There are two books that I would recommend reading before you start investing. They are both written by Robert Kiyosaki and go hand-in-hand together. The first one is “Rich Dad, Poor Dad” and the second is “Cashflow Quadrant”.
This Cashflow Quadrant Summary will help you to understand passive income and jump start you down the path to quit your job.
“Rich Dad, Poor Dad” changed my perspective on how to earn money and “Cashflow Quadrant” helped to solidify it. “Rich Dad Poor Dad” helped me to unlearn everything traditional education which trained me how to be an employee.
Listen to the MPI Cashflow Quadrant Session:
The only way to really become wealthy is by having my money work for you rather than you work for my money.
In Cashflow Quadrant Summary Kiyosaki teaches the four ways people make money: Employee, Sole Proprietor, Business Owner, and Investor.
The Main Takeaway from Cashflow Quadrant Summary
The biggest take away that I had from this book was that I needed to move from the left side of the quadrant to the right side of the quadrant. Not just get to that side, but get there as fast as possible.
I personally knew that if I wanted to become wealthy, moving to the B, I, side of the cashflow quarant was the way to do it.
Watch my entire Rich Dad Cashflow Quadrant Summary Book Review here:
Starting In the Business Section of the Cashflow Quadrant Summary
My first attempt at the right side of the quadrant was starting a retail business.
For a couple years it was doing well, I had a manager, employees, and I just managed the entire business while they did all the work.
I really enjoyed it.
Being the boss. The value that I brought to the business reflected how well the business did. Also, the business was doing great. I started the business in 2007 and jumped all in.
The economy was booming, things were great and cash was coming in.
Then, the crash of 2009 happened…
When the economy took a downturn in 2009, my business also declined and made it very hard to profit from it.
After a few more years I decided to sell the business to someone who was going to be an owner operator which is what the business needed.
My Venture Into the Investor Section of the Cashflow Quadrant Summary
At the same time I started my business, I decided to invest in rental properties. I bought my first rental property in 2007 and still own it to this day.
It makes me $550 a month in passive income and will continue to do so until I sell the place many years down the road.
One by one, I kept buying more properties.
After just six years, I owned 19 rental properties that made me $9,500 a month in gross rents! I would say that my venture into the I side of the cashflow quadrant has been a success.
AND the passive income is only one out of 6 ways rental properties makes me money. Check out an article I wrote about it here: 6 Ways Rental Properties Make You Money
Because of the rental properties, I was able to make it through the hard times and I am continuing to invest in them today. I don’t know if I will ever do a retail business again but I do know that investment rental properties are the best way to go to build wealth.
Cashflow Quadrant Book Summary
How the Rich Make Their Money
The rich invest in companies that make a profit from the business. Once the business makes enough money, they go to the stock market to sell shares (ownership) of their company to anyone. These shares that they sell are at a price that they determine.
First, the day the company was created, those shares were worth nothing. Just pieces of papers showing equity in a future company and its profits.
Second, years later, the company is making money and the rich take those shares and now add a value to each one.
Third, the rich sell shares of the company (thousands of shares at a time) to poor people like us to make money for themselves.
Lastly, what was once worth nothing, is now selling for $50 or more per share.
When Facebook when public and sold its shares for the first time, the sold the shares at $38.
Facebook and its investors made $16 billion on with that offering. Let me write out all the 0’s so you can see how much they actually made…
Facebook made $16,000,000,000
This is what it comes down to. The rich create businesses. The poor gives the rich money to have a fractional ownership of the company.
Don’t hear what I’m not saying…
Now, I am not saying that the shares are worth nothing. Actually, you are owning part of the company that makes money so that is worth something. What I am saying is that the rich place a monetary value on each share of the company and sell it to us regular poor people.
Five Levels of Investors
Level 1: The Zero-Financial-Intelligence Level
The investors in this level have nothing to invest.
They live paycheck to paycheck working a Just Over Broke J.O.B.
Even though they may know, in principal, they should invest their money, they do not have any money to invest.
Accumulating debt, living above their means, and never getting ahead is their lot in life.
Level 2: The Savers-Are-Losers Level
These investors believe in saving their money and investing it in a savings account.
Even though it is a good idea to save money, it is not a good idea to save as a way of investing.
All the money this investor saves is eaten away by inflation if left in a regular savings account. A savings account gives you .001% return on your money kept in a bank.
Inflation is averaging 3% every year.
Just from inflation alone, this investor is losing 3% of the spending power of their money each year.
Their $100,000 in a savings account will be worth $97,000 in spending power the next year.
Level 3: The I’m-Too-Busy Level
The investor at this level is too busy to learn how to invest.
Many are highly educated but do not find the need or desire to learn how to invest their money.
At this level, the investor is fine to put their money in a 401k, IRA, and mutual funds. Even many investors who are very rich are in this level. This is because their job makes them lots of money and they don’t spend the time to learn how to invest better.
After the crash of 2008, many people lost half of their wealth in a month. The stocks and mutual funds they held dropped in half which took half of their money.
Level 4: The I’m-a-Professional Level
This is the do-it-yourself investor. They have knowledge and some skill from their years of investing and business experience that allows them to actually make money to live on while in this level.
They will basically be a self-employed investor.
The mentality would be small business mindset. This is where the investor does everything himself in order to save money.
- He does not hire employees
- She fixes all the problems on his rental properties on his own
- He buys his stocks through a discount broker
- Very little financial education
Level 5: The Capitalist Level
These are the richest people in the world. They control major companies, banks, and other institutions that the majority of the population spend their money on.
The investor at this level is able to use other people’s money to invest and grow their wealth.
Example of this would be where a company like McDonald’s, the hamburger fast food company.
If they would have stayed a small business, they would never have grown to be a world-wide franchise selling billions of dollars in hamburgers. Also, McDonald’s is in the real estate business.
Of course they sell hamburgers but the main company is in the real estate business. Their franchise owners sell the hamburgers IN real estate properties that the main company owns and rents to them.
Investors in this level and at the I side of the cashflow quadrant are able to get banks to lend to them large amount of money. They can get a $100,000,000 loan easier than getting a $10,000 loan.
The big reason is the return on the investment and the amount invested. It is the same amount of work for an banker to lend $100,000,000 as it is to lend $10,000.
The only difference is that they make so much less on the lower amount. In fact, most banks don’t loan below $50,000 for a single family home.
These Capitalists make money in every market.
- When the market goes up, they make money.
- If the market goes sideways, they make money.
- When the market goes down, they make LOTS of money.
How to Become A Capitalist
Learn How the Cashflow Quadrant Works and How to Make Money
A smart man learns from his mistakes. But a wise man learns from others mistakes.
The person who wants to become wealthy must learn how to become a capitalist. This is a person who learns how others became wealthy, successes and failures, and does the same thing that works.
These investors don’t just invest in things.
They invest in themselves.
The investment of knowledge, not college, but wealth building. This can be through real estate, stocks, business building, etc. The main key is to stay on the B and I side of the cashflow quadrant.
Coaching Is Crucial
With investing in themselves, they pay others to coach them to do what their coaches have done.
All of my students come to me for real estate coaching because I am where they want to be. My success is my calling card and my life is my proof. The real estate coaching that I do will help my students get to be where I am.
My students are in this stage and you can too. If you are interested in real estate coaching, you can apply here. I only take on a few students every year so get your application in soon.
Use Debt to Make Money
The money you make from your job can only go so far. If you are buying stocks, then only the money you have in your account is what you can buy.
Capitalists know the difference between good debt and bad debt.
Good debt puts money into your pocket each month.
Bad debt takes money from your pocket each month.
By using good debt, I was able to build my real estate investing business to 19 properties in 6 years!
With those 19 properties, I was making $9,500 in gross rents. This allowed me to quit my job and focus fully on investing.
The Capitalist investor now implements everything that he has learned.
All the knowledge, coaching, and skills are not implemented in the B and I side of the cashflow quadrant.
The investor doesn’t waste his money on useless things. He buys items that make them more money. The more money the capitalist makes allows him to buy more things that makes him even more money.
A key thing to not miss is that the capitalist stays in the type of investment that he knows. There are many investments out there that will make money, but the Capitalist knows his type of investment fully.
There is no diversification when you are a capitalist. You invest in what you know and what you are good at.
Left side of the Cashflow Quadrant: E’s and S’s
Everyone starts here. But not everyone needs to end there.
No matter if you are bagging groceries or a doctor performing advanced surgery. Both have jobs that pay them WHEN they work. If either one stops working then money stops coming in. They need to work to make that next buck.
The mindset of an employee is particular to this sector of the cashflow quadrant.
- Desires job security
- A steady paycheck
- No financial risk
- Needs benefits provided by their jobs (retirement, insurance, time off, sick days, etc.).
Sense of entitlement is high with the employee and they trade hours for dollars. They also pays the highest tax rate.
The Sole Proprietor is the next logical step for employees to move into when they feel like they can make more money doing it themselves.
Not everyone will have the desire to become a sole proprietor, and that is ok. The world needs employees. It needs those who will do the work.
For those who venture into the Sole Proprietor role will find that they have traded one boss for many. Basically, their customers are all now their boss. Telling them what they want, don’t want, etc.
The benefit is that the Sole Proprietor is their own boss and not be dependent upon other people for their financial security. These include doctors, lawyers, and anyone who is self-employed.
They desire independence and tend to be controlling, not trusting others to do the work as good as they can. Their income is tied directly to how much they work and if they do not work, they don’t get paid. They basically “own” a job.
Right side of the Cashflow Quadrant: B’s and I’s
The Business Owner starts businesses and hires employees to delegate as much as possible.
In my rental property real estate investing business, I have everyone else do the work. I only work 30 minutes a month on my business and allow others to do all the work for me.
This is how the business owner will function. Having others do all the work while he builds the business.
The business owner will work “on” the business and find competent people to work “in” the business.
They desire to create a business that can run on its own without them. They focus on creating systems for the business to make money without them.
The Investor looks for ways to make their money, as well as the money of others work for them.
Their money is turned into little employees working for them 24 hours a day, 7 days a week, 365 days a year.
Just like with one of my rental properties. I spend $15,000 buying a rental property and that property works for me making me money. Each month, my investment houses a tenant and that tenant pays me money.
After all the expenses are deducted I make a minimum of $250 a month in income from that one property.
Also, the investor desires to work less so they can spend their time however they want while not being tied down to a job.
Another amazing thing is that the investor escapes high taxes by deferring their taxes. The deferring of taxes to a future date or utilizes the IRS rules to pay the lowest tax rate of all the other groups. They receive 70% of their income from investments and less than 30% from a job.
Conclusion: Everyone Must Choose What They Will Be…
Everyone starts as an employee, but not everyone needs to end there.
If you want to be rich, you should jump to the B and I side of the cashflow quadrant.
The rich focus the majority of their efforts on the Business and Investor side of the Cashflow Quadrant because that is where the real wealth and money is.
The good news is, if you are starting in the Employee category you can move to any of the other quadrants at any given time. It IS entirely possible to move from E to I very quickly.
- Every dollar you invest is another employee working for who makes more employees who do the same
- Live wherever they want
- Do whatever they want
- Buy whatever they want
- Income comes in the mail whether they work 60 hours a week or 1
- Complete financial freedom
- Pay lowest of all tax rates
- Defer taxes to a future date with IRS 1031 exchanges almost indefinitely
- No liability because corporations own everything
- Complete control over everything because they own the corporations
- Not dependent on anyone for their lifestyle or freedom
- As soon as their income from investments surpass their wages they retire
- Not dependent on Social Security, 401K, IRA, Pension, etc.
Get your copy of Rich Dad’s Cashflow Quadrant available at Amazon.com.
Do you have any questions or comments? I want to hear from you.
Please comment below.
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