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Whenever I think of financial success, there’s one person who stands out above all the rest: the Oracle of Omaha, Warren Buffett. You see, he is renowned for being one of the smartest investors in the world. He’s been called the sage for his clever investment tactics and mindset. He bought his first stock at the age of 11 and eventually proceeded to buy Berkshire Hathaway, then a failing textile company. Nowadays, he has used Berkshire Hathaway as a vehicle for his investments and has amassed a personal fortune of over $100 billion.
However, one of the most interesting facts about Warren Buffett is his lifestyle. You’d imagine that someone with that kind of billionaire status would be living the high life. In truth, Buffett is also legendary for living a frugal lifestyle. He’s lived in the same house that he’s owned since 1985. He’d rather eat at a local diner or restaurant to enjoy a nice burger and some Coca-Cola. He’s even donated a large sum of his insane wealth to the Bill & Melinda Gates Foundation, at approximately $1.5 billion.
What is the first thing you think of when you hear the word “wealthy”? Perhaps you’re imagining someone who literally swims in mountains of cash. You might think of a high-profile celebrity with a mansion that goes as far as the horizon. In short, you’re thinking of someone who has a lot of money and luxury in life. However, as shown by Warren Buffett, you don’t need to have a fancy lifestyle to be wealthy.
In truth, the words “rich” and “wealthy” have been interchangeably used for several years. The traditional definition of these words varies, though. How you see someone as rich depends on your tastes. For example, you can count the top 20% of earners in the country as rich. You could say that someone who owns several dogs and a car is rich. You might even state that anyone who owns their own house is rich, in a certain viewpoint. Typically, someone who is rich typically has a lot of money from one or more income sources and they live like it.
Meanwhile, wealth does not necessarily mean someone is rich. Originally, the term was used to describe the number of assets you might have. Your wealth could be a minute amount of stocks or a large number of shares and funds. Being wealthy usually meant having a good amount of assets at your disposal. For instance, a 2019 survey showed that many Americans see a “wealthy” person as someone with over $2 million in personal net worth. One important distinction is that a wealthy person doesn’t necessarily live like they have tons of cash. They might carry a fortune, but they don’t need to act like it.
Yes! By their meanings alone, you can already start to see a difference between being rich and being wealthy. In essence, it’s all about lifestyle and decision-making. You can earn a great deal of money and still not be “rich”. At the same time, you could have nothing in your bank account and still not be “wealthy”. Why is that so? Here are three differences that explain why!
The first and most notable difference is spending habits. A rich person may not necessarily have a lot of money or income. However, they live like they own everything. You might know someone who spends a lot on designer clothes, expensive meals, and fancy gadgets. Even if they don’t have a decent amount saved, they act as if they live in luxury. So, you could be rich because you earn a million dollars. However, can you really be a millionaire if you regularly spend 90% of your income?
Meanwhile, a wealthy person doesn’t try to live fancy. They use their money to spend on more important things, like long-term assets or investments. While they can still buy expensive items, they don’t make it a priority in their lives. Rather, it’s about what can be financially useful to them, even if it takes years to pay off. For example, Warren Buffett’s philosophy on investment focuses on quality. In his mind, it’s better to invest in an excellent service than in something trendy or popular. Quality matters most to him and influences a great deal of all his investment choices.
Income is a big deal to both the rich and the wealthy. Of course, you might believe that both sides earn ridiculous amounts of cash. Perhaps you want to be a millionaire because it means you make lots of money and gain a special status. Statistically, you could be right; a survey by Zippia revealed that only 8.8% of Americans are millionaires. You could argue that being one makes you one of the top 10% earners in the country.
However, making a lot of money doesn’t always happen the same way. The rich may have money, but that doesn’t mean they’ve earned it. While there are rich people who worked hard at businesses, there are also those who benefited from inheritance and lottery tickets. Even if they do work hard, remember that the idea of being “rich” might make you spend more than you save. You could make a lot of money and still suffer heavy losses in your account. Plus, a rich person might stick to one or a few proven businesses. They might be afraid to explore and take chances, out of fear that their money will take a hit.
Wealthy people, on the other hand, have a different approach to money. Income isn’t easy, and a wealthy person accepts that. So, to combat this dilemma, they research and explore all paths to making a profit. For a wealthy person, there are several ways to make cash and grow it over time. They could look into different investment opportunities and have several means of making cash. For instance, they could have a diversified portfolio of all their assets; this portfolio might include bonds, insurance, side hustles, and retirement plans.
The financial mindset is all about a person’s opinion on what money is. Here is where you can find the biggest difference between the rich and the wealthy. For rich people, money is a luxury. It’s the ticket to paradise or prosperity. For these people, making money is all that matters. However, they also think it should be used to satisfy and enjoy. In the short term, living happily now matters more than living well in the future. That’s why many lottery winners, those who win millions and millions in a day, end up broke or in debt. Did they use their money? Yes. Did they use it wisely? You could certainly find examples of those who didn’t.
Wealthy people, on the other hand, care more about using money as a tool in their arsenal. It’s not something to be treated lightly like a toy. Rather, money can be a platform to help them grow and invest in tomorrow. Beyond how they live or what they spnde, wealthy people know that money is a precious thing. In the right hands, it could be the seed that grows over time. However, that also means it has to be treated properly and carefully. A wealthy person doesn’t look at cash and think of what they could buy. Instead, they wonder how they can use it to secure their goals in the next month or the next century.
Once you see the difference between being rich and being wealthy, you’re ready to learn how to get wealthy. Warren Buffett, who is one of the wealthiest people alive, once stated four rules for this. Here are his rules for getting wealthy and how you can apply it to your life.
Buffett once said that people should not save the money left after spending. Instead, they should do the opposite and spend the money that’s left after saving. In other words, he suggests that you save your cash first and spend only what you need. So, next time you get your salary, set aside the money you want to save first. Only start to consider buying things AFTER you’ve already saved an amount.
One reason why this works is its efficiency. Too often, people get their hands on their salaries and start using them immediately. They’ll spend it on food, clothing, and other things they want before they even consider their bill. This will only cause you to live on a paycheck-to-paycheck basis. If you want to start off on the right foot, don’t get excited and spend everything.
To make things easier, consider automating your deposits from your paycheck. This way, you can immediately save 20% of your monthly income without seeing the money once. You won’t be tempted to overspend when the cash is secured elsewhere. Doing this will help you build up your savings account and grow your money as the years go by!
As mentioned before, Warren Buffett lives by the rule of practicality. He’s well-known in the financial world for spending only what he needs. Case in point, the sage had been using a $20 flip phone for several years. He only got an Apple smartphone by 2020. Even then, he doesn’t use all the complex apps that are available. Buffett only uses what is necessary, regardless of how aged or secondhand the items may be.
You can also start to apply the rule of practicality in your own life. While you can still buy the latest brands and gadgets, ask yourself how often you’ll use them. Do you really need to get a new version of the smartphone every single year? Do you care so much about how advanced or recent your car is? If you really think about it, there are many things that are new but don’t really differ in their use.
Always remember to explore your options and see what fits your lifestyle and priorities. For instance, you don’t need to have a car if you can walk or ride the bus to work. Unlike the mechanical bills you’ll keep getting for a car, bus rides won’t demand too much cash every day. If you do need a car, examine used options that are still in good condition. This way, you can save money in buying them and you can still drive around.
The Oracle of Omaha once said that if you keep buying things you don’t need, you’ll start selling things that you do need. In other words, getting what you want can cost you in the long run. Yes, it might look like a fun trend to join in, but do you really need to spend your money on that? The cost you pay for things like a phone accessory or makeup could be used for your retirement plans and other investments. If you struggle to control your spending habits, there is one method you can use to curb that: cash payments.
First, let’s consider why cash is better. Many people take out loans or use credit to pay for the things they want. However, credit card debt and bank loans can be problematic in the future. These things will eat up your income and can take years to pay off. What seems like a reasonable monthly rate could become a hefty bill over time. Plus, with interest rates, you’re going to spend more than you signed up for.
With cash, you can get a tangible idea of how much you spend. Paying $100 is a lot more visceral when you have to hand in bills, instead of swiping a card. With cash payments for small purchases, you can see the amount you spend for your wants and needs. This way, you’ll start to realize just how much you use up and you’ll soon curb your impulsive spending. If you have to use credit for long-term payments, like mortgages, always research how you can optimize your credit score. The sooner you do this, the easier it will be to pay off your debts and keep your rating high.
Lastly, Warren Buffett is a master of investment. He made his name in the stock trade and has built his fortune on shares. So, what does he recommend for future investors? For starters, he recommends that people should use the money they save for investment, rather than getting loans. The stock market can crash at any time, so a loan could only bring you into heavy debt. If you use the money you save, you avoid this risk and still get the chance to explore what investments suit your profile and budget.
Another thing Buffett has always recommended is research. He believes that there is no good reason to invest in a business or company that you don’t know about. Sure, it might look good on statistics, but that doesn’t always equate to success. And remember, Buffett turned Berkshire-Hathaway’s shares from a measly $19 to a tremendous $462000. He did this by carefully examining the company and researching on compound interest. For him, it’s about learning and being patient.
In the same way, you can start doing research to see what investment options best fit your lifestyle. For example, you might be intrigued by NFTs and cryptocurrency, especially the stories of people who’ve become millionaires through them. However, these are risky options and can easily turn shares into busts in a day. By researching them, you can learn how the crypto market works and if it’s worth your time. If not, you can always examine tried-and-true investment plans like bonds and mutual funds.
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