Tuesday Tidbit: The Difference Between Being Rich and Wealthy

It was the investment book that started my love affair with saving, investing, and the markets. My dad gave me The Millionaire Next Door when I was a teenager. Back then, being a millionaire had even more cache than today — thanks a lot inflation. Ever since I was young, my dad preached about the value of financial independence and this book seemed like a perfect roadmap. Only it didn’t reveal the Lifestyles of the Rich and Famous like you might expect. Rather, in learning the habits of more than 500 millionaires, the book’s research uncovered something far different. Below are a few of the book’s most important lessons, along with one critical factor that the book missed in giving investors the keys to financial success and fulfillment.

One Word that Separates the Rich and Wealthy — We often tend to interchange “rich” and “wealthy.” It’s a big mistake when you consider that there are many people who are rich but not wealthy and conversely those who are wealthy but not rich. The author Thomas Stanley defines “rich” as those who earn a lot of money, while the “wealthy” are those who have accumulated a lot of money.

Two Keys to Spotting a Millionaire — Two of the key contributors that Stanley found in millionaires were a propensity to live below their means and to be diligent savers. In other words, millionaires were like human chameleons blending in with others who earned less and spent more than they did. These millionaires were hiding in plain sight, one might even say — next door.

Monkey See, Monkey Do — My kids are a great reminder that humans tend to model what they see much more than what they hear. People are good at learning by imitation. Given that context, it’s easy to see why people would be exceptional at being rich (or acting wealthy) but not actually being wealthy. The only way to be wealthy is to not spend the money that you have. How can you learn from actions and behaviors that you literally can’t see?

Wealth Is What You Don’t See — How many basketball players have said they modeled their game after Michael Jordan or Kobe Bryant? How many authors could tell you the great authors that inspired them? To become wealthy, who would be your role model? Where would you see spending less and saving more? Whose tips and tricks would you follow? This is why becoming wealthy is so hard — wealth is invisible.

The book’s insights are as valuable today as they were 25 years ago. Wealth can be an invaluable resource but we believe the book missed a key chapter at the end. To live one’s best life, it’s not in the accumulation of financial wealth. We believe true fulfillment in life occurs when individuals are able to transform their financial success into a life of true significance. In our view, life’s greatest rewards lie in defining what significance is to you and building a plan to achieve it.

Weekly Tidbit Quote: “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” — Albert Einstein

If you have a question or a topic you’d like to learn about in a future Tidbit, please reply to this email. If you like the Tuesday Tidbit, feel free to share it with a friend!

John Fischer, CFA^®, CFP^® | Chief Investment Officer
Mosaic Family Wealth
john@mosaicwealth.com | MosaicWealth.com

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Mosaic Family Wealth strategies are disclosed in the publicly available Form ADV Part 2A. Mosaic Family Wealth Partners, LLC (“MFW”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where MFW and its representatives are properly licensed or exempt from licensure.