Being Wealthy vs. Rich: Knowing The Difference Will Change Your Life

Do you know the difference between being rich and being wealthy?

Merriam-Webster defines rich as “having abundant possessions and especially material wealth.”

Merriam-Webster defines wealthy as “having wealth” where wealth is defined as an “abundance of valuable material possessions or resources.”

In the dictionary, the two seem to mean the same thing. “You have valuable stuff.”

In real life, there is a small but very important distinction.

To illustrate this, Chris Rock has a famous joke – “Shaq is rich. The white man who signs his check… is wealthy.”

Table of Contents
  1. Resources: The Difference Between Rich and Wealthy
  2. Your Natural Resource: Time
  3. Sell Time, Accumulate Resources
  4. Why Is Being “Rich” So Bad?
  5. An Example: Shaquille O’Neal
  6. How You Can Be Wealthy Too

Resources: The Difference Between Rich and Wealthy

Rich people and wealthy people both own valuable things (possessions), but the wealthy also own resources. The key difference between being rich and being wealthy is that last bit, that the wealthy own resources. And resources provide cash flow.

Many wars have been fought over resources.

Natural resources are, in part, what makes some nations rich and others poor. Resources are also why some people are rich while others remain poor. When they talk about privilege, it’s about your access to and ownership of resources.

To accumulate wealth, you must accumulate resources. This is why saving your money and investing it is so critically important. Your investments are your resources and they can generate cash flow or increase in value (which can be sold to provide cash flow).

Your Natural Resource: Time

When you are born, you have just one natural resource – your time. ~1 billion heartbeats.

Much like oil trapped deep in the Earth, this non-renewable resource must be processed before it has any value to the outside world.

It must be refined through education, experience, training, practice, and struggle. Only after it has gone through that process does it have value to the outside world. No one will pay a baby to do their taxes.

And your value will fluctuate through the years. You will have peak earning years where you should take advantage of it by working hard. During those good times, you need to save and invest so that your hard work can take care of you in the later leaner years.

You can see this acutely with professional athletes. The window for earning a high income is very short. Very few people have decade-long careers like Tom Brady. The average NFL running back has a career of just a handful of years (and the vast majority of aspiring NFL running backs never make it to the league).

When that career ends, the value of their athletic abilities goes to zero. And this can be a big shock.

This is a big shock when someone retires at 65 too, but at least it’s socially acceptable for a 65-year-old to live a life of complete leisure after retirement.

Sell Time, Accumulate Resources

When you are earning, you must take some of that income and invest it into valuable resources if you want to build wealth. These are those valuable assets that appreciate in value, generate cash flow or both.

If you like the analogy of natural resources, this is like buying a piece of land. The land can generate income through farming (food, wind, solar) or drilling or mining. It can also appreciate. And, of course, it can do both.

You need to accumulate resources so that you don’t have to turn your time into money until you die. These resources can generate cash flow to sustain you once your earning potential has gone down.

And resources give you the ability to weather a retirement by choice or by force because those resources can help pay for your living expenses.

Why Is Being “Rich” So Bad?

Like everything in life, there are levels. Rich isn’t necessarily a bad thing on its own because it’s nice to have nice things. And many expensive products are more durable, more comfortable, and more appealing than their cheaper alternatives.

And it’s your money, you’re an adult, and you should be able to do whatever you want with it.

But when people malign “rich,” it’s about extremes. If you spend your money only on things and do not invest in resources, you will have to sell your time forever if you wish to maintain that lifestyle.

Secondly, the reason lavish spending can be bad is if you do it for the wrong reasons. Many times, we spend on visible lavish things because we are trying to win the status game. Having status can feel great but when it’s based on what you own, it can get very costly too. And I’m not entirely sure what you get when you “win” the status game.

And all that spending does one thing – puts your future self at financial risk. If you have to work long hours, it puts your relationships at risk too.

This is, however, something only you can decide. Someone who makes $6 million a year has a different relationship with spending as compared to someone who makes $60,000.

Someone making $6 million a year can spend $5 million and still be saving $1 million a year.

The trouble with spending is that it’s rarely a one-time event. Whatever you’re buying has a total cost that exceeds the sticker price. When you buy a car or a house, there are substantial maintenance costs. These are costs you have to pay even when your income drops – because the bank doesn’t care whether you’re retired or not.

An Example: Shaquille O’Neal

Everyone wants to believe that professional athletes are financially reckless. And some are. But some athletes are as savvy with their money as they were on the court.

Chris Rock joked that Shaquille O’Neal was rich but not wealthy. Shaq has had NBA career earnings of nearly $300 million (and several hundred more in endorsements). He has parlayed that income into business interests that likely peg his net worth closer to half a billion or more. This is staggering considering he’s also had to pay income tax (in California no less!) throughout that time.

How did he do it? He accumulated resources.

He invested his money in a variety of areas, you can listen to O’Neal talk about it in an interview with The Wall Street Journal:

Shaq has four NBA championships, is a Hall of Famer, actor, and business owner, and seems like one of the nicest guys in the world. The guy is a legend.

How You Can Be Wealthy Too

The key to building wealth has two components:

  1. Maximize the value of your time (and sell it) – earn as much as you can, by investing in yourself so that you can get the highest amount for your time, and then maximize those peak earning years.
  2. Save and invest in resources – Invest invest invest!

There are tactical steps you can take to execute this simple two-step plan but the roadmap is pretty clear. You need to turn your time into income-generating assets. Do not the specifics get in the way of the overall plan because the plan is stupidly simple.

For example, when you invest, you may be tempted to wonder about the difference between VOO and VTI or whether you should be investing in passive income (yes, but index funds first). Don’t get distracted about whether you should invest in a Vanguard fund or Fidelity fund (both are great), just get invested.

When you have a solid base of resources, then you can start diversifying into alternative investments or real estate.

While it’s extremely unlikely that you will ever be as wealthy as Shaq, you can become wealthy enough to send your kids to the same schools.

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About Jim Wang

Jim Wang is a forty-something father of four who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn't want a second job, it's diversified small investments in a few commercial properties and farms in Illinois, Louisiana, and California through AcreTrader.

Recently, he's invested in a few pieces of art on Masterworks too.

>> Read more articles by Jim

Opinions expressed here are the author's alone, not those of any bank or financial institution. This content has not been reviewed, approved or otherwise endorsed by any of these entities.

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  1. Shirley says

    Thanks for the informative post Jim. I want whatever Shaq is having. He made a path correction after financial mistakes early in his career. I consider him wealthy, too. It is difficult to pick a company to use for investing these days.

    Vanguard and Fidelity appear to be the leaders based on this post. Is it possible to get an unbiased evaluation from either without a high-pressure sales pitch? It is difficult to decide what to do when parts of the system is broken but others claim to have the ability to help navigate the rubble for a fee, of course. Those fees can add up and actually be more than the returns. I feel that living minimally with no debt was the way to go, but even that belief bubble is being challenged.

    I am neither rich nor wealthy, just comfortable. It took many years of saving and sacrifice just to get to this point. However, the comfort seems to be slowly eroding just when I am counting on it the most.

    At this time of life, having endured a couple of major life changes, I do feel financially vulnerable to external and internal changes. That is what I am dealing with now by doing as much homework as I can.

    • Jim Wang says

      I think Vanguard and Fidelity are neck and neck for my favorite brokerage and it’s because their funds are so strong – they perform exactly as advertised and they have some of the lowest fees in the industry. It’s hard to beat either.

  2. Florie Barry says

    Aloha Jim, great article. It helps expand my thinking. Taking the time to learn what/when to invest is boring and time-consuming for me. Your article on money/investments/resources helped me view it from a philosophical and spiritual point of view.

    We want peace, serenity, and a feeling of purpose. Worrying less about money and more about feeling successful is my goal. Your article added value. Thank you for the education.

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