It has come to my attention that we use the terms rich and wealthy so interchangeably that they mean nothing more than “a lot of money” to many people.
We see rich everywhere. Wealth, not so much. Rich is the ability to be a consumer of luxury items. It means you can buy whatever you want as long as you have the income to support it. If that income managed to end, that ability to buy the things you’re used to ends because there is nothing to maintain it with. That expensive house may already be paid in full but what about taxes and other maintenance of the house? The house will soon be sold. Even if it sold for millions, those millions will eventually run out. Think of your average major lottery winner. They’re rich and they’re also more likely to file bankruptcy than the average American.
Wealth is the ability to purchase these things and maintain them without earned income. In this situation, owning the big expensive house is still a reality if you don’t go to work. This occurs because the wealthy create large amounts of residual and or passive income. Their investments, whether real estate or businesses, are varied and earn their own income, so if one or two take a hit, they still have income to maintain their lifestyle.
Increasing cash flow does not build wealth. Wealth is built if and only if cash flow is used to fund investments that grow their own money.
Are you rich or wealthy? Which would you prefer to be? Why?