There is a big difference between money and wealth that many people do not understand. And this is also one of the main reasons why people are heading for financial disaster, filing for bankruptcy and divorce due to financial issue.
It is very unfortunate that schools did not teach people about money, wealth, and business. When people are financially educated, there will be fewer problems arise from financial mismanagement and people will live a happier and healthier lifestyle.
Most people misunderstand and think that money is simply cash, which it is often more than just cash. If you look at the world today, money is just not cash, it can be a bunch of numbers sent by electronic means from one computer to another. Money can be just numbers showing on the screen from your bank account and when you transfer the money, the bank simply just alter the number.
On the other hand, most people thought that wealth is being rich. Wealth means having a lot of money and a lot of possessions, but in truth, wealth is more than just being rich or owning ten properties or money in the bank.
In this article, you will discover the differences between money and wealth. You will learn the differences to better understand how you can be more financially educated so that you can manage your money wisely to become wealthier.
What is Money?
1. If you look it up in the dictionary, the definition of money is, “a current medium of exchange in the form of coins and banknotes.”
2. Money is often referred to as a form or medium of exchange. It simply means that money is a thing that is used to swap for another thing or service.
3. Another more specific definition of money can be stated as “money is an idea, backed by confidence”. This definition was stated by L. Ron Hubbard.
4. Money is just an idea and represented by coins and banknotes. For example, a hundred dollar bill is just a piece of paper. When you buy something in the grocery store, you are exchanging value and idea for the items with money.
5. Money is an intangible concept, and that means that it cannot be touched or smelled, but it can be seen in terms of numbers. When you do an online transaction, everything is in numbers and it is intangible. Money is a concept used to describe the exchange of commodities.
6. Originally, people used barter system in exchange for goods. That was many decades ago before the money was invented. People exchange their cattle for corns, silk for milk, and many other types of exchange. This is a barter system.
7. Due to the inconvenience of the exchange, people invented money, which in the beginning was represented by gold and silver due to their scarcity. And eventually, paper money was invented. In today’s world, money can also be represented in the digital form. It has become easier to do transaction or exchange commodity through online transfer.
8. In China, the wave of using electronic payment via mobile phone Apps are quickly catching fire. People use Apps through their phones to make payment for groceries, make any payment, and even buying foods in the market.
9. Money has a few properties such as it must be a medium of exchange, a unit of account, a store of value, and in the past, a standard deferred payment. Any kind of object that fulfills these functions can be considered as money.
10. Previously, the bank uses gold as reserved based on which they would issue notes or currency. However, this has long practiced in today’s world. Money has now become a complete intangible idea that is represented by numbers in the system.
11. This means that money is just a tool, a form or commodity of exchange. If you have a lot of money, it does not mean that you are rich or wealthy.
What is Wealth?
1. In the dictionary, it defines wealth as, “an abundance of valuable possessions or money.”
2. This is also the definition most common people understand about wealth. When one person said that he or she is wealthy, most people will have the idea that the person has a lot of money and possessions. However, wealth has other definition too.
3. Wealth can also be defined as “the ability to survive a certain number of days forward.” This definition was made famous by the financial guru, Robert Kiyosaki, the author who wrote the bestselling book “Rich Dad Poor Dad” that took the world by storm.
4. When it comes to wealth, money may or may not be important. For instance, if you have a lot of money, but at the same time you have a lot of debt and high expenses, you may not be wealthy. This is because you can only survive for a short period of time rather than a longer period.
5. If you want to know how wealthy you are, just imagine you have lost your ability to work and there will be no active income for you. How long do you think you can survive and live above your means? For people who do not have any saving or residual income, they cannot survive for long. For people who have money reserve in the bank and who have passive income, they can survive for months and even years. This is the definition of being wealthy.
6. When you are wealthy, you can survive and still manage to live according to your lifestyle. When you are not wealthy, you cannot survive without active income from your work.
7. This simply means that you can be wealthy without having much money because your expenses are low or because you have passive income to support your lifestyle.
8. When Hurricane Katrina hit New Orleans, many people lost their lives because they lacked clean water and adequate food supply. The victims have money, but they did not have the accessibility to buy food and clean water to survive. And thus, the word wealth is also evolving to adapt to the situation.
9. United Nations defines wealth as a monetary measure which includes the sum of natural, human and physical assets. Natural capital refers to land, minerals, and forests, while human capital refers to education and skills. Hence, wealth can be changed to mean different things depending on where it is being used.
10. Many people have the wrong perception and think that driving a sports car or wearing a designer watch means wealthy. And because of this wrong concept, people spend more than they earn into buying shiny objects to prove that they are rich.
11. The society and media have also conditioned most people to believe that being wealthy means having a lot of money and able to spend lavishly on luxury items, which is really not.
Money and Wealth
So now that you understand the meaning and differences between money and wealth. You should understand that money does not make you wealthy, just like driving a luxury car cannot help you directly to survive. Therefore, look at money as a tool and a form of exchange. And use the money, your tool to build and grow your wealth.
If you want to know how wealthy you are, just take a close look at your possessions. How many of them support your survival. Of course, you have to measure your wealth from natural, human and physical capital.
People who are wealthy may not have a lot of money, but they have investments that will generate them enough money to cover their basic expenses without having them to work. Robert Kiyosaki has a good piece of advice on money and wealth, he said:
“Your luxuries should be paid for by your investments. If you don’t have any investments, then you shouldn’t buy any luxuries. A luxury is anything which does not directly contribute to survival.”
Therefore, look at money as a tool and use it wisely in exchange for assets that will generate you more of it.
Some people earn hundreds of thousands a year, but because of their lavish spending lifestyle, they are not wealthy at all. On the other hand, there are frugal people who earn only thousands a month, but they are able to retire anytime they want and to enjoy their desired lifestyle because they use money to work for them without having to put in active hours into working for money.
Most people are not wealthy because they spend money in the wrong way. People use and spend money because they want to remove pain. The pain can come from the need for a house or food, but often, the pain is something way deep down inside them. People spend money to fill up an empty feeling inside them, or boredom, or other emotional reason.
This shows that financial education is important. You must consistently strive to learn to use the money to maximize your wealth.
The best use of money is to learn how to use it at an early age. But you can still become financially free and wealthy no matter what your age. It just requires the right approach to the use of money.