The question to a child seems innocent enough, right?  Firefighter, policeman, airline pilot, doctor, lawyer are all answers that could come up.  Investor, business owner – maybe not so common!

Where the problem lies is in the expectation of the answer.  So often, the answer involves only being an employee.  It is very commendable to be an employee and part of a team.  The question is whether that is the only choice, and the early imprinting regarding the child’s influence.

“The CASHFLOW Quadrant”, by Robert Kiyosaki offers further distinction in how one earns revenue, and also suggests that these distinctions can be combined.

Robert defines these areas into four quadrants, and also how each pays tax expenses.  The left side of the Quadrant, he describes as E (Employee) and S (Self-employed); and, the right side as B (Big Business) and I (Investor).

On the left side, the E and S will end up paying about 50% or more in taxes when all is said and done.  E’s are the hard-working folks working for companies or the state.  S’s are specialists like doctors, lawyers, and, solo businesses.

On the right side of the quadrant are B’s which are bigger businesses owners utilizing teams, and I’s which are investors.  Typically, B’s leverage other people’s time; and, I’s leverage other people’s money.  The tax for portfolio income like stocks, and capital gains is about 20%.  The tax for an investor including real estate is 0%, no tax if done strategically (and legally!)

In their purest form, each quadrant can be characterized by certain ways of thinking.  E’s are often looking for a safe, secure job with benefits.  S’s are often solo types that might include the dialog, “If you want it done right, do it yourself.”  S’s are also often required to be the smartest in the room.  This is the basis for which they are often contracted for work.

B’s are looking for people that are smarter than they are in various areas to include in a team.  Again, they are seeking to leverage other people’s talents and time spent.  I’s will put their money to work by investing in businesses and real estate, so that they don’t have to spend time working for money.

What we suggest in playing the CASHFLOW GAME is that the quadrants can be combined, as well as the reasons for inclusion in each quadrant.  For example, I can start investing and seeking passive income while I am an employee, say as a fireman, and am interested in rental properties.  Let’s say I am just starting and I have one rental property where the mortgage is $1000 for a 2 bedroom / 1 bath.  I charge $1400 for the rental property, hire a property manager, and still have money left over every month.  The money after expenses is cash flowing in every month whether I work or not at my job.  I can then take out another mortgage from that property, and re-invest that money into another rental property on a 1031 Exchange within the tax deadline required and continue this cycle so that I never pay any taxes – legally.

After I receive enough passive income to meet my monthly expenses, I can choose to work or not for my own reasons.  I believe in the cause of saving lives as a fireman, so I continue to work because I love my work.  But, I am not dependant on the income to meet expenses.

Below are four videos where Robert Kiyosaki explains further the points described above, as well as other related definitions.

In the first video below, he defines the CASHFLOW Quadrant.

In this video, Robert explains tax expense in relation to each quadrant.

In this next video, Robert very clearly defines what he considers the difference between an asset and a liability. This distinction is absolutely imperative to understanding Robert’s approach and path to financial freedom.

This last video explains the difference between what Robert calls “Good Debt” and “Bad Debt.” Good debt is debt that makes you richer, and bad debt makes your poor.

An example of good debt is where you have a positive cash flowing rental property as described above. Bad debt examples include things like credit card debt paying off items that do not produce positive cash flow like big screen televisions and stereos, or car payments. Buying some of these toys described as bad debt can be ok, but one might consider being sure that there is enough positive cash flow (passive income) to cover those expenses.

What answers will you encourage a child to answer when asked what they want to be when they grow up?

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February 2018
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