Being rich and wealthy are too completely different things. It mainly derives from the difference between income and assets. You may have a lot of assets, but they generate little to no cash flow. Oppositely you may have a lot of cash flow from from a job, but little to no assets. Ideally we would like to maximize both, but that's not always possible. Jacob from earlyretirementextreme.com lays it out so clearly that I just had to let him tell you in his own words below...
"In the past few weeks I have written a lot about wealth and how I became financially independent (part I, part II, part III, part IV). One of my posts, Stranger in a Strange Land, elicited a response from Lily over at The Honest Dollar. Of course I had to write my own response in the comments (sometimes I just can’t help myself), but later I realized that the disagreement or apparent incompatibility was due to something else.
That something else is the difference between being wealthy and being rich. My position is one of wanting wealth. To me wealth is not about having money. Money is entirely secondary to my goal which is about the freedom from requiring an income. This freedom means that I can, within limits of course, choose to do with my time what I want. I can work a job because I like it, not because I need it. And I can stop working if I don’t like it. I can go back to school if I so chose. Or I could spend time volunteering if I so chose. In summary, my time is 100% mine. Normally I would still have to work, but I have saved and invested enough so that other people essentially pays my living expenses through interest and dividends.
The downside is that I am not rich. I am not free to buy whatever I want when I want without compromising my freedom. For instance, I have to be quite careful with how I spend my money to afford this freedom. However, if I had chosen a mortgage and other forms of debt my time would no longer be fully mine. If I paid 10% of my salary in interest on the debt, 10% of my time would not be mine but belong to someone else. I would be working for other people rather than myself. First I would have to work 100% for myself, but then 10% of that money would go to someone else. It is those 10% that would bind me to my job.
The world is set up so that people may be as rich as possible as soon as possible because that is what most people prefer. The contribution limit for 401k, IRAs, etc. are basically set so that people may become as rich as possible without becoming wealthy. Many people are not more than a few paychecks away from economic disaster. Some can’t even afford to miss one paycheck. A few are so compromised that they need their money before they get paid and thus they turn to payday loans. Taxes are predefined so that health insurance is cheaper when you are working to make someone else wealthy rather than yourself. There is a reason for that. Our entire consumer driven economy exists to make people rich rather than wealthy. The wealthy teach their kids to be wealthy, but everybody else is taught to strive to become rich. The key to getting rich is to get a college education and a mortgage resulting in six digit debts. At that point they have not choice except trying to become rich or at least break even. Wealth is no longer an option.
If you want to become wealthy and in particular if you want to become wealthy fast, you have to adopt an entirely different mindset than what the middle class is normally taught. You must work to acquire money and assets rather than things. I hate to invoke “classes” because classes are much more fluid today and speaks more of your mindset than anything else. I say normally, because the wealthy are taught something else. They are not expected to get an education to become effective cogs in other people’s machines in order to live a comfortable and predictable life. They are expected – taught by osmosis – to start companies, to take risks, and to work for themselves rather than someone else. I grew up in a nice middle class home, but I have had some friends who were “poor” e.g. they thought like poor people viz. that education or hard work was pointless and that buying lottery tickets, getting on TV, or being good at sports was their one shot of making it.
Being wealthy, rich, poor or broke is all in the mind. The mind creates thoughts and values which govern actions. Yet it is exactly when something is part of one’s mental box that it is hard to see how it shapes one’s thoughts and values. If your values are different from those of the land, you will indeed be a Stranger in a Strange Land."
"In the past few weeks I have written a lot about wealth and how I became financially independent (part I, part II, part III, part IV). One of my posts, Stranger in a Strange Land, elicited a response from Lily over at The Honest Dollar. Of course I had to write my own response in the comments (sometimes I just can’t help myself), but later I realized that the disagreement or apparent incompatibility was due to something else.
That something else is the difference between being wealthy and being rich. My position is one of wanting wealth. To me wealth is not about having money. Money is entirely secondary to my goal which is about the freedom from requiring an income. This freedom means that I can, within limits of course, choose to do with my time what I want. I can work a job because I like it, not because I need it. And I can stop working if I don’t like it. I can go back to school if I so chose. Or I could spend time volunteering if I so chose. In summary, my time is 100% mine. Normally I would still have to work, but I have saved and invested enough so that other people essentially pays my living expenses through interest and dividends.
The downside is that I am not rich. I am not free to buy whatever I want when I want without compromising my freedom. For instance, I have to be quite careful with how I spend my money to afford this freedom. However, if I had chosen a mortgage and other forms of debt my time would no longer be fully mine. If I paid 10% of my salary in interest on the debt, 10% of my time would not be mine but belong to someone else. I would be working for other people rather than myself. First I would have to work 100% for myself, but then 10% of that money would go to someone else. It is those 10% that would bind me to my job.
The world is set up so that people may be as rich as possible as soon as possible because that is what most people prefer. The contribution limit for 401k, IRAs, etc. are basically set so that people may become as rich as possible without becoming wealthy. Many people are not more than a few paychecks away from economic disaster. Some can’t even afford to miss one paycheck. A few are so compromised that they need their money before they get paid and thus they turn to payday loans. Taxes are predefined so that health insurance is cheaper when you are working to make someone else wealthy rather than yourself. There is a reason for that. Our entire consumer driven economy exists to make people rich rather than wealthy. The wealthy teach their kids to be wealthy, but everybody else is taught to strive to become rich. The key to getting rich is to get a college education and a mortgage resulting in six digit debts. At that point they have not choice except trying to become rich or at least break even. Wealth is no longer an option.
If you want to become wealthy and in particular if you want to become wealthy fast, you have to adopt an entirely different mindset than what the middle class is normally taught. You must work to acquire money and assets rather than things. I hate to invoke “classes” because classes are much more fluid today and speaks more of your mindset than anything else. I say normally, because the wealthy are taught something else. They are not expected to get an education to become effective cogs in other people’s machines in order to live a comfortable and predictable life. They are expected – taught by osmosis – to start companies, to take risks, and to work for themselves rather than someone else. I grew up in a nice middle class home, but I have had some friends who were “poor” e.g. they thought like poor people viz. that education or hard work was pointless and that buying lottery tickets, getting on TV, or being good at sports was their one shot of making it.
Being wealthy, rich, poor or broke is all in the mind. The mind creates thoughts and values which govern actions. Yet it is exactly when something is part of one’s mental box that it is hard to see how it shapes one’s thoughts and values. If your values are different from those of the land, you will indeed be a Stranger in a Strange Land."
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