What’s The Difference Between Rich And Wealthy? (2024)

A Note From Patricia:

Welcome back to Forbes Advisor’s LinkedIn Edit, where each week we’ll dive into the realities of consumer finance and empower you with the knowledge to help make your financial journey easier.

This week, we discuss the difference between wealth and riches. We’re accustomed to believing that being rich and being wealthy are synonymous, but they refer to two different populations. While someone with a big mansion, fancy car and luxury clothes may be rich, it doesn’t mean they’re wealthy.

And you can’t always spot a wealthy person by appearances alone. Warren Buffett, billionaire investor and one of the richest men on earth, reportedly drives old cars and lives in the same Omaha house he bought in 1958 for less than $32,000.

Let’s dive into the real definitions of the terms “rich” and “wealthy”, and why you can’t use them interchangeably. We’ll also provide tips on how to build your own wealth.

We would love to hear your thoughts or experiences in the comments section below. Have a wonderful day and hope to hear from you soon.

Sincerely,

Patricia Louis

Editor, Forbes Advisor

Why Being 'Rich' Or 'Wealthy' Isn't The Same Thing

The real median personal income in the U.S. for 2022 was $40,480 according to the U.S. Census Bureau, but to be considered rich or wealthy you need to bring home a lot more. According to the Economic Policy Institute, you need to earn at least $421,926 to be considered part of the top 1%. But while everyone in this group is rich, it does not mean they are wealthy.

To be considered wealthy, your assets must be more substantial than your liabilities, with them generating an income large enough to cover your fixed expenses (such as rent or mortgage payments, car payments and insurance premiums).

Wealth is also about sustainability. Whether you inherit your money, win the lottery, or have a high-paying job, to be classified as wealthy, your income sources must include investments and assets that can produce income for years—or generations—to come.

People who are rich tend to stretch their money to the max by purchasing big homes, lavish vacations or luxury vehicles. Meanwhile, wealthy people tend to think about the long-term and bigger picture. The wealthy focus on their legacy and securing financial stability by investing in real estate, the stock market or small businesses. Their spending is more reflective of their goals than their image.

So, is it possible to build wealth if you weren’t born rich? Experts say yes, and these are the five steps they recommend taking to get there:

• Live within your means: Create a budget and look for areas to cut back on spending. Even the wealthiest people make drastic changes to free up cash flow, such as downsizing their homes or refraining from non-essential purchases.
• Save for emergencies: Even if you’re rich, an emergency or job loss could be devastating. That’s why it’s highly recommended that you create an emergency fund that can cover three to six months of expenses.
• Invest: Instead of letting your cash stagnate in a low-interest savings account, invest in the stock market to generate additional income. Since 1971, the S&P 500 has delivered an annualized return of 7.58%—or 10.51% with dividends reinvested.
• Set aside money for retirement: Start setting aside money for retirement sooner rather than later to preserve your wealth and retire comfortably. The general rule of thumb is to set aside 12-15% of your income.
• Boost your income: This can take shape in many forms, whether it’s working hard to get a promotion, opening a new business or starting a side hustle. A higher income can allow you to free up cash for other money-generating activities.

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