Psychological Finance

Being rich and being wealthy are not the same

Not everything is always what it seems

👋 Hey folks, April has landed and it’s nearly time for my favourite GIF of the year, but you’ll have to wait for next time to uncover that.

This month I want to focus on the stories we tell ourselves about money and the concept of what it means to be rich or wealthy.

Ok, let’s dive into a deep misconception that I see spread across our world.

And that is the understanding of being rich vs being wealthy.

I’m sure we often hear people interchange these words when they describe someone who they feel has a certain amount of money in their life.

The criteria used to assess such people is through the ownership of specific objects. You know, things like expensive watches, cars, big houses and all the things that our minds like to dream of owning.

But the thing is, these indicators we often use to judge who is rich or wealthy or who is not can be wrong more often than you’d think.

Let me share a few stories to bring this to life for you…

In my younger years, I worked at a small technology consultancy filled with all sorts of interesting characters (as most workplaces are). One particular team was made up of what I can only describe as a bunch of frat boys. They liked to work but most certainly liked to party harder.

Not uncommon for a bunch of mid-twenty somethings who care more about looking a part than anything else at this age.

One character in this group, let’s call them Rob, might be what many call from his outward appearance, a rich person. He had a flashy watch from some brand I can’t pronounce, a car that was in the six-figure range and a house in one of the most desired areas of the city.

He, like his father before him, was in sales. And historically, salespeople are never afraid to flaunt what they own.

Now at 24 years of age with what looked like most of life’s big tick boxes filled with a fat green tick. Rob was certainly living a lifestyle that many of us in that same generation were craving for too.

The big question was, how does he have all of this now?

I mean he worked in sales, yes, but most of us were too and the consultancy was only small. So how was Rob generating the money needed to create this lifestyle?

Some said it was down to bonuses and others would tell you that he’s played the stock market well (whatever that means). Whatever it was, Rob was doing well and we thought he was swimming in the cash.

People would say he’s rich and that he’s built great wealth.

Let’s fast forward a decade to when a chance encounter with an old work colleague finally brings some clarity to our story.

I was out at a bar in the city one cold autumn evening and by chance, an old colleague was there too. We swam in some of the same friendship circles so inevitably these encounters happen from time to time.

Anyway, after the usual pleasantries and the reliving of days gone by. The topic turned to the usual follow-up of where some of our old colleagues are today. That’s when the topic of Rob randomly dropped in.

This old colleague started their story with the age-old clickbait conversation headline of “Did you hear what happened to Rob?”

And of course, my primal brain was intrigued and I replied “no” but now I really want to know (damn primal needs for acceptance!).

Up till this point, I was of the thought that Rob had been living the dream somewhere with his rich lifestyle, probably had a yacht and had sold one of those books on living your rich life or something (you go Rob!).

Yet that couldn’t have been farther from the truth.

Although from the outside it seemed like Rob was rich and building his wealth. Reality did not match the visions.

Turns out, despite all the materialistic goods on show, Rob was poor.

The fancy car, clothes and house with the picket fence were no more. Instead our pal Rob was living at home with their parents, driving a more modest car like the rest of us and was no longer sporting the flash jewellery.

So what happened?

Simple really, greed and living above one’s means.

On the outside, Rob looked like he was rich and building wealth, But the reality was that he was on the same modest salary as the rest of us but drowning in debt with loans, credit cards and eye-watering mortgage repayments.

Rob is the classic example of what people think is rich.

Now let’s look at the other side of the coin

A quiet approach to building wealth.

I’ve known a few characters in my time that fit the bill of wealthy. For this story, let’s call the character I’m going to speak about, Tom.

Tom was a quiet fellow, a nice chap but stoic in most instances.

As an introvert, I liked how he was always cool, calm and wanted no part of any drama. From outward appearances, Tom was another normal everyday human.

He turned up to work at 9 and left at 5.

He had the basics that he needed to survive, clothes from an everyday store, a basic watch that did the thing that all watches just need to do, tell the time.

Tom had a small car for him and his partner, but most times chose to either take the train or on many occasions in the summer months, he’d cycle to work even though he lived 10 miles away in a quiet part of town.

On the surface, our friend Tom was just the average human living his life.

One day an invite hit my calendar titled “Tom’s retirement party” At the first time reading this, I was confused. Tom was only about 50 years old, which was quite young to retire, so I was surprised at what I read.

Of course, I turned up to the party to not only congratulate our friend but also find out why he’s retiring so young. I felt like Tom had some secret code that I needed to discover or perhaps a rich relative somewhere who left an inheritance that enabled him to dive out of the world of work.

My chance to connect with Tom at the party came around and as fate would have it, his story of how retirement was possible at this age was not as glamorous as I had imagined, but was no less genius.

When I asked Tom about his strategy to exit the game and any secrets he could share, this was his response.

“I have no secrets to share. It’s all quite simple really” I followed up with “simple, what do you mean by that?” Tom gave me his usual Stoic glare and went on “Well, I didn’t do anything special. I’ve spent the last 30 years living within my means. I always spend less than what I earn and have religiously saved in pursuit of attaining the thing that I wanted money to give me”.

My mind now firing at 100 miles a minute then spurted out “And what is that?”. Tom paused and smiled, “Freedom. I’ve lived somewhat stoically so I can have the freedom to decide what I do with my own time. I don’t care about fancy cars, homes or the latest shiny things. What I do care about is spending time with my partner, my children and how I get to spend my time in this life”.

“Huh” I replied, and then thought to myself, this guy has really cracked the code. It just wasn’t the one I expected.

Our friend Tom is the essence of what true wealth looks like.

Wealth is not about how much money you earn but about how much money you save.

Tom lived by simple principles of spending less than what you earn. Not overstretching to buy things that add no value to life. By doing this, he was able to attain more control of our most precious resource, time.

This is the difference between rich and wealthy.

Many people like Rob seem rich. On the outside, they have lots of flashy stuff but not a penny to their name in their bank account.

Whereas our friends like Tom play at their level, not overarching to impress others and are truly wealthy because their outgoings are less than what comes in monthly.

The world is filled with many people that earn £2 -3 million a year and spend all of that on their expensive houses, flashy car and fancy clothes.

These people are not wealthy. They spend more than what they earn annually.

Whereas you could earn £50k annually, only spend £35k of that on your lifestyle and save £15k per year.

This is real wealth. No debts, no loans and credit, just saving money compounding every day to give you a bit more freedom.

TL:DR (Too Long: Didn’t Read)

  • Rich = those who spend all of what they earn to sustain a high-level lifestyle.
  • Wealthy = those who spend less than what they earn, save and manage their money within their financial level.
  • Anyone can be rich or wealthy.
  • The outcome of these paths leads to different gains in life.

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And remember…

A disclaimer, I’m not a financial adviser and none of what I share with you through the window of your inbox here is financial advice in any way. Everything shared is for educational purposes only.

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Ross Stevenson

Ross Stevenson

Writer of thoughts, Learning + Career Consultant | Owner www.stealthesethoughts.com and its weekly newsletter.