Making money is one thing and being wealthy is another thing. And that reminds me of a quote by Coco Chanel:
“There are people who have money and people who are rich.”
🙂
I don’t know how to properly define what being wealthy is.
But when I look at the people who earn well and can easily be called rich… still struggling and unhappy, it seems that they are not really wealthy.
High income doesn’t mean being wealthy. And being really wealthy is something else.
Ofcourse you need money to become wealthy. Without money, life is practically impossible. And there is no doubt that lack (or abundance) of money changes all the iron rules into rubber bands [Ryszard Kapuscinski].
But maybe… being wealthy is a state of mind. I am not sure but it seems that way.
Or maybe…Wealth is the abundance of something in such surplus, that no condition can destroy it. It’s abundant – you can’t get rid of all of it. There’s so much that no matter what happens around the world, it can’t go away. [source]
But think of it.
In reality, money is not the end goal. At least it shouldn’t be. Every person is different. And every person’s idea of a good life that they want to live is different. So the cost of creating such a life would be different too.
This obviously means that everyone doesn’t need to be a millionaire to lead a wealthy life. You can be earning less than your friend but still feel wealthier as unlike your extravagant friend, you don’t need much to lead a good life that you want.
I came across this beautiful article by Morgan Housel titled Iron Rule of Money (link). He says:
The first iron rule of money is that wealth is the stuff you don’t see. It’s the cars not purchased, the clothes not bought, the jewelry forgone. Money buys things, but wealth — assets such as cash, stocks, bonds, in the bank, unspent — buys freedom and security. Pick which one you want wisely.
Then there is another concept of 2 types of Wealth that I came across in this article.
The first is Vertical Wealth:
People who are vertically wealthy think, “I am rich. So I had better do what rich people do.”
The vertically wealthy people rush to outshine others with better this and better that and what not….
Then, there is Horizontal Wealth:
Horizontal wealth means not letting your increased income dictate your tastes. So what happens when a horizontally wealthy person goes from Rs 30 lac a year to Rs 3 crore a year?
Nothing much… really. They don’t care about what others think of them. They don’t care about living like other rich people. They continue to live as they wish to live.
So while the horizontally wealthy own their riches, the vertically wealthy are owned by them. And as Morgan says in the Iron Rule article:
The only way to build wealth is to have a gap between your ego and your income. Getting rich has little to do with your income and everything to do with your savings rate. And your savings rate is just the difference between your ego and your income. Keep the former in check and you should be fine over time.
Personally, I liked this idea of two types of wealth. That’s because I have seen people react differently to increase in income / networth.
I would any day prefer being Horizontally Wealthy.
But in reality, I know I will be somewhere in between being Vertically and Horizontally Wealthy. But that’s fine… we all are different and it’s acceptable to not fit in perfectly in any definition. 🙂
Being an investment advisor, I deal with numbers. And also, I like maths. It’s solid and it makes sense. But I don’t think one should keep chasing numbers their whole lives. It’s best to figure out how much you need for few of your important goals and invest accordingly and then… just be as you are. Live life.
Don’t chase new cars every time like the highway dogs. 😉
Financial freedom is when your passive income is more than your expenses and being wealthy is when passive income is more than your active income from all sources. Being financially free is easy but being wealthy is difficult because your active income increases with time.
Very nicely, simply and neatly summed up.
Excellently said Doctor..however one should consider the case of job loss ..ie loss of active income…in such case if your passive income from all sources is more than the last drawn active income, is it considered wealthy??
Yes, you can take your job loss as an early retirement.
Thanks Doctor exactly my thought process..I have completed both the above stages..hence ready to FIRE at age 47..
Wow and cheers! 🙂
Awesomely put. 🙂 Thanks for sharing!
Excellent article Dev. Have been reading about being rich and wealthy for some time. There’s one more definition of rich and wealthy that I have read.
Rich has lot of money but lack time but the wealthy has both in abundance.
As you correctly pointed out that no one definition fits all and everyone of us in unique in their approach, thinking, investment style, risk profile and hence it’s left to each one of us to decide their own benchmark of being rich / wealthy.
Thanks Vipin 🙂
Like the idea of horizontal and vertical.. you could almost define this too in mathematical terms (geometry). zero degree vs 90 degree as a derivation of the savings rate! Good article again!
Thanks Ram 🙂
Horizontal or Vertical is decided by what kind of “sanskara” one has imbibed in his growing years.
If one is skilled and fortunate he may attract wealth, but a poor set of sanskara will repel thiswealth on an everyday basis as a function of ones habit. A good set will retain.
This blog teaches skills to attract wealth and also endows its readers with a good set of sanskara.
Thanks, as always a good read on a Monday morning.
Great words Amit. 🙂 Thanks for sharing!
DEV ASISH, I WOULD LIKE TO MENTION THAT I AM NEW TO MARKET, I LEARNT SOME NEW TECHNIQUES FROM YOUR WEBSITE STABLE INVESTOR, I READ EVERY ARTICLE OF YOUR STOCK TECHNIQUES, I WOULD LIKE TO ASK YOU TO POST AN ARTICLE ON “HOW TO PICK A BEST MUTUAL FUND SCHEME FROM 100’S OF SCHEMES, WHETHER IT IS A LUMP SUM OR SIP. PLEASE, THANK YOU.
Thanks Satish. Will surely cover these topics in future posts!
Hi Dev am a active reader of your blog..As nicely summed up by doctor.. My passive income is sufficient to cover expenses..and my portfolio income matches my active income..until the unexpected happened… lost my job as a oil and gas Engineer in Middle east after working there for 13 years;;luckily due to my high savings 85% of salary and investing, i am FIRE..at age 47..two school going kids settled in Pune..nice weather
My suggestions to younger folks save like there is no tomorrow (literally) and invest..these are uncertain times..
Thanks for sharing your experience Sanjay 🙂
Loved your way of explaining this topic. Horizontal vs vertical nice way. clearly explained. simple to understand. Thanks for posting
Thanks Atha 🙂