The Wealthy vs The Rich – A Debate

30 Jan / James Eastham

One of the biggest misconceptions about money: being rich vs being wealthy. For some people reading this, the two are interchangeable. What I want to explore, is the fundamental difference between the two.

A bit of background

I’ve always enjoyed having and spending money. When I was younger, I used to envisage the nice house and sports car on the drive. I loved the idea of having more money than I knew what to do with.

Designer labels; keeping up with the Joneses – that was the life for me.

The latest gadget, top of the range smartphone, yes, please!

I was this way right through until my late teens. I had planned my life with my partner at the time and it was going to be incredible. Then, the relationship came tumbling down. Suddenly this perfect life I had planned fell on its arse. At this stage, I decided to do what every sane person would do, quit my job and spend 12 months travelling the world. A bit extreme… yeah maybe.

This taught me a vital lesson for life… Material possessions are complete and utter shite! Life is about the experience, not about who has the nicest car or the flashiest watch.

How does that relate to being ‘rich’?

Before getting too deep into this question, I’d like to give my own personal definition of the two words.

Rich
A rich person lives paycheque to paycheque. They have fancy possessions but are actually struggling to grow any kind of gap in their life. One unfortunate financial circumstance could bring their life crashing down. These are the people who have ‘made it’ as far as society is concerned. We’ve all met them: the one person who can’t stop telling you how much money they have.

Wealthy
A wealthy person lives within their means. They don’t have any outwardly extravegent things. Hell, you could live next door to a wealthy person and not know it. A wealthy person has a buffer in their lives. They have a lot of money, but choose to direct it at their passions not at material things. No financial circumstance could bring their lives crashing down as they have the spare capital to handle it.

Now, which would you rather be?

So let’s explore in a little more detail the two circumstances, using two theoretical families to keep things a little easier. Meet the Joneses and the Adams families.

For ease of argument, let’s assume both families have identical earnings. Let’s say that’s £50,000 per year AFTER TAX. Now £50,000 per year is a good salary but can be directed in radically different ways. Some good, some bad and some most definitely ugly.

Situation 1 – The Joneses

Housing

The Jones family live in a 4 bedroom detached house, they have no short term plans to expand their family but wanted a nice big house. The house is worth £400,000 which gives them a monthly mortgage payment of £1,200.

Transport

They both drive top of the range, brand new cars costing them a grand total of £850 per month. SUV’s aren’t really needed, they live in the city. But they look nice!

Tech

They each have brand iPhones, costing them £120 per month. Combine that with their Sky subscription (£80), Netflix (£15) and Spotify (£10.99) and their technology outgoings come in at £225.99. Mr. Jones also took out a £1,000 loan to purchase a brand new 55″ Samsung curved TV. His loan repayment is £50 per month.

Shopping

Let’s talk about shopping: neither of them wears any clothes that are not labelled. It’s almost impossible to put a number on the amount this would cost. But everything is branded and once it starts to look a little old it is instantly replaced.

Holidays

They also holiday to Mexico every single year, to the same 5* resort. This costs them £10,000, they pay for it using a credit card and pay it off over the next 12 months. This is an added £833 on top of their monthly bills.

Food

They tend to eat out at least twice a week, paying roughly £35 per meal. Adding an extra £280 on to their monthly expenses. They also both pass a coffee shop on their way to work so Monday – Friday pickup a coffee at £2.60 each per day, costing £104 per month.

Without taking into account utilities or groceries this gives the Joneses a monthly outgoing of £3,542.99. 

Situation 2 – The Adams

For ease of comparison, I’m going to look at the Adams spending on the exact same categories.

Housing

The Adams family live in a 2 bedroom cottage, like the Joneses they have no plans to expand their family but like having a spare room for visitors. The house cost them £150,000, giving them a mortgage payment of £495.

Transport

They tried living with one car for a brief period but working hours made it too much of an inconvenience. They both drive 5+-year-old cars that they purchased with a personal loan that they pay off as quickly as possible. When paying the loans, this costs them £200 per month but both aim to have this paid off within a 2 year time-frame.

Tech

Neither of them has a top of the range phone. Instead, they choose to purchase one model older than the latest model. Mrs. Adams never really uses her phone so pays £20 per month. Mr. Adams uses his phone for work so pays slightly more at £28. Combined they pay £48 per month. Netflix (£15.99) and Spotify (£10.99) are a big part of the household, so they pay that as well.

Shopping

Budget shopping in the Adams household is the way of the world. As far as the Adams’s are concerned, a plain white tee shirt is just a plain white tee shirt. Why pay £20 when you can pay £2? They carry this through all of their purchasing decisions. Any purchase of a branded item is well thought out and done for quality reasons over societal pressures. Nobody wants a leaky waterproof coat, do they?

Holidays

The Adams family are keen travelers! They love to visit new places and see new things. Each holiday is different and they spend time finding the best deals and the cheapest ways to do things. They stay in budget hostels and find the cheapest possible flights. They normally try to have two-weekend breaks and one long holiday each year. The weekend breaks cost them roughly £600 each and the longer trip is normally around £1,500. Taking their total holiday spend to £4,200. For ease of comparison, I’ll divide this by 12. However, the Adams pay for all their holidays with cash.

Food

Mr. Adams is a keen chef, so they eat at home every night of the week. They may choose to eat out once or twice a month, but this is normally saved for special occasions (£70 per month). Mr. Adams also loves his coffee but ensures his trusty travel flask is filled up before he leaves the house. Nothing resists the temptation of shop bought coffee like having a fresh cup sat next to you.

This takes the total spend for the Adams family to £1,189.98.

The Comparison

At face value, who would you or society consider to be the ‘better off’ of the two families? Well, the Joneses drive nice cars, have a big house and go on a fancy holiday every year. The Adams drive old cars and stay in hostels whenever they go on holiday, they must be struggling.

This is a common way of thinking and one that society forces upon us.

So let’s look at things in a little more detail.

The Joneses spend £42,515.88 per year, leaving them with £7,484.12. The Adams spend £14,279.76, leaving them with a whopping £35,720.24 of ‘gap’.

Let’s now make up a financial scenario, Mr. Jones and Mr. Adams both lose their jobs. That wipes £25,000 per year off their take-home pay.

The Adams family take a hit but can still afford to keep living their same lives. They would probably scale back some spending just in case but have a huge struggle on their hands to meet their core expenses. Mr. Adams takes his time to look for a new career. He’s always wanted to leave his job as an accountant and start up his own business. This has given him the push he needed to get on and do it!

The Jones family, however, are in trouble. A lot of trouble! That single, and not uncommon, unexpected job loss has left them in financial ruin. They instantly look at taking out loans or re-mortgaging their house. Because they have got so used to the high-life Mr. Jones rushes straight into a new job. One he hates, but he needs the cash.

Scaling up your spending is easy. But once you’re used to it, bringing it down again is incredibly difficult.

Now, who looks the ‘better-off’ of the two families?

Which family do you want to be?

I’m going to throw my definitions of rich and wealthy in here again:

Rich
A rich person lives paycheque to paycheque. They have fancy possessions but are actually struggling to grow any kind of buffer in their life. One unfortunate financial circumstance could bring their life crashing down. These are the people who have ‘made it’ as far as society is concerned. We’ve all met them: the one person who can’t stop telling you how much money they have.

Wealthy
A wealthy person lives within their means. They don’t have any outwardly extravegent things. Hell, you could live next door to a wealthy person and not know it. A wealthy person has a buffer in their lives. They have a lot of money, but choose to direct it at their passions not at material things. No financial circumstance could bring their lives crashing down as they have the spare capital to handle it.

One of the best ways to look at a wealthy person? Take Mark Zuckerberg, or Bill Gates, or Jeff Bezos. Some of the richest men in the world. Now go and Google image Zuckerberg. I can guarantee you that 90% of the photos is Mark in a hoody or a plain t-shirt. No huge watch, no labels, just plain simple clothing. Hell, you could walk past him in the street and not realize who he was.

That is the secret to true wealth. Grow the gap, live within your means and don’t get sucked into consumerism. This doesn’t mean you can’t buy things, I paid £200 for a Sonos speaker recently. It just means consider the purchase and consider the value it will bring to your life. Don’t make a purchasing decision for the sake of other people.

Going back to our families, which of the two would you rather be? One with spare capital to invest, to retire early or to pursue your dreams. Or one who is one gust of wind away from complete financial ruin? I know which camp I want to sit in.

Rich vs wealthy pinterest image

Leave a Response