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The difference between being rich and being wealthy

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The difference between being rich and being wealthy

By Joe Griffin CEO, TrueNorth Wealth | Posted - Apr. 29, 2021 at 8:00 a.m.



People often use the words rich and wealthy interchangeably to describe someone with considerable financial assets. In his recent book, "The Psychology of Money," Morgan Housel provides a striking illustration of how the two differ.

Housel sets the stage with a story from his time as a valet

Housel writes, "My time as a valet was in the mid-2000s in Los Angeles when material appearance took precedence over everything but oxygen."

He describes an experience with one of the regulars named Roger. Roger was a young man about Housel's age who drove a Porsche—which led Housel to draw assumptions about Roger's wealth. One day, Roger showed up in an old Honda. The same thing happened the next week. And the next.

Finally, Housel asked what happened to the Porsche. Roger simply explained that it was repossessed after Roger defaulted on his car loan.

"There was not a morsel of shame," Housel writes. "He responded as if he was telling the next play in the game. Every assumption you might have had about him was wrong. Los Angeles is full of Rogers."

The irony is that people often assume people are wealthy based on the vehicles they drive or the home they live in. They rely heavily on outward appearances to judge financial success because that's the only visible data point available.

Housel's point is that true wealth consists of what you don't see. Wealth is the money not spent. The cars not purchased. It's a decision to forego consumption today in exchange for the flexibility and freedom that money can provide in the future. Wealth is hidden on balance sheets and in investment portfolios. It's a representation of potential future spending and a conscious decision to pass on spending today.

In comparison, being rich is very visible. Being rich typically represents a moderate to high income along with the expenses to match it. As a society, people tend to celebrate those who have an outward appearance of richness. They view the individual with a $100,000 car as a financial success, even though everyone knows his financial situation isn't that he's spent $100,000 on a car.

Finding financial role models

At the beginning of his book, Housel tells the story of Ronald Read. The Wikipedia entry for Ronald Read describes him as "an American philanthropist, investor, janitor, and gas station attendant."

By all outward appearances, Ronald Read led a fairly normal life. He grew up in a small town in Vermont, served in the military during World War II, and worked as a gas station attendant for twenty-five years.

Read married his wife, Barbara March, in 1960 and helped raise the two stepchildren that came with that marriage. He bought a home for $12,000 and lived there for the rest of his life. One of his favorite hobbies was chopping firewood.

When Read passed away in 2014 at the age of ninety-two, he made national news. Read had amassed an $8 million fortune, leaving $1.2 million to Brooks Memorial Library and another $4.8 million to Brattleboro Memorial Hospital.

Those who knew Read were shocked.

Read is a prime example that wealth is what you don't see. He had quietly worked and invested over his lifetime, bypassing luxury purchases and deferring consumption to another day. This allowed Read to invest and grow his wealth over the long run, resulting in a sizeable fortune in the end.

The difficulty for most is that when they look for financial role models, it's impossible to see the Ronald Reads of the world.

The trick lies in understanding the critical difference between being rich and being wealthy. When searching for financial role models, understand that not everyone who appears rich will be on a path to building wealth. Look for those who are focused on owning appreciating financial assets like stocks, bonds, or real estate. These individuals have decided to grow their wealth to provide freedom and flexibility in the future.

Let's build wealth together.

At TrueNorth Wealth, one of Salt Lake City's leading wealth management firms, we focus on helping our clients build long-term wealth while maximizing the enjoyment they receive from their money. We do this by pairing our clients with a dedicated CFP® professional, backed by an incredible team. We understand that it's difficult to find financial role models, which is why we outline clear milestones for our clients based on their age, income, and life goals.

For our team at TrueNorth Wealth, it's about so much more than money. It's about serving families all across Utah and helping them achieve flexibility and freedom in their lives. To learn more or to schedule a no-cost consultation, visit our website at TrueNorth Wealth or call (801) 316-1875.

Joe Griffin CEO, TrueNorth Wealth

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