{"id":9965,"date":"2022-06-30T18:28:02","date_gmt":"2022-06-30T23:28:02","guid":{"rendered":"http:\/\/blog.jlbn.net\/?p=9965"},"modified":"2022-06-30T18:28:04","modified_gmt":"2022-06-30T23:28:04","slug":"rich-vs-wealthy-which-one-should-be-your-main-focus","status":"publish","type":"post","link":"http:\/\/blog.jlbn.net\/?p=9965","title":{"rendered":"Rich vs Wealthy: Which One Should Be Your Main Focus?"},"content":{"rendered":"\n

Rich vs Wealthy. Is there a difference?<\/em> A friend shared with me an anecdote a long time ago.<\/p>\n\n\n\n

He said, \u201cRich people<\/em><\/strong> brag about how much they spend, and <\/em>poor people<\/em><\/strong> brag about how much they saved.<\/em>\u201d I laughed in agreement, thinking <\/em>he was right.<\/p>\n\n\n\n

At that time, I thought being\u00a0rich\u00a0<\/em>and being\u00a0wealthy<\/em>\u00a0meant the same thing. The word \u201cwealthy\u201d was just a\u00a0fancier<\/em>\u00a0word for \u201crich.\u201d In truth, many people think this way too.<\/p>\n\n\n\n

I didn\u2019t care about being rich nor wealthy. I was just pleased to be employed and have a good-paying job. My only financial concern at the time was getting rid of my student debt<\/em><\/strong><\/a>.<\/p>\n\n\n\n

It wasn\u2019t until I read <\/a>Rich Dad Poor Dad by Robert Kiyosaki<\/em> when I started to understand the difference<\/em> and have a wealthy mindset<\/a><\/em><\/strong>.<\/p>\n\n\n\n

Rich people may brag HOW MUCH they spend, but wealthy people\u00a0share\u00a0<\/em><\/strong>HOW they save!<\/p>\n\n\n\n

What does it mean to be rich?<\/strong><\/h2>\n\n\n\n

A person\u2019s level of being rich is measured by how much they actively <\/em><\/strong>earn at their job. Rich simply means they make a lot of money<\/em> by working in their full-time job.<\/p>\n\n\n\n

For example, a physician that makes $300,000 a year is considered \u201cricher\u201d than a retail employee who makes $22,000 a year.<\/p>\n\n\n\n

However, a person who may be rich can still be in debt<\/em><\/strong> and can even go broke<\/em><\/strong>! Take into account the cost of living, personal debt, and student loan debt a rich person<\/em> may have, and they may have barely anything<\/em> left to save!<\/p>\n\n\n\n

So, if that\u2019s being rich, then rich people spend money on things beyond their means!<\/p>\n\n\n\n

A consumer, regardless of their income status, can <\/em>buy anything (i.e., lifestyle creep or keeping up with the Joneses). The question is, \u201cCan a person afford it?<\/em>\u201d <\/p>\n\n\n\n

It goes to show that being rich doesn\u2019t necessarily equate to happiness<\/strong><\/em> when overwhelmed with debt.<\/p>\n\n\n\n

What does it mean to be wealthy?<\/strong><\/h2>\n\n\n\n

A person\u2019s wealth is not <\/em>measured by how much<\/em><\/strong> they actively <\/em>make (i.e., a full-time W2 job). Instead, their wealth is measured by how much time <\/em><\/strong>their money can buy them.<\/p>\n\n\n\n

A person\u2019s wealth is measured based on how long a person can live off their savings without actively working<\/em><\/strong>. For example, a person who can live off their savings for 5-years<\/em> is wealthier than someone who can live off their savings for one month<\/em>.<\/p>\n\n\n\n

However, living off one\u2019s savings without actively working does have a time limit. That is why wealthy people know to invest in assets<\/strong>, such as real estate, stocks, or royalties, creating passive income<\/a>.<\/p>\n\n\n\n

Their assets provide enough cash flow that they don\u2019t have to work in a full-time job actively. Instead of relying on their savings, the wealthy can live off their passive income without a time limit!<\/p>\n\n\n\n

So, which is better:\u00a0Being rich or\u00a0wealthy<\/a>?<\/em><\/p>\n\n\n\n

Absolute Income vs. Relative Income<\/strong><\/p>\n\n\n\n

Absolute income<\/strong> is a person\u2019s income for a set <\/em>period<\/em> <\/strong>(i.e., a year), whereas relative income<\/strong> is a person\u2019s income compared to their peers\u2019 income<\/em> and <\/em>per time spent<\/em><\/strong> (i.e., per hour).<\/p>\n\n\n\n

For example, imagine two people, James and Jayne, each receiving an annual salary. James lives in California and makes $200,000<\/em><\/strong> a year, while Jayne lives in Nebraska and makes $60,000<\/em><\/strong> a year.<\/p>\n\n\n\n

Based on their income per year, James\u2019\u00a0absolute income<\/em>\u00a0is\u00a0more significant\u00a0<\/em>than Jayne\u2019s\u00a0absolute income<\/em>.<\/p>\n\n\n\n

However, James works 40-hours<\/strong> a week while Jayne works 4-hours<\/strong> a week. Therefore, James\u2019s relative income is about $96 <\/em><\/strong>an hour, while Jayne\u2019s relative income is about $288 <\/em><\/strong>an hour!<\/p>\n\n\n\n

Thus, Jayne makes more per hour<\/em><\/strong> than James based on their relative income<\/em>. Furthermore, Jayne is wealthier because her passive income<\/a> allows her to have more time!<\/p>\n\n\n\n

She doesn\u2019t have to work every day!<\/p>\n\n\n\n

5 Steps to Become Wealthy<\/strong><\/h2>\n\n\n\n

Create A Budget<\/strong><\/h3>\n\n\n\n

Identify where every dollar of your income is going. Before you can build wealth, you need first to understand your current\u00a0financial situation<\/strong><\/a>!<\/p>\n\n\n\n

Is it going towards needs<\/strong>, such as rent and utilities.<\/a>? Or, is it going towards wants<\/em><\/strong>, such as eating out and shopping? Also, how much of your income are you saving<\/strong>?<\/p>\n\n\n\n

I recommend a zero-based budget<\/em><\/strong><\/a> to track all your expenses and savings. It gives every dollar a purpose and makes you more confident when it comes to spending.<\/p>\n\n\n\n

We have a major expense coming next year that is estimated to cost about $30,000. However, with our budget, we know we can reach that goal.<\/p>\n\n\n\n

Reduce Unnecessary Spending<\/strong><\/h3>\n\n\n\n

After you can identify where all your income goes, the next step is to reduce unnecessary spending<\/em><\/strong>, such as reducing eating out, shipping for new clothes.<\/p>\n\n\n\n

Furthermore,\u00a0relocating\u00a0<\/em><\/strong>to another city or state can vastly reduce your cost of living expenses allowing you to save more!<\/p>\n\n\n\n

However, if your necessary expenses are a majority of your income and you can\u2019t reduce your unnecessary spending anymore, then increasing your income<\/strong> is the next solution.<\/p>\n\n\n\n

According to Dave Ramsey<\/strong>, you\u2019ll need a \u201cbigger shovel.\u201d<\/em><\/p>\n\n\n\n

Pay Off Personal and Student Debt<\/strong><\/h3>\n\n\n\n

Having any kind of debt can be a weight on anyone\u2019s shoulder. Nowadays, people spend a lot of money<\/a> on things they don\u2019t need. <\/p>\n\n\n\n

I had over $250,000 in consumer and student loan debt<\/em><\/strong><\/a>. It was surreal when I was finally able to remove that liability from my balance sheet.<\/p>\n\n\n\n

List out all your debts, such as credit card debt<\/strong> and student loan debt<\/strong>. Next, order them from the smallest balance<\/em> to the largest balance,<\/em> not including your mortgage. <\/p>\n\n\n\n

Continue to make the minimum payments to all debts except the smallest balance.<\/p>\n\n\n\n

Work towards paying off the debt with the smallest balance by paying\u00a0more than the minimum payment<\/em><\/strong>. After you pay off the smallest debt, use the \u201cextra money\u201d towards the next smallest balance.<\/p>\n\n\n\n

Build An Emergency Fund<\/strong><\/h3>\n\n\n\n

Unfortunately, there may come a time when an\u00a0unfortunate event<\/em>\u00a0occurs that can impact you financially. Therefore, it is necessary to build an\u00a0emergency fund<\/a><\/strong>.<\/p>\n\n\n\n

I recommend a person save up to three to six months<\/em><\/strong> of your monthly needs. Keep this money in a savings account independent of the market.<\/p>\n\n\n\n

Start Investing<\/strong><\/h3>\n\n\n\n

After you paid off all your debt and have built up your emergency fund, it\u2019s time to start investing! Strive to invest 10 to 15%<\/em><\/strong> of your income<\/em><\/strong>.<\/p>\n\n\n\n

Contribute to your company\u2019s 401k <\/em><\/strong>at least up to the company match<\/em>. That\u2019s FREE money!<\/p>\n\n\n\n

Take advantage of a Roth IRA<\/em><\/strong> by contributing post-tax dollars. Once you are eligible to withdraw from your IRA, the government can\u2019t tax your money!<\/p>\n\n\n\n

Invest in mutual funds<\/strong> and real estate<\/strong><\/a>! We go through a brokerage to manage our stocks<\/a> and own a couple of rental properties in our local real estate market.<\/p>\n\n\n\n

In our first six months of real estate investing, we acquired two real estate investments <\/em>using theBRRRR method<\/em><\/strong><\/a>. Check out the post on The Beginners Guide to Real Estate Investing<\/em><\/strong><\/a>.<\/p>\n\n\n\n

Conclusion<\/h2>\n\n\n\n

With proper discipline<\/a> <\/em>and patience<\/em>, you will be on a path to building wealth! Remember, building wealth is not a \u201cget rich quick\u201d<\/em> strategy. It takes time to build sustainable wealth.<\/p>\n\n\n\n

Our net worth as of January 2022 is over a million dollars! Also, remember to diversify your portfolio. Concentration\u00a0builds wealth<\/a>, while diversification\u00a0protects wealth.<\/strong><\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Rich vs Wealthy. Is there a difference? A friend shared with me an anecdote a long time ago. He said, \u201cRich people brag<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[254,3421],"tags":[888,3509,3510],"_links":{"self":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/9965"}],"collection":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=9965"}],"version-history":[{"count":1,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/9965\/revisions"}],"predecessor-version":[{"id":9966,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/9965\/revisions\/9966"}],"wp:attachment":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9965"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9965"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9965"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}