Robert Kiyosaki was taught early in life that there are four different types of people in the world. This concept was developed into the Cash Flow Quadrant. So let’s discuss how each type of person differs. There are certainly many social and lifestyle differences, but throughout the world each group has very different economic implications including tax treatment. As we describe each, I encourage you to identify which area generates your primary income?
E = Employees: Those who work for others and are told what income they are paid. The employee model has pressures associated with it, as well as the worst tax treatment of any of the four types. Yet we are all taught to go to school and get a good education so that we can get a good “job.”
S = Self Employed or Specialist: This may be a doctor, lawyer, technician etc. This person, much like an employee, has to be present to get paid. However, they typically have more influence over their income.
It was Kiyosaki’s rich dad that began teaching him using the game of Monopoly. The game illustrated to him principle techniques like getting 4 Green houses and 1 Red hotel, thus teaching him to become an entrepreneur or investor.
B = Business: This entrepreneurial person hires Employees that work to generate a cashflow and increase the value of the business. This generally allows a greater sense of flexibility and freedom.
I = Investor: This person invests in assets that generate cashflow, as well as increases in value. This is maybe the most difficult to fully attain, however it provides the greatest sense of financial freedom.
The Business and Investor side of the quadrant has the most favorable tax treatment of the four quadrants. In fact, Warren Buffett says that he pays a lower tax percentage rate than any of the other areas because he is a Business Owner and Investor.
The good news is that you can become wealthy within all four areas of the quadrant. If you’re reading this and have decided that you would like to begin moving from the Employee and Self Employed/Specialist side of the Quadrant over to the Business and Investor side, we encourage you to begin taking the necessary steps to begin. Your first steps might include learning more from Kiyosaki and RichDad, or contacting me and my team of Wealth Advisors to assist you in implementing the proper financial strategies that meet the “Four Wealth Objectives”.