There's a lot of talk about being rich or wealthy. While the terms are used interchangeably, they aren't the same. Sure, both involve having a lot of money, but how that money works for you and your future is where the real difference comes in.

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Rich vs. Wealthy: What's the Difference?

Being rich usually means having a high income or a sudden windfall. For example, in 2023, the average personal income in the U.S. was $59,384. But to be in the top 1%, you must make an average annual income of $819,324 a year. That's rich – but not necessarily wealthy.

Wealth, on the other hand, isn't just about how much money you make. It's more about the assets you've built up – like investments, real estate or owning a business – that can generate income even if you're not working. It's about having enough to cover your lifestyle for the long haul.

According to the 2024 Charles Schwab Modern Wealth Survey, people believe it takes $2.5 million to be considered wealthy in today's economy.

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Are You Spending or Building?

Rich people often focus on earning a lot of money and spending it on luxury cars, expensive trips and big houses. They can afford a high-end lifestyle, but they're also often tied to keeping that high income coming in to support it. If their income were to stop, their lifestyle might take a hit.

Wealthy people, on the other hand, focus on building a portfolio of assets that generate income independently. This could be through investments in stocks, bonds, rental properties or businesses. Wealthy individuals aren't as dependent on their jobs or a single source of income because their assets work for them.

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The Mindset Shift

One big difference is mindset. Being rich is often about living in the moment – earning and spending a lot. There's less focus on what happens down the road. Wealthy people, however, think long-term. They're saving, investing and growing their money so they can have financial security for the rest of their lives and possibly for future generations, too.

Time and Compound Interest

Here's a key factor: time. Wealth isn't built overnight but over the years, thanks to the power of compound interest. Compound interest is the idea that your money makes money and that money makes more money over time. Someone focusing on being rich may get there quickly, but someone building wealth knows patience pays off.