Recomended : Read Rich Dad, Poor Dad before read this CashFlow Quadrant
In Robert Kiyosaki's, The Cashflow Quadrant, the author states that there are four kind of workers: Employees, Self-Employed workers, Business Owners, and Investors. Kiyosaki also states that there are seven different kind of investors. Furthermore, Kiyosaki finally states the seven steps to financial prosperity. There are four kind of workers: Employees, Self-Employed workers, Business Owners, and Investors. Employees believe that "uncertainty does not make them happy."(Kiyosaki, Cashflow Quadrant pg. 21) As a result, employees have a huge trade off for their job security by "losing" their chance to become rich quickly. Employees are paid the least and taxed the most. A man working as a cashier at Vons, is an employee. He wakes up every morning and work long hours each day. The cashier is a hard worker. However, he is only making the owner rich. Self-Employed workers are people who have their own business. "Self-employed people are often hard-core 'perfectionists.'"(Kiyosaki, Cashflow Quadrant pg. 22) They are people who own small hair salons and hobby shops. It is true that self-employed workers are their own boss. The only problem is that they have to manage their business, manage their taxes, work, and fight off building inspectors. As a result, most self-employed workers will quit in five years. Business owners are different from self-employed workers. While a self-employed business owner must be present, a business owner "likes to delegate"(Kiyosaki, Cashflow Quadrant pg. 23) In other words, the owner does not show up for work. Instead, he hires a manager to handle his business for him. When we go to Mc. Donald's, we hardly see the owner. When we have a complaint we only get to resolve a dispute with the manager. "Investors make money with money."(Kiyosaki, Cashflow Quadrant pg. 29) I have a friend who had withdrawn $20000 from his credit card. Instead of buying a new car, he have re-invested the same $20000 in high interest off-shore Certificate of Deposits. In one year, he payed back all his debts and currently earns $6000-$20000 in passive income every month. In other words, he never works for money. My friend's money works for money, even though he plays golf and plays pool for hours. Kiyosaki suggests that everybody be satisfied with their own quadrants. He also suggests that employees and self employed workers are the worst position to be in. On the other hand, Kiyosaki suggests that business owners and investors are bound to have both the freedom of time and money. There are seven levels of investors:
Level 0: Those With Nothing To Invest-They are people who make money and blow it all out on fancy cars and toys.
Level 1: The Borrowers-These people always say, "just charge it." They love to take "0 down/Easy monthly payment" offers. In Las Vegas, the borrowers are wealthy man with no money. As a result, they borrow, borrow, borrow. Soon, they find themselves homeless.
Level 2: Savers-While savers are better off than borrowers, they are not aware that their money is being depreciated by inflation. Inflation usually averages at 4% per year. Unfortunately, most savings account only pay at 2% interest per year. The solution? Invest in CDs, stocks, bonds, or mutual funds.
Level 3: "Smart" Investors-They are the middle class with 401(k), SEP, Superannuation, IRAs, and pension plans. When they retire, the "smart" investors believe that the government will pay for their retirement. Today, it is not possible. As their expenses go down, health care costs for the elderly skyrockets. It is a good idea to have CDs, stocks, bonds, and mutual funds to back pension plans.
Level 4: Long-Term Investors-These people have a plan to follow. They have laid some cash for CDs, stocks, bonds, mutual funds, and real estates. Level 4 is a turning point for most people. At this point, people realize the difference of working for money and the difference of having money working for money. Reading books and listening to audio tapes on investing, is a major step of being a long-term investor.
Level 5: Sophisticated Investors-These investors are in the "fast track." They are savvy and bold to take on bigger risks. Sophisticated investors buy ancres of lands, houses, and apartments at "whole sale" prices. They then fix up the property and resell the same property at "retail" prices. Most real estate investors fit the criteria of a sophisticated investor.
Level 6: Capitalists-These people are masters of being an investor and being a business owner. "These are the Fords, Rockefellers, Paul Gettys, Ross Perots, and the Kennedys."(Kiyosaki, Cashflow Quadrant pg. 93) They are talented and strive to change the world by creating jobs and donating huge sums of money to charity. *This concept have been simplified from pg. 83 of Cashflow Quadrant If you want to be rich, ask yourself, "why am I poor?" Chances are that you will have to fight your urge to live in "first class" and educate yourself by reading more books on finance and investments. By starting small, you will decide if it is safe to invest more later on a particular CD, stock, or a mutual fund. Remember that education comes first before you invest. The seven steps to financial prosperity are:
1. Mind Your Own Business-Ignore people who say, "You can't do that!" "It is impossible!" or "You will fail!" The only way to fail is for you to accept and admit that you have failed. Only you know more about yourself than anyone in the world. The world is full of "limits." In truth, limits and failures are nothing but states of human emotion.
2. Take Control Of Your Cashflow-Take the time to sit down and write down how much you pay in mortgage, car payments, credit cards, and other expenses. Your job is to see where you are today. You are starting from point A, to get to point B.
3. Know What Is Safe And What Is Risky-I thought that stocks were initially risky. However, I played Kiyosaki's Cashflow 101 game and realized that stocks were actually profitable. WHen you see risk, you have two options: Reduce risks by educating yourself about the risk or stepping out.
4. Know Where You Want To Invest-Do you want to invest in stocks? CDs? Real Estates? Choose your investment wisely. If you do not know anything about electronics, do not buy electronic stocks. It's that simple.
5. Seek Mentors-You become who you hang with. Friends have the power to make you feel good or feel bad. Pick mentors with a proven track record of who he is. A lawyer is not a doctor and a real estate investor can not be your CPA.
6. Make Disappointment Your Strength-Always look for the good in every problems. Turn failures into success. Whenever you have a problem, don't say, "I can't." Say, "how can I solve this problem?" For every problem comes every answers. Never give up!
7. The Power Of Faith-If you think you can, you can do it! If a problem is gargantuan(huge), do everything in your power to solve it! For me I feel comfortable to have God as my partner. Whenever I feel hopeless, I always put my problems on the hands of God's. I have faith in God to give me the strength while my duty is to execute my plan. *This concept have been simplified from pg. 199 from Cashflow Quadrant Know where you are today and imagine where you want to be. Prove others that you have the power to make your dreams, a reality. Never give up and have faith on God and yourself. Continue to educate yourself on finance. Have the right mentor to encourage you to push yourself over the limits. Kiyosaki's Cashflow Quadrant is more in depth than his first book Rich Dad, Poor Dad. Employees and self-employed worker are taxed the most and earn the least. Business owners and investor are taxed the least and earn the most. Learn to invest before you begin to invest. Follow your dreams and let your actions speak louder than words.
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