You can earn money in one of 4 ways. You can earn money actively or passively, leveraging either your own time, other people’s time or other people’s money.
Robert Kiyosaki’s revolutionary book, CashFlow Quadrant, has inspired me to write this article and unpack the genius behind his theory. He describes the 4 types of incomes one can earn, namely; Employee, Self-employed, Business owner and Investor. Unsurprisingly the investor is top of the food chain when it comes to the finance world.
Let’s unpack each in a bit more detail:
An employee is someone who receives a stable income for a stable amount of time invested into the company. Most employees work 160 hours per month and receive a market-related payment for the value they provide. This is the most limited option, as there is no ability to scale your time or resources.
The self-employed category is for people who exchange time for money. For example, a consultant might work 160 hours one month and 180 hours another month. Their income, like their time commitment, is varied. The more time they invest, the more money they can make, though they are always limited by their number of billable hours.
A business owner is someone who can step out of their business and still make money. A person like Richard Branson fits into this category, as he earns money through other people’s time and skills.
An investor is someone who uses money to make more money. For example, Warren Buffett invests in companies he believes will succeed and then makes his initial investment grow as the company grows in value.
The lower you go down the list, the more money is earned and the more risk that is taken. For example, employees are the lowest paid, but they also often have the lowest responsibility. Business owners, on the other hand, get paid handsomely, but they are also responsible for making the right decisions, because their decisions affect all the employees beneath them.
Not everyone can become self-employed or start a booming business that scales with employees, but everyone can become an investor. You don’t have to be a Bill Gates to succeed, but you can invest in Bill Gates. And there are a multitude of different investment options, from stocks and bitcoin to property and even start-ups. Whatever your preferred method, it doesn’t really matter, as long as you understand your investment and it’s cash flow potential. For instance, I specialize in multi-let’s and rental property investments.
I understand the market, the areas, the deals and how to finance them. If you specialize in buying and selling gold, invest in that. If you understand your business, invest in that. The key is to become an investor and to get money to work for you.
Must watch: Your path to financial freedom through property
Where do you fit on the cash flow quadrant? Tell Us Below!