Most people think they want to be rich, and that means getting a high-paying, high-powered job, which allows them to buy a fancy home, car, and other possessions. Dig deeper though, and what they often want is something entirely different. What they really want is to become wealthy. Becoming wealthy means having enough income coming in, whether they’re working or not. And it often means earning passive income from assets through equity in a business directly, or indirectly via the share market. Becoming wealthy like this can ultimately give people the time and flexibility to do what they want when they want.

Being rich

I once met one-on-one with a fabulously successful and rich businessman in Hong Kong. It was in 2005 when I joined a stockbroker. The broker was a growing boutique which had successfully taken on bigger investment banks like Goldman Sachs in Asia. The Chairman, Gary Coull, was a Canadian who’d founded the firm with an Australian partner almost 20 years earlier.

Not long after I joined, I got called in by a division head mid-afternoon who said: “The boss urgently wants a name for this new private equity fund that we’re seeding, and he wants you and I to come up with one by close of business today”. We quickly got to work, though finding a unique name that hadn’t been already taken was harder than first thought.

We came up with a few naming options, and an hour later, Coull asked for me, just me, to see him in his office immediately. His office had a fabulous view overlooking Victoria Harbour, the expansive waterway that separates Hong Kong Island in the south and Kowloon to the north.

The meeting began with small talk, and it quickly became clear that the Chairman knew my background and others who’d recently joined the firm. Then, he got to the proposed names, and gave me a steely gaze. “These names are sh*t. I don’t want ancient or prosaic names. This is an Asian fund, and the name needs to reflect that. Come back in an hour with better”.

We did as he asked. At 2.30am the following morning, I was awoken with a text message from an unknown number: “Gruber, almost there”.

Soon after, Coull got cancer, and he died a year later at the age of 52. His Australian partner had previously died at the same age.

Coull had worked day and night on his business, as I witnessed, he’d accumulated hundreds of millions of dollars, and was widely respected and lauded both in Asia and worldwide. He was also divorced, didn’t have children, and died at a slender age.

Coull had all the trappings of being rich, but he didn’t convert them into wealth and true financial freedom.

Being wealthy

I’m friendly with a guy in my neighbourhood who always dresses like a beach bum: casual, loose-fitting shirts, shorts, and flip-flops. Before knowing him, I’d often see him during workdays, and hanging out with his kids after school. His wife didn’t work and that got me curious about what he did for a living.

It turns out the guy is wealthy, though you wouldn’t know it from his appearance. In his early 40s, he’s on the boards of several companies, including his own. He helps raise money for the companies and has equity stakes in each of them.

He doesn’t work a lot and essentially does whatever he wants. He goes to all his kids’ activities, and coaches one of their local sporting teams. He’s a mad football supporter and watches many of the games on the weekend.

This bloke seems to have few of the trappings of being rich. He doesn’t have a high-powered job, he doesn’t have a fancy car or house, and he doesn’t seek fame.

While he may not be rich in many peoples’ eyes, he’s undoubtedly wealthy.

Does one lead to the other?

The question is whether people need to work 24/7 in a high-paying job to attain the desired wealth and freedom. It can happen that way though doesn’t need to. And one doesn’t automatically lead to the other, either.

At the stockbroking firm, I knew plenty of people in their 30s who’d become rich and yet continued to work hard and play harder. I worked out that they kept going, even when they didn’t need to, because they had certain lifestyles to maintain, and more cars, houses, and other things to accumulate. Many of them never got off that treadmill.

Another story comes from the father of a friend of mine, who was a top-notch lawyer. As a partner in the firm, he worked day and night, and many weekends, for 40 years. He got many of the trappings of success, though he sacrificed his family for the sake of work. That led to divorce when his two children were reaching their teens.

Nowadays, he’s retired, drinks too much wine, and doesn’t know what to do with himself. He never learned to convert his money into wealth and freedom.

Differences between the two

There are two key differences between being rich and being wealthy:

  1. Both involve making money, but it’s the way that money is made that differs. Being rich means getting a high-paying job; being wealthy means owning income-producing assets, usually via owning equity in a business, directly or indirectly. Being rich means working more to earn more; being wealthy breaks the nexus between time and money, where people earn money even when you sleep. While it’s true that money from a job can be converted into income-generating assets, that’s the indirect rather than the direct route to wealth.
  2. Being rich means being a slave to time through work; being wealthy can allow people the flexibility to do what they wish with their time.

For more on this topic my colleague Mark wrote about the relationship between wealth and happiness and how to build the life you want through investing.