The other day my kids and I had a car ride conservation about the term “rich.” This topic came up when my daughter said some of her classmates got into one of those “my family isn’t rich – yours is” arguments. Yes, my daughter was an active participant and not just a spectator. In this instance her classmate said we are rich because we go on long vacations to random places (Peru most recently). My initial reaction was to say “it costs more to spend a week in Disney World than it does a month in Peru” but I am an adult now and I realized I could come up with a better answer.
Before I give you a long version of my answer I want to address one issue. I could easily go off on a tangent about how “rich” we all are in the United States compared to some other places in the world. Anyone who has been to a less well to do country can easily tell you how good we have it here. However, this would get me way off my subject of “rich” vs. “wealthy.”
When I think of someone being “rich” I usually think about the lifestyle of people that Seem “rich.” I tend to think of “wealthy” a little differently. Wealth isn’t always visible and can be very sneaky. I think of “wealthy” as earning money from you assets. In other words your money is making money for you (through dividends, capital appreciation, or rent income). Let’s look at two families and see which might be “rich” and which might be “wealthy.”
Family A has a combined income of $250,000 a year. They live in a 4,000 sq. ft. house with all the niceties you can imagine (and a $500,000 mortgage). The three car garage holds an Audi, a Lexus (no luxury brand discrimination here), and a boat for when the weather is nice (all leased). Since they have plenty of money they also eat out most nights, have all the newest tech gadgets, and the kids get everything they could possibly wish for.
Family B on the other hand has a combined income of $100,000 a year. Their house is nice but not extravagant (and paid off). The cars in the garage are 10 years old and paid for (I can only assume they have some bikes in there too). Eating out is something they do when traveling – not at home. They have plenty of technology (but it’s a bit dated), and the kids, while not wanting, are certainly not spoiled. Most importantly family B is debt free and their savings would last several years if their income was reduced to zero.
To wrap up my little speech for my kids (too long?) I said, “does family A seem to be ‘rich?'” I think so. Yet would their “rich” lifestyle survive a drastic reduction in income? Perhaps, but I bet they would be in full panic mode if their income was reduced down to zero. Family B on the other hand would have plenty of time to figure things out due to their “wealth.”
So always remember, looks can be deceiving.
Is it possible to be “rich” and “wealthy?”
Of course, but if you have to choose one I say pick “wealthy” over “rich” any day.
Enjoy the ride,