Income vs. Assets: Defining the Difference Between Rich and Wealthy
Being rich and being wealthy are not the same, and understanding the difference matters to your financial wellbeing.
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The definition of rich and wealthy and the differences between the two can sometimes be elusive (even though it turns out to be important).
For some people, rich and wealthy are synonyms and there is little practical difference between them. They are the ones with the flashy cars, big mansions, expensive clothes, luxury yachts, among other things.
Others see the wealthy as superior to the rich, thus defining wealth as a higher form of riches.
However, in the world of personal finance, those two words have very specific meanings.
It’s possible to be rich (in terms of income) and not be wealthy (in terms of assets). Moreover, flashy cars, big mansions, and expensive clothes do not in themselves constitute wealth.
In this article, we will bring some clarity to the rich vs wealthy discussion by defining both terms and talking about why you should prioritise wealth building (and how you can build wealth in the UAE). We’ll cover:
[Do you want to enhance your wealth building journey in the UAE? Sign up for Maly to gain better control of your spending with multiple debit cards so you can save and invest more money.]
“When someone is considered rich, we would classify that as someone with a current larger income than their fixed expenses, allowing them to live an extravagant lifestyle,” according to David Morgan, managing partner of High Net Worth Advisory, as quoted by Forbes.
Yahoo Finance also agrees that “income is often used as a standard when measuring what it means to be a rich person.”
However, the level of income that determines whether someone is rich is a bit subjective. Is it the top 1%, 10%, or 20% of earners? Generally, most will consider those in the upper class (as against the lower or middle class) as rich even though the definition of upper class will also vary from one country to another.
The income that makes one a rich person can come from a high-paying job or from a business one owns. Some rich people also have multiple streams of income (two jobs, two businesses, one job and one business or side hustle, etc.)
“When someone is wealthy, their assets are more substantial than their liabilities, allowing the assets to generate an income large enough to cover fixed expenses,” said David Morgan.
“True wealth is all about sustainability,” he continues. “Whether you come from generational wealth or are completely self-made, wealthy people tend to have investments and assets that continue to produce income for years—or even for generations.”
Yahoo Finance agrees: “Wealth is often defined in terms of net worth. Net worth is a measurement of the difference between your assets and liabilities.”
In essence, the difference between rich and wealthy lies in what one does with one’s income.
“Someone who makes a higher income but spends instead of saving or has significant amounts of debt, for example, may live a rich lifestyle but be broke on paper,” according to Yahoo Finance.
This implies that one can be rich and not be wealthy. The rich man who spends all his income lavishly without acquiring assets that can appreciate in value and/or generate passive income or who lives in debt in the process is not wealthy.
Cars and expensive clothes depreciate in value but investment properties, stocks, bonds, mutual funds, etc., appreciate in value. Those who have the latter in abundance are wealthy while it is possible to have the former (being rich) and not the latter.
Said differently, in the words of Bogart Wealth, a wealth advisory firm, “a wealthy person typically has a significant net worth, while a rich person could have a high annual income but a negative net worth because of debt.”
But we again face the same problem as when defining the rich – how much net worth is enough to consider someone wealthy? Do you need to be part of the top 1%, 10%, or 20%?
For example, the Survey of Consumer Finances done by the US Federal Reserve in 2023 put the figure at $2.6 million while the one done by Charles Schwab put it at $2.2 million. And for some, the golden number is $1 million.
In the UAE, the focus tends to be on the top 1% and you will need a net worth of about $1.6 million to be a part of that elite group.
The above definitions show that it is possible to be rich and wealthy as long as you are investing your extra income in income-generating and value-appreciating assets and not just in depreciating luxuries. Business leaders like Mark Zuckerberg, Bill Gates, and Elon Musk are rich and wealthy.
Also, as stated above, it is possible to be rich but not wealthy.
And, finally, it is possible to be wealthy and not necessarily rich. By consistently investing a high portion of your income in income-generating and value-appreciating assets, you can build considerable wealth over a long time.
A survey of American millionaires by Ramsey Solutions, a financial advisory company, found that “only 31% of self-made millionaires averaged $100,000 per year over the course of their careers. One-third of millionaires surveyed never earned a six-figure salary in any single working year.”
In fact, 3 out of 4 millionaires attributed their success to “regular, consistent investing over a long period of time.”
The first benefit of being wealthy is sustainability and financial security. If you are rich but not wealthy and you lose your income source(s) for any reason, you might be forced to go into debt or to do a fire sale of your depreciating luxuries.
On the other hand, since wealthy people have a lot of assets that produce income, they might be unfazed by a loss of their earned income, thus ensuring more financial stability.
Secondly, wealthy people are more likely to leave inheritance for their children and other family members. On the other hand, those who are rich and not wealthy may leave their children with financial liabilities and a big chunk of depreciating luxuries.
Third, wealthy people can attain financial freedom and independence as they replace their earned income with income from the assets they have accumulated. Doing this will be harder for rich people who depend on their high income to maintain their current lifestyle.
Finally, the possibility of being wealthy without being rich opens the door for average people to build wealth over time. As we have seen from Ramsey Solutions, it is not necessary to be part of the 1% earners to be a self-made millionaire.
With all the benefits highlighted above, it is obvious that you should aim to be wealthy and not just rich. In what follows, we consider what you can do to build wealth in the UAE, irrespective of your current financial situation.
The first step to building wealth is to take control over your finances, especially your spending habits. This is because the first hindrance to building wealth is spending beyond your means to the extent that no matter how high your income, you are still incurring consumer debt.
Budgeting still remains the best way to gain this control. “A budget is telling your money where to go instead of wondering where it went,” said John Maxwell, a popular motivational speaker.
No matter how small or big your income is, you need to create a budget that will guide how you spend it.
A common approach is the 50/30/20 rule where 50% of your budget goes to needs, 30% to wants, and the remaining 20% is saved. Such a system can give guidance and direction to your personal finance, ensuring you are not splurging your money on unaffordable luxuries.
Writing a budget and sticking to it are two different things. One way you can achieve the latter is to use a money management system that prevents you from overspending on any of the budgeted categories.
Maly created such a system with its multiple visa cards. You can create multiple prepaid debit cards for each category or subcategory, load the budgeted amount into the card, and track your spending on each card.
Since you can’t spend more than what is on the card (unlike credit cards), this system will force you to spend within the budgeted amount.
This is better than having all your money in one bank account and debit card where you might not be aware that you have overspent on eating out already while you have not yet bought enough groceries for the month.
Saving money in the UAE is hard but with the right attitude and tools, you can stand apart.
Once you have a budget and have implemented a system to track and control spending, you can now save 20% of your income (or more if you feel up to it) every month.
Maly’s automated saving tool can also help you achieve this. You can set up your Maly account to automatically deduct a certain amount of money from your checking account at the beginning or end of the month.
This system is based on the advice of Warren Buffett, the billionaire investor: “Do not save what is left after spending, but spend what is left after saving.”
Automated saving can also help you better control your spending as you can be sure that if you overspend unnecessarily, you can’t fall back to the extra money in your account which should be your savings. This forces you to be more frugal when spending.
You can also create a card where all your savings are held. And if you have different savings goals, you can create a card for each one and allocate funds to them based on your priorities.
[Do you want to even do better than saving 20% of your income. Read our top money saving tips in the UAE.]
Investing is great but choosing the right investments and combining them in a way that minimises risk and maximises return is crucial. And it is also important to avoid phoney (and often well marketed) investments.
Typically, stocks, bonds, REITs (real estate investment trusts), mutual funds, and ETFs are the main assets that people (especially those who don’t earn high income) have used to build wealth over the years. Some of the wealthiest people have also had great success investing in real estate and starting various businesses.
If you are not sure how to invest wisely in a way that fits your risk appetite, time horizon, and investment goals, you can consult with a financial planning firm or use a robo advisor (or a wealth management company, if you have a lot of money).
Once you have a solid investment strategy, you can transfer funds from your savings cards on Maly to investment accounts (of which retirement accounts constitute an important part).
For short-to-medium-term financial goals (saving for the downpayment on a property, for example), it is better to keep your money in an app like Maly where the goal is capital preservation. The stock market is more appropriate for long-term horizons (high risk, high return).
By investing wisely in this way, you will be able to build wealth for yourself and even leave an inheritance for your children and family members.
[Do you want to build wealth in the UAE? Sign up for Maly to better manage your spending with multiple debit cards and save money consistently with automated saving tools.]
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