Posts Tagged business
So lets look at the options for earning Extra Income.
Robert Kiyosaki author of best selling books -Rich Dad, Poor Dad and CashFlow Quadrant, explains the four income (Cashflow) generation models. They are represented in this diagram.
In the first quadrant, he assigned an E, which stands for Employee. This is the way that most of us make our money. Using this method, your life is controlled by the alarm clock. You have to go to bed at a certain hour so that you can get up when that alarm clock goes off. You go to work each day and trade hours for money. The problem with this model is that you have absolutely no way to get ahead! When you stop working, the money stops coming! To top it all off, as an employee you are paying more income taxes than any of the other quadrants and you’re in the highest tax bracket! You can always tell an employee by what they say “looking for a safe, secure job and benefits.”
In the next quadrant, we’ve got an S, which stands for Self-employed. These are small businesses and specialists like doctors, dentists, plumbers, electricians, contractors, small retail outlets, attorneys, free-lancers, etc. These are the rugged kind. They look at what their employer is doing and believe they can do that too, maybe even better. They want to do it their way. So they start their own company and become self-employed. This model can be very deceiving because you’re STILL trading hours for money – If you stop working the money stops too.
In this quadrant, you don’t own a business; you own a job. The only difference is, you have slightly more control over how many hours you work and you receive very few tax breaks. This is one of the hardest quadrants because the employees pick on you as well as the government, i.e., tax problems and employee problems.
This is where the small business differs from the big business.
The problem with the E and S side quadrants is that the income generated is “reciprocal” that is the income is directly related to the number of hours worked. Such incomes are limited by the rate which can be charged for an hours work and the number of hours available.
Whereas in right hand side quadrants “B” and “I” income is not coupled to hours worked, by employing “leverage” of either employees/network or money the cashflow is not related to worked hours. The income is now “residual” or passive.
As a Business Owner, you’re no longer trading hours for money. Instead, you have a system built and people are working for you who are making you money, even when you’re not there! The B quadrant people can make more money than rock stars, sports stars, and movie stars if they get their thinking straight and set up business right. Their income potential is virtually unlimited because networks are unlimited.
The last quadrant I relates to income generated from Investments.
This person makes their money work harder than they do. As an investor, you no longer work for money, but rather, you have money working for you!
So the business plan I suggest, for those in the E and S quadrants viz. trading time for money is illustrated below -
First its vital to make a shift to the B quadrant, get into business with leverage, passive income and growth. Then use part of the income so generated to make investments to provide multiple streams of income, with diversity and security.
(It is true that people in the E and S quadrants will be making investments for their future and retirement, the issue is can they invest enough from their salary?)
This is the real key to multiple incomes, passive investment income, not attempting to operate multiple businesses.