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When I left graduate school some years ago I didn't know what direction I wanted to go in. I was a science major who didn't like the options that I had, so I began looking for a new career with better options. Not knowing what I wanted to do, I spent a lot of time in bookstores reading anything and everything to find out just what is really out here.
I came across this book titled "Rich Dad, Poor Dad" by Robert T. Kiyosaki. I really connected with the book, that's when I was introduced to the Cash Flow Quadrant. You see, Americans earn income in four different ways.
The top left hand corner is the E quadrant, E stands for employee. We all know what an employee is, an employee trades their time for money. They show up to work for a prenegotiated rate, because they have a limited amount of time, there is a limited amount of money they can make.
The bottom left hand corner is the S quadrant, S stands for self-employed. A self-employed individual basicly owns their job. For instance a hairdresser gets paid directly from his or her customers, and services the customers whenever he or she wants to. Yes this is a business, but the hairdresser still has to show up to work in order to make money. If a hairdresser decides to take the day off, the hairdresser will not make any money that day. The hairdresser is trading his or her time for money.
This is called linear income. Linear income is a fixed income tied directly to the amount of time spent at a job. Those who make their income on the left side of the quadrant make their money linearly.
The top right corner is the B quadrant, the B stands for business of course. A business has a system in place that allows that business to make money. For instance, the owner of McDonald's has been dead for years. I bought a hamburger yesterday! Because of the system he put in place, the owner of McDonald's is still making money whether he is alive or not.
The bottom right corner is the I quadrant, the I stands for Investment. Basicly, investing is when your money makes you money. What if you could put a million dollars in a savings account that draws interest? At just 1% interest you would make $10,000 just for having a million dollars to put in the account.
The left side of the cash flow quadrant make income linearly. The right side of the cash flow quadrant make what is called RESIDUAL income. As one of the wealthiest men in the world, J.Paul Getty, once said," I would rather have 1% of the efforts of 100 people than a 100% of my own efforts". Mr. Getty was referring to leveraging your time through RESIDUAL INCOME, getting paid over and over for something you do one time.
90% of Americans make their money on the left side and only 10% of Americans make their money on the right side. This was really shocking to me! What really surprised me was that the 10% ON THE RIGHT SIDE CONTROLLED 90% OF THE WEALTH IN OUR COUNTRY!
That is when I decided I wanted to be on the right side of the quadrant, and once I was there, I WAS GOING TO STAY THERE!
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