There are many things you need in understanding wealth, and the first thing is where it comes from.
One of the best ways to understanding wealth is in the Cashflow Quadrant. This was created by Robert Kiyosaki who is famous for his book, Rich Dad, Poor Dad where he explains a little about how he succeeded.
This was designed to explain the different types of careers, and ways people earn money.
Some you may feel are more attractive than others, but that must be based on your own situation and understanding your own needs.
Understanding Wealth using the Cashflow Quadrant Summary
There are 4 sections in the quadrant, these are E – Employee, S – Self Employed, B – Business Owner and I – Investor
E – Employee
As an employee, which most people have been at some time, you do some function and get paid. This can be an hourly wage or a salary and for some, it can even be on a zero hours contract, where you are unsure how much work there will be for you each week… Your income is from your activity, which means you can only increase your income by increasing your wage/salary. To increase your income means either longer hours, a change of position within the company or getting a raise. All these are at the discretion of your boss, not you.
S – Self Employed
Most self-employed people start from being an employee, then quit their 40hrs a week to work 60 plus. You invest money, time and effort with a view to creating their own business. Often they lack a system of how they could create the desired income. This is not true of every self-employed person of course, however for the majority of self-employed, their small business closes in under 3 years. It often costs the person a lot, and when they decide to return as an employee, they have to start near the bottom again, working fewer hours but with the knowledge that they will never achieve their goals in life, with a job.
B – Business Owner
The first thing to understand is being a business owner is totally different than being self-employed… A business owner is someone who earns not only from their sole efforts but also from people working within and associated with the business. Although this is true of all businesses, this is most easily seen in network marketing businesses, and also in some cases, you can also see this in insurance companies plus some estate agents also allow you to earn off the efforts of others. This is cash flow or sometimes called a passive income, that is not tied totally to your personal efforts. People with passive income have options in how they spend their lives…
I – Investor
When you get to the point where you no longer have to rely on your own personal efforts of even the efforts of others, your money is working for you. You are now just living off the interest. There are very few people who can start in this part. Those who do come from inherited money. You can work your way into it but that is usually from being a business owner. A little bit of information for those who think stock market investments or cryptocurrencies can do this for them. You need to understand that those type of investments are basically gambling. You should only invest money that you won’t notice if you lose it all.
So hopefully you can now understand a little of the different ways money comes to you. However what you must also understand is who has this money. 95% of the population (employed and self-employed) create only 5% of the income. Business owners and Investors equate to only 5% of the population, yet they create 95% of the income. So which part of the quadrant would you like to be?