A Little background that may help you : If you have never read the book - Rich Dad Poor Dad by Robert Kiyosaki, I highly recommend reading it as soon as possible. Step # 1 – Understanding the Quadrants : In this book he explains that everybody falls into at least one of four quadrants. Either you're an Employee, Self employed, a "B" type Business owner or an Investor. What The Letters In Each Quadrant Represent: 1. "E" stands for Employee 2. "S" for Self-employed, for professionals 3. "B" for Business owner 4. "I" for Investor In the next couple of paragraphs I will attempt to explain what each of these quadrants are all about, however; If you want all the details then I would recommend reading the book for yourself. Few Years ago when I was starting to learn business principles, this was one of the first business books I read. After I read the book I realized (based on the things that I wanted out of life) that I was earning income in the wrong quadrant. You see, it's not to say that any quadrant is better than the next, they're just different and depending on what you want out of life you may also realize that you're making money in the wrong quadrant too. That's up to you to decide but for me, I wanted my Time back and good Lifestyle for my family too (Financial Freedom). The quadrant is broken into the left side, the right side, the top and the bottom. • The left side (the Employees and self employed people) trade their most precious commodity which is "TIME" for income. The employee will go to work every day and exchange their hours for Money. The Self Employed person (Like a doctor / lawyer / Charted accountant/ Startups / Independent Consultant in any field who run their own consultancies/setup ) will also go to work every day and exchange their hours for money but instead of having a job, they own a job. In fact, quite often the "S" stands for stress because these people are stressed out...and hence many of them close down as statistics show. Why? Because they are responsible for the success of their "S" type business as well as the expenses/labor problems/market pressure or competition/traditional biz headaches that come with it. They have to pay for the supplies, the buildings, the utilities, the trucks, the expenses of his set up etc.. They are also the last ones to get paid since they owe their employees a pay check first (whether or not they have a good week). An example of people that fall into the "S" quadrant are: Doctors, Lawyers, landscapers, electricians, plumbers, carpenters, restaurants, shops or any business which have less than 500 employees-in effect if you remove the biz owner the biz comes to a stand still. I could go on all day and list off all the Self Employed businesses where the owner still has to trade their time for money but you get the idea. It is said that 95% of people are in either of these two quadrants generating 5% of the money. Can you think of anyone that you know that is in the "E" and "S" quadrant? Did I mention that the left side looses their Time? I would venture to say that when an employee gets fed up with their situation they try to move from the "E" quadrant to the "S" thinking that they will free up their Time however; what ultimately happens is that instead of having a job they own a job. What they really meant to do is switch sides of the quadrant which brings us to the Right side. • The Right side consists of 5% of the people who generate / Control 95% of the money. The "B" type business owners are the people who invest their time and money into "Systems" that generate passive Income that frees up their time. It is sometimes said that these people can "make money while they sleep" because they have a system that generates passive income. Now lets get back to the "Systems" idea that is present in the "B" quadrant. Franchises are a part of the "B" quadrant but not all are equal. In a successful Franchise system the owner is hardly ever there working but yet the system operates successfully without them(after he has set it up successfully). One such example would be owning a McDonalds Franchise. Do you ever see the owner of your local McDonalds restaurant flipping burgers? No, they have people in charge of all aspects of their Business. Let me sidestep for a minute and try to illustrate an example/Analogy for you of the mindset of the "E" and "S" versus the "B". Suppose that all the wells that supplied a village dried up. So the Mayor of that village called together a town meeting to discuss how to get water from a fresh water source that was 2 miles away and put it back into the well that supplied the village. For every gallon of water that was put into the well, that person made a dollar. Now here's the catch. It doesn't matter how the water gets there, just as long as it does. Since everyone knows they will get paid a certain amount of money for every gallon of water they supply to the well, they start carrying buckets. They trade their Time for dollars doing manual labor. This is the example of the "E" quadrant. Well, the Employee decides he wants to make more money and moves from the "E" to the "S" quadrant. He employs people to help carry buckets and maybe slaps a sticker on his office door that says senior bucket carrier. They might even buy bigger and better buckets for their employees to carry. What they don't realize though is that they have to manage all the aspects of their business themselves and instead of having a job, they own a job or can better say that “their business OWNS them” !! and they become slaves to their own setup!! For this reason the left side of the quadrant is often called the bucket carrying side. Both the "E" and the "S" carry buckets everyday! This is called the ACTIVE Income category(Income comes only till your ability to perform/do activity/ability to be present…but income stops if you stop performing or because of any market changes. Check in your case – If you stop going to your work place from tomorrow, would you be paid ? If your skill set gets redundant or replaced by less paid much energetic younger generation, would you be paid ? If not you are on the left hand side – E or S) The illustration below is an example of what the people in the "B" quadrant would do. They would read books, purchase information, attend seminars and get mentored from people who know how to build pipelines. While they are researching and learning they start to build pipelines that connect from the fresh water source to the village well. By the way, this doesn't happen overnight. Let me ask you a question. When your pipeline is only half way finished, how much water is flowing to the village? None right; so how much money are you making? None. Often times while the "B" type business owner is building their pipeline they are getting laughed at because they aren't making any money. They are still building their pipeline but once that pipeline is connecting the well to the fresh water supply, the "B" type business owner now has a system that does the work for them (the pipeline is the system). Now all they have to do is maintain the pipes here and there and every time someone turns on their tap to get water, The "B" is generating Passive Income. Now they have time to do what they want (others stop laughing as the still carry buckets!) and even the know-how that if they choose, can build more pipelines. So what does this mean? The "B" type business owner, thru a system, has both TIME and MONEY! • Now lets move on to the "I" or the Investor quadrant. This type of income is called portfolio income (when money generates money). This is the quadrant that is usually entered when people have enough Passive Income (the type of income that is generated in the "B" quadrant) to filter into different types of investments. It is said that if a person doesn't have $250,000 that they could lose in an instant and it wouldn't even make a dent in their finances, then they're really not the type of investor that is on the right side of the quadrant. By now you should realize that the people on the left side of the quadrant (the "E" and "S" ) make up 95% of the people that you and I know but only generate 5% of the total dollars. That's like having 20 people fight over 1 dollar (The Rat Race)-They trade their time for income. The people on the right side of the quadrant (the "B" and "I" ) make up 5% of the people but generate or control 95% of the wealth. They invest their time and money into systems that generate passive income(If you are good at reading -to understand a system- you could read Business school by Robert Kyosaki). Robert Kiyosaki explains that what you need to move from the left side of the quadrant to the right side is INFORMATION from the correct source. Now let me ask you a question. WHAT SIDE OF THE QUADRANT DO YOU WANT TO BE ON? Step # 2 – What is Networth ? Networth in a layman’s terms could be defined as the total worth of something that has some good value & you could sell in case of an emergency/pass it on to your next generations. In this context let me illustrate it with an example : Say there are 3 ppl earning same amount of money (say $15,000 per month) in 3 different means( which you would usually find in our world) : 1.) Job 2.) A traditional biz . say a restaurant biz. 3.) A house owner letting house for rent ( mind it – apart from his house where he lives). Now, In case of an emergency ( after many many years, say after 20 years of hard work) – all 3 of them need liquid cash : So an Employee despite building his career for many many years (taking certifications, different exposures enriching his resume, working with different companies , appraisals, technological exposure, etc) is neither able to sell it nor is he able to pass it on to his kids / to the next generations !!....as his job never belonged to him - not even the company ID card belongs to him ( weird – most of the highly educated so called intellectual employees aren’t able to figure this out!) So Why would someone work so hard for so many years to build something that never belonged to him ( and the net worth =0) ! Another interesting thing is that the way mindset differences in the Employee mindset & that of a Business mindset work: 1.) Although the Biz man restricts the employee from having any other income source (no other job / employee signs the conflict of interest agreement) while the businessman owns diversified/multiple businesses to earn his income !! [some employees take pride in working with big brand names while big businessmen take pride in having diversified companies]. 2.) Employees ( fixed mindset) thinks of working only in the area of his expertise (technologically/his study area-keeping status in mind) while a businessman keeps the market demand in mind-gets work and then figures out ppl(from top schools) to work for him and complete the work. Eg- Ambanis have businesses in vegetable selling(Reliance fresh) , chappal & footwear (Reliance footwear)….so on and so forth…..while employees look down upon these types of businesses. Step # 3 – What is Wealth/ Financial Freedom ? Here's a little equation I want to share with you. The equation says that you are wealthy Financially Free when your passive income is greater than your expenses. What does this mean you might ask. Well let me explain. Income in general can be lumped into two different categories. Earned (active) income, Passive income (pipeline Income) 1. Earned/Regular (Active) income is defined as when you exchange your hours for dollars in the form of a job. A person who works for a salary or even a self employed business owner are both considered part of the Earned income category. The problem with this income category is that you lose your most precious commodity: Your Time! It is said that 95% of people are in this earned income category. It's not that people in this category want to trade hours for dollars, they just don't know of any other way of generating income. Think about it for a minute. Is there anyone you know that doesn’t have to trade hours for money to make a living? Why is this? I would say that most of us are taught to trade hours for money all of our lives. Isn't that what we learn all throughout school. Even college is designed to get us a Job that trades hours for money. 2. Passive income (Pipeline Income/Residual Income) is an income received on a regular basis with little effort required to maintain it. – Income generated this way is usually generated through business systems and royalties. For example: suppose you own the patent for the 5 gallon bucket. That would mean that every time someone purchased a 5 gallon bucket from the store, a percentage of that income would go to you. Another example would be purchasing a Business system or a franchise. Lets use McDonalds as an example. There is a system that McDonalds follows and the franchise owner is not spending their own time flipping burgers but yet they have a system that runs without them. The problem with buying business systems is that they're very expensive and the average person won't be able to get involved. There are other Business structures that when you build them you start generating Passive Income. At first it is in the earned income category because you trading your hours but if you build it right, over time (let say a couple of years or so) you can start subtracting yourself from the equation and generate passive income. I like these structures the best because it's a level playing field for people to participate. In other words, You don't need a million dollars buy a franchise system, You don't need to be some extraordinary musician who can start generating royalties from their record sales, You don't need to be a Top selling Author who can receive residuals for their work, and so on… Originally I wrote that you are wealthy/ Financially Free when your passive income is greater than your expenses. and here’s the equation again: So what does this mean? Well for the short answer this ultimately means that you have TIME and tons of money coming in month after month after month. Yes, In my opinion wealth/ Financially Free Lifestyle is measured by how much time you can free up with great incomes coming in. How do we do this? We can learn to generate passive income that is greater than our expenses. How much passive income do you need to be wealthy? The answer to that lies in how much your expenses are. If you only need $ 2,000 to pay your expenses than you can generate wealth faster than the person who needs $ 5,000 a month to pay their expense. Remember their are people that make $ 2,00,000 a year who are broke. Why? Because they use up all their time, to earn the income they need, to pay for their lifestyle. Wealth is measured by how much free time you have!..and money still pouring in passively! So now the question that needs to be asked is this- Average person (having limitations of Money(investment limitation-actually no investment!) and limitations of Time(only bits & pieces of free unproductive time alongside a full time job)) …..So How does the average person start generating passive income & become Financially Free( Abundant Time to do what your heart asks you to do, Abundance in Money called Wealth and Sense of Financial security -in any unexpected situation self & family is financially secure for generations) ?.....Good food for thought ! (It’s a good food for thought only If you are looking to succeed in life! ) With warm regards, Saji Kumar https://www.linkedin.com/in/saji-kumar-6570857b/ saji2006@gmail.com You should also go through the Video link (https://vimeo.com/user35400462/httpsvimeocomtheparableofthepipeline password: iamopen) to understand the beautiful analogy (Job Vs Passive income) as explained in the video.
