Rich, wealthy, and financially free are not the same thing.
But most people still believe they are.
And mixing all 3 up is exactly why so many people try to get rich… but can’t.
So let me tell you how I define each of them because this will help you actually become rich.
There are 3 levels you need to understand.
Starting with…
Level 1: Rich Is About Income
There’s a common misconception that getting rich starts with finding the right investment.
But if you’re starting with little money, your earning power is the biggest lever you can pull… not looking for investment returns.
Let me give you an example:
Let’s say you have $10,000 invested.
And you improve your return from 8% to 9% in a year.
That’s about another $100 in year one.
But here’s the thing:
If you focus on increasing your income enough to invest another $10,000… you’ve just doubled the money that’s compounding.
This is why how much you can invest matters more than squeezing another percentage point out of your current investments.
This is why level 1, getting rich, is about creating more money.
You’re focusing on Make.
And Make is creating enough income to generate investable money.
At this level, your career, skills, and ability to negotiate are all a part of the wealth conversation.
Now, you might be wondering: “Okay Sharran, does this mean I need a higher income to get rich?”
Not exactly.
A higher-income job is just to create more money, which makes it easier to invest.
Someone can make $500,000 and spend $500,000 a year for 10 years.
They will still have $0 at the end of those 10 years.
Someone else can make $200,000, invest $50,000 a year and it compounds at 10% for 10 years.
And they will have $796,871 at the end of those 10 years. At this point, you might be considered rich.
But here’s the thing:
Staying rich is a different question.
Without understanding this next level, the money you make can disappear just as fast as you made it.
Because to stay rich, you need to understand level 2…
Level 2: Wealthy Is About Net Worth
At level 2, we shift from earning to owning.
You see, your life is paid for in purchasing power.
Purchasing power is just how much stuff your money can actually buy.
Here is an example:
In 2020, my Starbucks order cost me $2.75.
Today that exact same order costs me over $5.
This is the power of inflation, which just means prices go up over time, so each dollar buys less than it used to.
And the money you earn starts shrinking the moment it hits your bank account.
But it’s not something earning more can fix… only owning can.
This is why you’re focusing on Build at level 2.
And Build is when you take your money and invest it into assets that give you ownership and compound into net worth.
This lets your money grow faster than rising prices.
And to Build properly comes down to understanding this wealth formula:
Wealth = money x return x time.
Here’s what this means.
You need money to invest, an asset you own that beats inflation, and years for it to compound.
But most people obsess over the return.
What hot stock should I buy?
Should I buy Bitcoin?
Should I get this new ETF everyone is talking about?
Imagine you have $10,000.
You invest that $10,000 in the hot stock for one year and make a 30% return.
Amazing, you have made $3,000.
Now leave that same $10,000 in an asset earning 8% for 30 years, and it becomes about $100,000.
It’s the same money, but the lower return wins because it had 30 years.
But owning still isn’t financially free.
You can make 100s of investments in assets and still be working to pay your bills.
And this is where level 3 really comes into play…
Level 3: Financially Free Is About Independence
Someone can have a huge net worth of $10M, be working 12 hours a day, and spend almost everything they earn.
On the other hand, someone else can have a $1M net worth, work 2 hours a day, and have almost no dependence on earned income at all.
Why?
Because their $1M sits in assets paying them $5,000 a month, and their life costs $4,000 a month.
And financial freedom is when your passive income is greater than your monthly expenses.
Now to create passive income at level 3, you are focused on Replace.
Replace means you are creating enough passive asset income that working becomes optional.
This could be rent, dividends, or income from something you built, like a masterclass or course.
And this is why rich, wealthy, and financially free are three very different things.
If you’re rich and wealthy, you’re still not financially free… yet.
But at least now you know how to get to financial freedom:
Rich = MAKE.
Focus on making more money to invest, like getting a higher-paying job or starting a side hustle.
Wealthy = BUILD.
Take your money and turn it into ownership by buying assets.
Financially free = REPLACE.
Own enough passive income-producing assets that they cover your lifestyle expenses.
This is when you can wake up in the morning and say, “What do I want to do today?”
And if you enjoyed this post, I talk about everything I learned from 30 years of business in 7 lessons in this next one:
30 Years of Business Knowledge In Just 7 Lessons
I’ve exited 5 businesses and built 2 billion-dollar businesses.