Monday, April 16, 2012

Where do we get our money?

        Where do we generate our income or money? Robert Kiyosaki, a well-known author of Rich Dad Poor Dad, classified it into quadrants, as follows:

        E for employee
        S for small business or self-employed
        B for big business (500 employees)
        I for investor

        For example, an employee earns money by holding a job and working for a person or a company. Self-employed people earn money working for themselves. A business owner owns a business that generates money, and investors earn money from their various investments – in other words, money generating more money.

        Most of us have the potential to generate income from all four quadrants. Which quadrant you choose is more on who we are – our values, strengths, weakness, and interests. A person who comes from the E might say: “I am looking for a safe, secure job with good pay and excellent benefits.” A person who comes from the S quadrant might say: “My rate is P1,000 per day.” A person operating out of the B quadrant might say: “I’m looking for a new president to run my company.” And, someone operating out of the I quadrant might say: “Is my cash flow based on an internal rate of return or net rate of return?”

        Kiyosaki’s highly educated, but poor, dad said, “Go to school, get good grades, and find a safe secure job.” On the other hand, his rich, but uneducated, dad offered a different advice. He said, “Go to School, graduate, build business, and become a successful investor.” Simply said, in order to get rich, you have to be an (I) investor or a (B) big business owner. I heard someone saying that in order to get rich, you have to: (1) marry a millionaire, or (2) get an inheritance, or (3) win a lottery, or (4) through hard work, meaning from rags to riches.

        In order to get rich quickly, Kiyosaki adopts Number 4, on the I and B quadrants. Success on the B and I side requires a particular kind of knowledge about money called “financial intelligence.” Rich dad said that financial intelligence determined, not so much how much money you make, but how much money you keep, how hard that money works for you, and how many generations you can keep it. This is the path to financial freedom. This is true financial freedom because, in the B quadrant, people are working for you, and in the I quadrant, your money is working for you. If you look at the ultra-rich, this is their pattern, just like Bill Gates and Warren Buffett.

        The primary reason many people seek job security is because that’s what they are taught to seek, both at school and at home. Many of us are conditioned from our earliest days to think about job security, rather than financial security or financial freedom. In looking for job security, you are only making the employer rich in private company. The reality is that your boss’s job is not to make you rich. Your boss’s job is to make sure you get your paycheck. It’s your job to become rich if you want to. If you budget your money wisely and learn about either the B or I quadrant, then you’re on your own path to great personal fortune and, most importantly, freedom.

        There are people who want to be their own boss. Kiyosaki called the group the “do-it-yourselfers.” Often, when it comes to the subject of money, a hard-core S (Self-employed) doesn’t like to have his or her income dependent on other people. In other words, if S’s work hard, they expect to get paid for their work. S’s don’t like having the amount of money they earn dictated by someone else or by a group of people who might not work as hard as they do. If they work hard, they expect to be paid well. In this group you find well-educated professionals who spent years in school, such as doctors, lawyers, etc.  

        The B (Business owner) group could almost be the opposite of the S. Those who are true B’s like to surround themselves with smart people from all four categories: E, S, B, and I. Unlike the S, who doesn’t like to delegate work, the B likes to delegate. Henry Ford fit this mold.

        Investors (I quadrant) make money with money. They don’t have to work because their money is working for them. The I quadrant is the playground of the rich. It’s in the I quadrant that money becomes converted to wealth. Wealth? The definition of wealth is the number of days you can survive without physically working and still maintain your standard of living. For example, if your monthly expenses are P25,000 a month and you have P100,000 in savings, your wealth is approximately four months. Wealth is measured in time, not pesos.

        Ultimately, it’s not how much money you make that matters, but how much money you keep, and how long that money works for you. I’ve know many people who make a lot of money, but all of their money is expended.

        So, think about this, which quadrant(s) are you in?

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