Just as volatility is not the same as risk, being rich is also not the same as being wealthy, as Morgan Housel very well articulates in this piece using the Vanderbilts as a case study, which might as well apply to many of us even today.
“Money is fungible in the sense that my dollar bill is indistinguishable from your dollar bill.
But the value people get out of a dollar varies wildly, even among people with the same income and net worth.
I’m always interested in the difference between getting rich and staying rich. They are completely different things, and many of those skilled at the former fail at the latter.
Part of this topic is knowing the difference between rich and wealthy.
These definitions are my own, but here’s the distinction: Rich means you have cash to buy stuff. Wealth means you have unspent savings and investments that provide some level of intangible and lasting pleasure – independence, autonomy, controlling your time, and doing what you want to do, when you want to do it, with whom you want to do it with, for as long as you want to do it for.
….Nassim Taleb echoes a similar point when he says, “The record shows that, for society, the richer we become, the harder it is to live within our means. Abundance is harder for us to handle than scarcity.” You become a victim of your own success.
The Vanderbilts are an extreme example, but I think they were just a magnified version of what so many regular people deal with today. Average household incomes adjusted for inflation have more than doubled in the last 70 years, but it doesn’t feel that way because expectations have more than doubled. Part of the reason home affordability is lower today than in previous generations is because the average new home is a third larger than it used to be; millions of Americans haven’t saved enough to retire, but just a few generations ago the entire concept of retirement was a dream.
I want to be rich, because I like nice stuff. But what I value far more is to be wealthy, because I think independence is one of the only ways money can make you happier. The trick is realizing that the only way to maintain independence is if your appetite for stuff – including status – can be satiated. The goalpost has to stop moving; the expectations have to remain in check. Otherwise money has a tendency to be a liability masquerading as an asset, controlling you more than you use it to live a better life.”

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