One of the best books to read is “Rich Dad’s Cashflow Quadrant: Rich Dad’s Guide to Financial Freedom” by Robert Kiyosaki. In his book, Kiyosaki describes four ways that people make money: two that work well, and two others that don’t work as well. To get rich, it is important to make the right kind of income.
Those employing what works well get rich. Those employing the other paths might get by. Kiyosaki relates these life lessons as he compares his two “Dad” role models growing up, one who was rich, and the other who finished poor.
The four kinds of income are:
- Income earned as an Employee
- Income earned as a Self-Employed small business owner
- Income earned as a Business Leader
- Income earned from Investments
Employee income is the “safest”, and will just get you by if nothing negative happens in life. It’s no wonder so many people who work full time at their jobs are struggling to pay their bills. Even after years of hard work! It’s the easiest type of income to generate. You pay the employer in labor more than they pay you in cash! Otherwise, they would have no reason to hire you!
Starting out in life, the employee path is not a bad option. You learn skills. You learn teamwork. You can set aside some funds. The problem is that most folks do not consider what happens beyond being an employee, and get used to it. What’s next? Most believe that is all there is, and become trapped in corporate jobs they dislike, living on their 2% pittance of a pay raise every year. Fear is the primary emotion which keeps most employees in their jobs.
Fundamentally, money earned being an employee is limited because you are exchanging your time for money. There is only a limited amount of time in a week, and therefore the money you can be paid is similarly limited.
Some become dissatisfied enough to try earning income from the next source. They become a self-employed small business owner or professional. Perhaps they open a small store, or perhaps they become a dentist, doctor, or lawyer.
While these income sources can provide a higher income than employee income, they are also limited in that time is being exchanged for money. Again, since time is limited, so is money. A lawyer typically bills by the hour. A doctor can see only so many patients in a day. And a small business owner can only service so many customers with their limited time.
Earning money from self-employment sources is not much unlike being an employee. The exception is that risk is higher. More importantly, your control over the operation is higher. In fact, an emotional need for control and independence is often found in the types of people who seek income primarily from self-employment sources.
Business Leader Income:
Income from being a business leader will make you rich. It is not dependent on time. Instead, it is dependent on setting up an operation or business that is self sufficient, and gives you your time back so that you can then set up another copy. You do the work once, and get paid from it forever.
An example might be an author. You write the book once, and it pays you over and over for each copy sold. Another example may a franchiser, who creates a franchise concept and sells multiple copies of a successful business formula.
To be successful as a business leader, leadership skills are imperative. You must be able to help others see their dreams, and inspire them to reach those goals. Your emotional need is to see a dream fulfilled, especially your own.
Business Leader income is based on the strength of an idea. If the idea is a great idea, it will catch on quickly and sell for top dollar. Ideas are thoughts, so the fundamental thing being sold is a thought. Thoughts can be infinite, and they are free to have. Any income generated on an infinite source of free raw materials will provide infinite returns!
Investment income is the holy grail of income. It is based on pure thought, and no work. Instead, your money does the work. You recognize an opportunity, and allow your money to be used to help expand a concept. Perhaps you buy shares of stock in a new company. Perhaps you purchase bonds and lend a company money. Perhaps you buy real estate or commodities, recognizing opportunities in owning those assets. Your money earns you money.
Investment income has preconditions. First, you must have money to invest. Second you must have thought about the investment opportunity, and be able to discern the good from the bad. Only the best ideas pay off the highest, and many will lose.
Those who seek investment income have a high emotional need for freedom. When good investments provide great returns, financial freedom is the result.
These income categories are not exclusive. Employees can also earn income as investors. Higher level employees may have opportunities to franchise their operations, and profit through bonus income. An investor may take a job as an employee because they love some aspect of the work.
The important thing to remember is that if you want to be the “Rich Dad” (or “Rich Mom”), you need to focus on enhancing income by being a business leader, or by making quality investment decisions. Otherwise, you will just get by, maybe.