There’s only four ways money can be made whether it’s legal or illegal. You have a choice to become an employee, be self employed, become a business owner, and an investor. Welcome to the Cashflow quadrant.
Passive vs Active
The left side of the quadrant is the active side. Employees and Self employed workers are seen actively trading their time for money. 95% of the population are either employees or self employers and can only receive 5% of the money. An example would be a room full of twenty people and only one dollar is available to share with everyone in the room. That’s roughly a nickel per person. The right side of the quadrant is the passive side where business owners and investors create cash-flow while they sleep. 5% of the population in this country are either investors or business owners and they have access to 95% of the money. Best example would be a room full of 20 people and $500,000 is only available for you and your partner.
E
An employee fulfills someone else’s dream and also is a valuable asset to a company. The harder an employee works the more taxes the government takes. This is the only part of the quadrant where there is absolutely no leverage. The educational system and culture trained us to live and accept this role. You hear it all the time, go to school, get good grades, get a job, get a couple of dogs, and retire at 67. As an employee, you have one boss who you must obey and follow. Directions may include everything in or outside your job description and failure to do so will result in termination which can happen any day. Being an employee is a short term solution to a long term problem.
S
Many confuse being self employed with a business owner. Self employers may include Commissioned salespeople, real estate agents, lawyers, doctors, and accountants. Truth is, you may have fired your boss but you really just changed them. Customers or clients become bosses and now you own a job rather than a business. If a patient isn’t sick or hurt a doctor cannot make income. As an Uber driver if customers aren’t being dropped off from point A to point B can one receive income? Can a Barber make money without cutting hair? Or even a Photographer taking pictures. “S” also stands for slavery and your business owns you. Self employers have a bit more leverage, but if not present money can’t be earned.
B
Ever wondered how Facebook, WhatsApp, Instagram, and Snapchat produced revenue if it was free to sign up? As a Business Owner you own a system or a network and have people working for you or with you. Advertisers can sell products and services to anything through a large following or network. After all, seems like television isn’t being watched anymore as social media continues to grow. Business owners implement rules and create flexibility for themselves. While owning a B quadrant business, you’ll deal with individuals who are more experienced, smarter, and capable than you are. Vacation days are unlimited, leverage is present, taxes are incentives, and best of all income is made passively. Business Owners are in charge of their own legacy.
I
Ever seen money work for money? Investors own investments and assets such as gold, bonds, stocks, real estate, and businesses. LeBron James invested $1 Million in a Blaze Pizza chain now worth $35 Million and Kobe Bryant invested $6 Million in Body Armor and now the sports drink is worth $200 Million after 4 years. Athletes had the credibility and funds to make those investments but the same goes for every group in the quadrant. If Bitcoin was purchased in 2011 for $100 by the average person, it would be worth $1.3 million today. A $1,000 investment in Amazon 10 years ago would be approximately $13,400 today. An investment of $1,000 in Tesla 10 years ago would be worth $11,500 today. Disney, 10 years ago with an investment of $1,000 would be worth $5,500 today. That’s 450% of a return. In other words $10,000 investment to Disney would be worth $55,000 today. Maybe you should reconsider where to invest that down payment. Those who understand compound interest will earn it and those who don’t will pay it. Invest only in what you believe in or know. Investing apps like MetaTrader, Robinhood, Stash, Acorns, and many more makes investing convenient for beginners on portable devices.
Based on our financial education we’re all placed in four different categories. It’s extremely important to know what role you play in society and now the world needs you to show up.
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