With the advent of Robert Kiyosakis breakthrough “Rich Dad, Poor Dad,” many of us are getting the financial wake-up call of our lives. To help you get the most out of his many lessons (and to help you instill yet more top wealth building habits in your life), we summarize Kiyosaki’s four cash flow quadrants, and discuss why Business Owners and Investors generate far more wealth than Employees or the Self Employed.
Here’s a quick run-down on the four different types. Employees work for someone else, trade hours of work for money, and are able to generate very little wealth because all the wealth goes to their employer. Self Employed people own their own businesses but generate very little wealth because they rely only on their own smarts and effort to generate money. Business Owners, on the other hand, leverage the ideas and efforts of many people and build business assets that produce income even when the Owners are absent. Investors similarly focus on assets, investing in pre-existing assets rather than building them.
So why are Business Owners and Investors far wealthier than Employees or the Self Employed? Because they have developed some top wealth building habits that really make a difference. While Kiyosaki goes into great detail, here are some basic principles to get you started:
- TIME: Business Owners and Investors are willing to invest now (earning less in the present) and wait for larger cash flows in the future. Employees and the Self Employed are impatient to earn money now, and think little of the future.
- ASSETS: Business Owners and Investors spend effort on building or buying assets, which eventually produce passive income (in other words, the assets produce income whether you’re actively working or not). Example of assets producing passive income include real estate and stock. Employees and the Self Employed pay little attention to assets, instead spending their efforts trading time for money – an income stream that stops if the person ever stops working.
- EFFORTS OF MANY: Business Owners and Investors recruit teams of people to work with and for them, and rely on the intelligence, savvy and efforts of many people, not just themselves. Employees and the Self Employed rely on their own efforts alone.
- SACRIFICE: Business Owners and Investors are willing to forgo spending and luxuries in the present moment, instead investing extra dollars in assets. Employees and the Self Employed spend almost all their money as soon as they earn it.
- DRIVE: Business Owners and Investors have very definite financial aims, and do not let their emotions or “needs” interfere with these aims. They are the drivers and creators of their own wealth. Employees are driven by the goals of their employers, and the Self Employed are usually driven by their need for independence.
Hopefully these five wealth creating habits will help you start thinking the way Business Owners and Investors, moving you into the cash flow quadrants that are the domain of the truly wealthy. Good luck!