Cashflow Quadrant, By Robert Kiyosaki Flashcards
Core Characteristics of an “E” (Employee)
“I am looking for a safe, secure job with good pay and excellent benefits.”
Want to feel secure and see it in writing
The feeling of security is often more important than money
Core Characteristics of an “S” (Self-employed)
-“My rate is $75/hour”
-Want to be their own boss and do their own thing
-Often perfectionists who don’t really trust others to do their work
-Independence and respect are often more important than money
-“For S’s to evolve into B’s they need to convert who they are and what they know into a system, and many aren’t able to do that.” (p. 34)
Core Characteristics of an “B” (Business Owner)
-“I’m looking for a new president to run my company.”
-Likes to delegateSurround herself with experts in all 4 quadrants
-To be successful requires: 1-ownership or control of systems and 2-the ability to lead people
Successful B’s develop a system that will run without their involvement.
Core Characteristics of an “I” (Investor)
-“Is my cash flow based on an internal rate of return or net rate of return.”
-Don’t have to work–money works for them
-It’s in the I quadrant that money becomes converted to wealth.
Definition of Wealth
“The definition of wealth is the number of days you can survive without physically working (or anyone else in your household physically working) and still maintain your standard of living.”
-Wealth is measured in time, not dollars
3 Advantages of Making Income from the “I” Quadrant
- They focus on having their money make money
2.Not having to work
3.Many tax advantages (assets vs. income)
Why aren’t more people investors?
Risk & Fear - the fear of losing money causes most people to seek security
Diversification
The strategy of diversification is an investment strategy for “not losing.” It’s not an investment strategy for winning. Successful or rich investors don’t diversify. They focus their efforts.
“We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort level he must feel with its economic characteristics before buying into it.” - Warren Buffett
Blue Chip Stocks
Stock issued by a large, well-established, financially-sound company with an excellent reputation. Normally, such companies have operated for many years, have dependable earnings, and usually pay dividends to investors.
While the company might be safer, the stock market is not. These stocks won’t protect your money in a market free fall.
Mutual Funds
A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds.
Security vs Freedom
The left side of the quadrant (E & S) is motivated by security and the right side (B & I) is motivated by freedom
Financial Intelligence
Determines how much money you make, how much money you keep, how hard that money works for you, and how many generations you can keep it.
The Worst Quadrant?
“I think the S quadrant is the hardest quadrant there is. The failure rates are high and, if you make it, being successful can be worse than failing. That’s because, if you’re successful as an S, you’ll work harder than if you were in any of the other quadrants, and you’ll work harder for a long time.” (p. 64)
Avoid Taxes
The ultra-rich know that the best way to avoid taxes legally is by generating income out of the B and I quadrants
Patterns for Financial Security - Two are Better than One
-Loop between E & I
-Loop between E & B
-Loop between S & I
-Loop between S & B
Robert’s Recommended Path
If you are first successful as a B, you’ll have a better chance of developing into a powerful I.
3 Main Types of Business Systems
1.Tradition C Corporations - where you develop your own systems
2.Franchises - where you buy an existing system
3.Network Marketing - where you buy into and become part of an existing system
3 Ways to Make it to the B Side Quickly
1.Find a Mentor
2.Buy a Franchise
3.Get involved in network marketing
2 Important Skills You Can Learn From Network Marketing
1.Overcome the fear of being rejected
2.Learn to lead people
5 Hallmarks of a Good Network Marketing Organization
1.Proven successful track record, distribution system, and compensation plan
2.Have a business opportunity you can succeed with, believe in, and share confidently with others.
3.Have ongoing, long-term educational programs to develop you as a human being.
4.Have a strong mentor program.
5.Have people you respect and enjoy being with.
401(K)s may possibly be the worst way to invest for retirement because…
-A typical 401(k) plan takes 80 percent of the profits. The investor may receive 20 percent, if they are lucky.
-Taxes work against you with a 401(k).
-You have no insurance if there is a stock-market crash.
-The 401(k) is for people who are planning to be poor when they retire.
5 Levels of Investors
-Level 1: The Zero-Financial-Intelligence —Level
-Level 2: The Savers-Are-Losers
-LevelMoney saved is losing value
-Level 3: The I’m-Too-Busy LevelTurn money over to financial advisors
-Level 4: The I’m-a-Professional LevelDo-it-yourself small-scale investor
-Level 5: The Capitalist LevelB’s investing in I’s (the wealthy)
How to Become a Capitalist
Sign up for seminars and courses that improve business and investing skills.
Return on Information (ROI)
the more information I have, the higher my returns—and the lower my risk.
