Good morning! I'm Kenn and I live in Richmond, VA. I'm a long timer reader, first time posting. In his book The Psychology of Money, Morgan Housel draws a crucial distinction between being rich and being wealthy. He argues that understanding this difference is key to making better financial decisions and achieving true financial well-being. Here's a summary of his points: Being Rich:
Visible Income and Spending: Being rich is often about having a high current income and displaying that income through outward consumption. This can involve buying expensive cars, large houses, designer clothes, and other visible luxury items.
Present-focused: Richness is often about immediate gratification and spending money as it comes in. People who are rich might have a high cash flow, but their financial security is often tied to their continuous income. If the income stops, their "rich" lifestyle might quickly collapse.
Ego-driven: Housel suggests that many people seek to be rich to signal status and impress others. They spend money to show off their perceived success, often leading to a treadmill where their ego drives their spending, preventing true accumulation of assets.
Vulnerable to "Keeping Up": The desire to appear rich can lead to a cycle of trying to "keep up with the Joneses," constantly increasing spending to match or exceed the perceived wealth of others. This can make it difficult to build genuine financial security.
Being Wealthy:
Hidden and Unspent: Housel defines wealth as money you have saved and invested, money not spent. It's the financial assets that haven't been converted into tangible, visible possessions. You can't see someone's bank account or investment portfolio, so wealth is inherently hidden.
Future-focused (Delayed Gratification): Wealth is built through delaying gratification and prioritizing future options over immediate consumption. It's about accumulating resources that provide long-term financial security and flexibility.
Freedom and Control: This is Housel's core definition and the highest form of wealth. He defines wealth as "the ability to do what you want, when you want, for as long as you want." This translates to control over your time, having the freedom to pursue passions, spend time with loved ones, or simply have the option to work less or not at all. It's about autonomy and independence, rather than being beholden to a job to maintain a lavish lifestyle.
Savings Rate is Key: Building wealth has less to do with how much you earn and more to do with your savings rate. The gap between your income and your ego (what you spend to impress others) is where true wealth is accumulated.
Frugality and Paranoia: Housel emphasizes that getting wealthy often requires taking risks and optimism, but staying wealthy requires the opposite: a combination of frugality, humility, and a healthy dose of paranoia about losing what you've accumulated. It's about preserving capital and avoiding ruin.
In essence, while being rich is about income and visible consumption, being wealthy is about accumulated assets and the freedom and control over your time that those assets provide. It's a psychological state of security and optionality, rather than a display of material possessions. Having lurked around this site for the last 5 years, it is my impression that most Humble Dollar participants are more focused on the benefits of wealth which provide freedom and control over their own destiny rather than shiny riches. Just my thoughts. Kenn
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Good morning! I'm Kenn and I live in Richmond, VA. I'm a long timer reader, first time posting. In his book The Psychology of Money, Morgan Housel draws a crucial distinction between being rich and being wealthy. He argues that understanding this difference is key to making better financial decisions and achieving true financial well-being. Here's a summary of his points: Being Rich:
- Visible Income and Spending: Being rich is often about having a high current income and displaying that income through outward consumption. This can involve buying expensive cars, large houses, designer clothes, and other visible luxury items.
- Present-focused: Richness is often about immediate gratification and spending money as it comes in. People who are rich might have a high cash flow, but their financial security is often tied to their continuous income. If the income stops, their "rich" lifestyle might quickly collapse.
- Ego-driven: Housel suggests that many people seek to be rich to signal status and impress others. They spend money to show off their perceived success, often leading to a treadmill where their ego drives their spending, preventing true accumulation of assets.
- Vulnerable to "Keeping Up": The desire to appear rich can lead to a cycle of trying to "keep up with the Joneses," constantly increasing spending to match or exceed the perceived wealth of others. This can make it difficult to build genuine financial security.
Being Wealthy:- Hidden and Unspent: Housel defines wealth as money you have saved and invested, money not spent. It's the financial assets that haven't been converted into tangible, visible possessions. You can't see someone's bank account or investment portfolio, so wealth is inherently hidden.
- Future-focused (Delayed Gratification): Wealth is built through delaying gratification and prioritizing future options over immediate consumption. It's about accumulating resources that provide long-term financial security and flexibility.
- Freedom and Control: This is Housel's core definition and the highest form of wealth. He defines wealth as "the ability to do what you want, when you want, for as long as you want." This translates to control over your time, having the freedom to pursue passions, spend time with loved ones, or simply have the option to work less or not at all. It's about autonomy and independence, rather than being beholden to a job to maintain a lavish lifestyle.
- Savings Rate is Key: Building wealth has less to do with how much you earn and more to do with your savings rate. The gap between your income and your ego (what you spend to impress others) is where true wealth is accumulated.
- Frugality and Paranoia: Housel emphasizes that getting wealthy often requires taking risks and optimism, but staying wealthy requires the opposite: a combination of frugality, humility, and a healthy dose of paranoia about losing what you've accumulated. It's about preserving capital and avoiding ruin.
In essence, while being rich is about income and visible consumption, being wealthy is about accumulated assets and the freedom and control over your time that those assets provide. It's a psychological state of security and optionality, rather than a display of material possessions. Having lurked around this site for the last 5 years, it is my impression that most Humble Dollar participants are more focused on the benefits of wealth which provide freedom and control over their own destiny rather than shiny riches. Just my thoughts. KennPost: Could you be (justifiably) a source of envy by others? Are you wealthy?
Link to comment from July 20, 2025