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4 ways to make money (Kiyosaki's cash flow quadrant)
Robert Kiyosaki made his cash flow quadrants famous for good reason. There is so much wisdom in understanding how people have generated wealth for hundreds of years. I am going to give a quick run down of each quadrant here to whet your appetite. I highly recommend "Rich Dad, Poor Dad" as I consistently meet people who claim it was a complete paradigm shift for the positive in how they view both their current and future financial outlook.
The employee
The employee is someone who tends to desire safety above all else. They pay a high price for this 'safety' however in the form of higher taxes than any of the other 3 quadrants. Many people complain that the wealthy pay less taxes and this is true (percentage-wise). The dominant mindset of the employee is "fear of instability" (translate this into simply 'fear'). The problem with this mindset is that there isn't any stability in being an employee. Employees can be laid off even if they work hard and are valuable to a company and pension plans consistently disappoint by not delivering what they promise. The mirage of security is paid for dearly by not having any control of your own finances. The employee is taxed before they receive their income.
The small business owner
A small business owner is anyone who works extremely hard and needs to have their finger in every aspect of their business. They tend to be control freaks and their mindset is: "If you want to do it right, do it yourself". While these individuals can receive some benefits with their taxable income, they also tend to have a ceiling that is difficult to get past. They pay high amounts of taxes because they tend not to have any way to distribute their income. They also tend to limit their own growth because they refuse to or cannot delegate jobs; these individuals spend much of their time doing easy work others could do for a lower wage. This group includes doctors, dentists, and lawyers as well as the typical trades-people we see so much in Calgary. There is a limit to how they can save in taxes.
The big business owner
Big business owners receive fantastic tax benefits and are in an ideal place in many ways. Their mindset is: "how can I teach someone to do my job so I can get paid whether I'm working or not". One of the benefits to being a big business owner is they can go on a holiday and still be paid every day their are gone. They tend to very good leaders and delegators as well as teachers. A major difference between these individuals and the former two groups is simply an understanding of how to structure their finances. Anyone can be profit from big business with just a little education and training. These individuals are gifted, by the government, for the ways they grow Canada's economy by receiving great tax benefits. There are some big business owners who pay as little as single digit taxes annually! This is because they pay taxes after receiving their money and have a choice as to what to do with their money before they pay these taxes.
The investor
The investor is any individual who understands s/he can benefit from delayed gratification and how the government rewards those who contribute to the economy. Investments in real estate tend to be paid the best for the needed understanding and work. The crazy thing about this quadrant is that it is fairly easy to gain the rudimentary understanding needed to succeed (anyone can do it) yet very few individuals are willing to learn how to invest properly. The investor's mindset is in direct opposition to that of the typical employee: "the world is full of abundance rather than scarcity, how can I learn what I need to in order to have my money work for me in the future". Investors will benefit from multiple tax breaks and will often retire with a higher income than they had while working full time. Many investors are also employees and/or small business owners or big business owners, but they have also consistently invested a portion of their time in understanding how an economy works and how to benefit from this information. Investors do not make decisions based only on emotion and have long term perspectives. They typically receive fantastic tax breaks.
Summary
While the prospect of developing a big business may be daunting it is fairly simple to start investing a portion of your hard earned money in ways that will pay you back exponentially later on in life. Robert Kiyosaki encourages individuals to invest a portion of their money consistently in ways that will enjoy tax breaks and set up an individual to have residual income later on in life. I will give a quick example of how anyone can do this. Save a portion of your annual income and when you have enough purchase an investment property. Repeat as necessary! I have a close family member who has always been found in the first two quadrants, yet has purchased three properties. In 25 years these 3 properties will no longer carry a mortgage and this family member (and his family) will enjoy monthly income that will pay a significant income for as long as this individual lives. A positive here is that this individual can choose to purchase more houses or not as well as choose to manage the properties or hire someone else to do so. The key word here is 'choice'. While an employee has very little choice now and later, the investor is able to make a lot of choices later in life no matter what choices they have today.
If you would like to learn more about investing in real estate please
contact me at the email address listed at the beginning of this article
or go to my website at: www.akerahomes.com/investing-in-real-estate.html
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