it comes to investing? Be sure to check out our article about how to invest for beginners!
5. Relax and Enjoy Your Life
Once you’ve mastered these money basics, it’s time to rinse and repeat. You can even automate some of your bill payments and transfers to your investment and savings accounts to make your money even more hands off.
That’s because there is so much more to life than money. And we want you to spend most of your mental energy thinking about more important things. Like your relationships, hobbies, and staying healthy. So if you’re dealing with a ton of money anxieties and money fears, it may be time to re-evaluate the way you balance money, work, and home life!
Bonus- Make sure to create a strategy to pass that wealth on by creating a will!
The Bottom Line:
To the untrained ear, the terms rich and wealthy sound kind of like the same thing. But delving down into what is truly implied by each term, it’s clear that there are major differences between getting rich vs building wealth.
Having aspirational goals is a really important part of your journey towards financial freedom. Focusing on building wealth for the future in a sustainable way, being content with what you have, and practicing mindful consumption can help you to live a happier and more financially stable life.
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