Rich vs Wealthy: is there a difference?
This week, I had a chat with Jeanne, a client who has been unhappy because she hasn't been able to reach her dream of becoming rich by working in one of the top 500 companies.
I asked her: “What does rich mean to you?”
She replied, being rich is to be successful, which is translated: 1) work in a prestigious multinational company 2) be rewarded for her hard work with a generous pay of $250,000 annual gross income
Now, Jeanne, 39 years old, a former straight-A student in Poland, is now a dedicated manager living in Providence, USA.
She's got a vision, but she's fixating on a rich life, not a wealthy one.
Let's dig deeper.
It's 8ºC but it feels like it's minus 5 with the humidity level (there is no heater system in Hong Kong apartments). All I want is to stay in bed with hot chocolate.
Today's talk:
- Time is money
- Wealth is what you cannot see
- Moving the goalposts
- Conclusion
Time is money
Based on their definition, ‘rich’ and ‘wealth’ are synonymous and interchangeable.
Yet, in reality, there is a large gap.
Rich allows you to spend money, but how you spend it will dissociate you from being rich or wealthy.
To me, rich usually means cash-rich. You can buy a lot of things. It’s what you can see: the house, the job title, the clothes, the car, the holiday you go on. And to get this cash, you trade your time at work for it.
On the other hand, wealth is not spent today but will eventually generate more cash for you in the future. It’s invisible. And wealth can give you some freedom, where you aren’t tied to a job to bring you income. You no longer need to trade time for money.
Jeanne lives well; she has a beautiful loft and no kids, and all her savings go to reinvesting in herself, collecting more degrees and certificates. On paper, she's rich, but she isn't wealthy.
If she stops working tomorrow, she can't sustain herself.
“Saving money is the gap between your ego and your income, and wealth is what you don’t see. So wealth is created by suppressing what you could buy today in order to have more stuff or more options in the future." ― Morgan Housel
Is time money for you?
Wealth is what you cannot see
When do we know if we are “rich” or “wealthy”? How much is enough?
Well, it depends.
When we talk about being rich, it's all about having the cash to buy the things we desire: the latest gadgets, new experiences, etc. For one, it could be beyond USD $3,000 monthly income. For others, it could be $20,000 onwards.
There is no right or wrong in the answer. Regardless of the amount, the vision is uniquely yours.
At the end of the day, being rich is an end goal per se, whereas being wealthy is just a means to live your more fulfilled life, and being wealthy doesn’t require a large amount of money if it’s not what you want.
Everyone can create wealth with only one condition - that it’s much harder than it sounds: spend much less than you earn today.
There is an underlying condition: you must learn to balance your wants and needs so that your wealthy life becomes a conscious choice rather than a default state.
What's your definition of wealth?
Moving the goalposts
Increasing your lifestyle as your income increases overtime is commonly known as ‘lifestyle inflation’. And this phenomenon is more common than you think.
The trickiest part of it? It’s very hard to downgrade once you have gotten used to the luxury, the space or the service.
Jeanne's life goal of working in the top company has remained the same (mostly because she hasn't reached it yet).
But everything else, her goals, keep moving forward every time she reaches it. That includes her house taste (her house is getting bigger), her fashion style (her price per item is getting higher), her hobbies (her vacation is getting fancier)...
"The world as a whole has never been richer, and it has never been more heavily in debt, living off borrowed money. The record shows that, for society, the richer we become, the harder it get to live within our means. Abundance is harder for us to handle than scarcity.” - Nassim Taleb
Not everyone earns $160k a year, but before you judge them, how many people do you know to go treat themselves in a more expensive restaurant or move to a fancier apartment when their salary jumps.
What is the list of things you already have that don't need to be ever upgraded?
Conclusion
Let's go back to Jeanne's rich life vision:
- work in a prestigious multinational company
- be rewarded with a generous pay of $250,000 annual gross income
I am a big advocate for designing goals and dreams that guide one toward a chosen direction.
Yet, there is absolutely nothing wrong to want to work for a large multinational UNLESS it makes you feel miserable every day because you believe you're a failure as a result of an external environment (the current economy, HR recruitment process, political decisions...).
A goal is here to guide you, not to punish you.
She doesn't save, believing a 30% salary bump will fix everything: meet her needs and start to save.
Do you believe her? History shows it won't. Her income has increased in the past, and that has not solved her current problem. She wanted more.
The way you manage your money is a reflection of how well you treat yourself.
By now, you must know that wealth is very personal, and isn't restrained to economic terms. You can be wealthy in relationships, time or friendships. Choose the wealth you want to prioritise.
Don’t let 2024 be a repeat of 2023.
Thank you for reading, and build your wealth mindset 💪
I wish you a lovely and caring happy holiday season!
Sophie
*PS - Jeanne isn't her real name.
*PSS - Reply this email and share your wealthy life vision! I'd love to hear your opinion :)**
