Many people think that being rich and being wealthy are the same thing. They’re related but not the same. You see, the rich have lots of money but the wealthy don’t worry about money.
What’s the difference?
Join me as we take a look and compare the two.
And if you missed last week’s episode, be sure to listen to Financing for Foreigners and the Self-Employed.
Enjoy the show!
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The Difference Between Rich and Wealthy (and Which is Better)
Today’s show is about the difference between rich and wealth, and which is better. Yes, there is a difference between the two. You see many people think that being rich and being wealthy are the same thing. They’re related, but they’re not the same. The rich have lots of money, but the wealthy don’t worry about money. That’s the key distinction. While the rich might have lots of money, they may also have lots of expenses that keep them up at night or they might have a high paying job, but they have to get up every day to go to work and possibly have the fear of getting laid off or getting injured and not being able to work for a long term. Either way, this situation can be stressful because you depend and rely on your regular income.
The wealthy on the other hand don’t have these worries. Why? What’s the difference? First, let’s look at the definition of wealth. The definition of wealth can be defined as the number of days that you can survive without having to physically work and still maintain your standard of living. For example, if your monthly expenses are let’s say, $5,000 and you have $20,000 in savings, your wealth is approximately four months or 120 days. Therefore your wealth is actually measured in time, not dollars.
What you want to do is build a business and invest in assets like income producing real estate to increase your cashflow. You want to add assets to your personal balance sheet that generate monthly income. Once that income from your assets exceed your monthly expenses and it does this on a predictable basis, then you’re no longer rich, you’re wealthy. You’re out of that so-called rat race. This is what I refer to as true financial freedom. It’s being out of that rat race. Now, you’ve actually created streams on income. This income can cover all your expenses and support your lifestyle, support your cost of living, support your monthly and annual needs.
Ultimately, it’s not how much money you make that matters, but how much you keep and how long that money works for you. There are a lot of people out there who make a great income and I know many of these people, yet they’re not wealthy. If they lost their business or they got injured, there’s a high probability that they wouldn’t last for more than six months to a year. There are people out there who come into these chunks of cash, who simply blow it on consumer items like bigger homes and cars and boats and vacations or whatnot. Many go into deeper debt, as in bad debt in the process of doing this. This behavior is actually what separates the rich from the wealthy.
The smarter thing to do is to use those funds to build your assets to increase your cashflow and then let that cashflow pay for those consumer items and those luxuries. What some people do to afford new things is to budget or live below their means. I’m sure you’ve heard this statement before. I don’t want to necessarily point fingers, but I believe people like Suze Orman and Dave Ramsey talk about eliminating debt and living below your means and setting yourself a budget. To me, this is a scarcity mindset. It’s a scarcity mentality. Often, it doesn’t move you forward. A better mindset is to expand your means, not live below them. If you want a new car, then ask yourself, what assets do I need to create that monthly income that will be required to pay for those assets? This builds your assets and in time, your net worth, while still being able to afford the things that you need or want.
Most people are only familiar with investing for capital gains. This is buying something at a low price and then selling it a higher price and creating a chunk of cash in the process. This is a form of trying to get rich, but when you focus on investing for cashflow, you are focused on building your wealth and creating passive income that earns you money without actually depleting or selling the original asset. The key here is to not work for your money, rather have your money work for you. If you’re wealthy, you’re able to make decisions in life. If you’re not, life is going to make those decisions for you. A lot of people can and do become rich at some point in their lives, but those that build their financial IQ, that is they learn and build their knowledge, are the ones that actually can become wealthy.
Remember, my first rule of successful real estate investing: educate yourself. Knowledge is the new currency. Without it, you’re doomed to follow other people’s advice without knowing if it’s good or bad. I actually make it a habit to learn something new every day. I’ll read when I can, I’ll listen to audiobooks or podcasts, I’ll talk to people who know more about something than I do and whatever else I can do. I’m constantly looking to expand my knowledge, expand my mind and learn new things.
Speaking of knowledge and education, I came across some interesting statistics about wealthy people’s habits versus those of the poor. I’m not comparing wealthy people to rich people here, I’m just highlighting wealthy people’s habits versus those people who are not wealthy. 88% of wealthy people read 30 minutes or more each day for education or career reasons, versus only 2% for poor. 86% of wealthy people love to read versus 26% for the poor. 86% of wealthy people believe in lifelong educational self-improvement versus 5% for the poor. 67% of wealthy people watch one hour or less of TV every day versus 23% for the poor. 63% of wealthy people listen to audiobooks during their commute to work versus 5% for the poor. Instead of spending your life working for money, work to understand how to make money work for you through financial education. The higher you build your financial IQ, the less you have to work to acquire high quality cashflow assets. The same assets that provide you passive income while you sleep or play.
Once again, being rich is measured in terms of money, but being wealthy is measured in terms of time. Now, I’d like to quickly answer one of our listener questions that was sent in not too long ago. I’ll just refer to him as Jeff. Jeff says, “Hi, Marco. I am your neighbor. I just had a great conversation with one of your investment counselors and I am excited to start to embark on building a real estate portfolio. It is likely that after our refinance closes that we will purchase our first property from Norada Real Estate. I have beagles (1,000 units, $100,000 per month passive income).” Wow, that is an exceptional goal. He says, “I have big goals with real estate to be able to leverage my strong income and build a rapid portfolio. However, my first biggest obstacle is to get my very scared and skeptical wife on board. I totally appreciate her concerns, but I want her to be able to get the real sense that this is a real thing and a great path to wealth. I am listening to all of your podcasts, reading books and researching and doing my initial due diligence.”
Jeff, thanks for reaching out and thanks for your email. I understand your concern. Fear is natural as we are all humans. As to her reason, I would venture to guess that it is caused by a lack of knowledge and experience, which can lead to skepticism. This is exactly what I was just talking about a minute ago. This goes back to what I was just saying about financial IQ. A lack of understanding leads to avoidance. Because the fear of taking on risks is too uncomfortable. This is usually caused by fear of losing money, and this happens to virtually all of us. There is a certain level of fear and we need to break out of that. Once you do that, then you look back and you realize that the FEAR was, as the acronym says, “False evidence appearing real.” That’s what FEAR means.
There’s actually a book out there called Emotional Intelligence. I think they’re now referring to it as Emotional Intelligence 2.0. It’s the revised and updated version. The book is by Daniel Goleman. In his book, he explains the age old puzzle of why people, who do well in school, do not always do well in the real world. His answer is that, your emotional IQ is far more powerful than your academic IQ. What you’ll come to realize is that financial IQ is 90% emotional and 10% technical information about money and finances. The emotional brain is far more powerful than the rational brain. In other words, when emotions are high, intelligence becomes low. What ends up happening is we take the “safe route” instead of doing what we know we should do. When dealing with fear, it’s helpful to have someone to talk to that can give you some objective advice. This is where friends, counselors, consultants, advisors, people like that, coaches, those people come into play. That could really help separate your emotion based thoughts from your logic based thoughts. In addition to that, it will help her by exposing her to some of the knowledge you’ve been gaining by listening to this podcast and the books you’ve been reading.
The other suggestion I might make is to take it slow. That is to invest in about three properties in same market and sit back for a few months as that rental income comes in. Show your wife the income and expenses and help her to see that you’re dealing with a wealth building asset that generates passive income, plus the other benefits that are found in real estate, the depreciation, the amortization, the appreciation. These are things that you can show and illustrate to her.
I hope that helps. That’s a brief answer to your concern. I think if you just expose her to the information that you’ve been exposing yourself to, to help increase her financial IQ, I think her comfort level will go up a lot and her fear will go down a lot as well. Thanks for the question, Jeff. If you have a question about real estate or turnkey properties or anything about finance related to building your wealth, be sure to just send me an email. You can go to PassiveRealEstateInvesting.com, click on Ask Marco and just submit your question. I’ll either reply to you via email or address it on the show.
While you’re there, you could download our free report, The Ultimate Guide to Passive Real Estate Investing. That has now been downloaded thousands of times. I’m sure it’s been helping out a lot of people or at least has been a great primer.
If you want a free strategy session, give our investment counselors a call. We’ll spend some time with you, help put you on the right track and help you build out your investment goals and break that into an investment criteria that you can use, whether with us or on your own, to find what it is that meets your criteria. We’ll help you build your cashflow and wealth.
That’s it. Until next week. Thanks for listening. We’ll see on the next episode.
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Download your FREE copy of: The Ultimate Guide to Passive Real Estate Investing.
Get your FREE coffee mug by leaving us a Rating and Review on iTunes. Here’s how.
See all our available Turnkey Cash-flow Rental Properties.
Please give us a RATING & REVIEW (Thank you!)