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Understanding the difference between being ‘rich’ and being ‘wealthy’

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By Capital Partners Wealth Planning

The terms ‘rich’ and ‘wealthy’ might seem synonymous, but they carry distinct meanings. Being ‘rich’ generally means having a high income, often accompanied by a lifestyle of high spending. Money flows in, but it can just as easily flow out to maintain a luxurious lifestyle.

There isn’t a clear-cut threshold for when one becomes ‘rich’.

If we consider tax brackets, incomes over $180k fall into the highest taxable category in Australia. This indicates that what might be considered ‘rich’ varies significantly.

To be seen as rich, your income would typically need to surpass the average gross household income of $139k annually (as of June 2023). In households with two high earners, which is common, the combined income can easily double or triple this average.

However, a high income doesn’t guarantee financial security or long-term success. It often creates a false sense of security, leading to lifestyle creep and excessive spending, which can be problematic if circumstances change.

This situation is reminiscent of Aesop’s fable of ‘The Ant and the Grasshopper’. The ants worked diligently to prepare for winter, while the grasshopper enjoyed the summer, only to be unprepared when the season changed.

Enjoying life and having fun is important, but it shouldn’t come at the expense of future stability. Focusing solely on being ‘rich’ and maintaining a lavish lifestyle doesn’t equate to being ‘wealthy’.

The concept of wealth

Being wealthy involves a long-term, holistic approach to financial prosperity. It’s not about hitting a specific target but ensuring you can live a meaningful life with your loved ones, especially during retirement.

True wealth begins with a mindset shift towards the bigger picture and can take years to build.

It revolves around what you centre your financial plan on. Ultimately, your financial plan isn’t just about numbers; it’s about buying back time to spend doing what you love with the people you care about.

While financial considerations are important, it’s about how you handle them. Money isn’t an end goal; it’s a tool to build stability, safety, and control, much like the ants in the fable.

As with any tool, expertise can make a significant difference. Financial stress is a major contributor to poor health and shorter lifespans, driven by constant worry about money. Whether it’s concern over the money you have, the money you don’t have, or the money you think you should have, financial stress is pervasive.

The role of a fiduciary adviser

Engaging a trusted fiduciary adviser can alleviate this stress. A financial adviser understands your risk tolerance and lifestyle, offering face-to-face advice to help you reach your financial goals. They assist in building a strong foundation for your financial house, allowing you to focus on what truly matters: family, friends, and well-being.

Building wealth extends beyond your salary, the car you drive, or the suburb you live in. If you want to focus on your long-term wealth-building goals or seek a second opinion on your financial plan or investment portfolio, consulting a local fiduciary adviser is an excellent first step.

The information provided on this site is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if these strategies and products are right for you.

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