What is the difference between someone who is rich and someone who is wealthy?
A rich person is someone who wears money on his sleeves. He drives fancy cars, has an expensive home and splurges on luxuries.
But a rich person is not necessarily a wealthy person. All we can see from the outside is the amount of money that has already been spent. The only useful information we have is that we know there was enough money to pay for these goods at some point and it has now been used up. Sometimes even that is not the case – financing options have now become so easy that someone could be spending money they don’t even have.
A wealthy person is someone who has a lot of money – but it is mostly unseen. Of course, this is in terms of financial wealth. There are many other sources of wealth, but for the sake of this post let’s consider only the wealth due to money.
Ben Carlson has pointed to an anecdote in the book “The Next Millionaire Next Door” which studied nearly 10,000 US households to discover the habits and purchase patterns of millionaires. Can you guess what is the most common type of car they buy?
Did you guess something from a brand like Porsche, BMW or Jaguar?
Guess again – more than one-third bought a car from Toyota, Honda or Ford. And more than 41% drove a car that was 4 years or older.
Surprising right!
But if you think about it – it makes a whole lot of sense. A car is an asset whose value goes down over time – particularly in the initial years. The higher the cost of the car, the more money you will lose on it in the first year or two if its brand new. And this is just the sticker price – the total cost of ownership of a car is significantly higher. There is maintenance, insurance, fuel and many other costs that should be included.
The wealthy are making a prudent choice by not spending too much on their cars relative to their assets. And they use and maintain their cars for a long time so that they can have the least amount of drag on their finances.
This is not some conspiracy of the wealthy – but it is a difference in mindset and can be adopted by anyone. At its core it is about not overextending ourselves financially and reducing the drag created by assets that will lose value over time. This enables any money that is saved to be invested to create wealth in the future.
So, what do you want to be – Rich or Wealthy?