Money flow quadrant

Robert Kiyosaki - quadrant

Robert Kiyosaki – quadrant

Let us clarify few more things concerning business and income.

As You may know, man on this picture is Robert Kiyosaki and drawing next to him is something that made him famous. It is so great and simple symbol, that can explain (to anyone) almost all aspects of money flow, work and earning.
If You have ever wondered, why some (or all) things regarding business, works a certain way, this is a great place to start understanding it. So what Robert did here?

What these letters represent?

E – Employed – Employee
S – Selfemployed
B – Business owner
I – Investor

 

This “table” shows 2 things in single shot. It shows difference in roles related to employment status, as well as, difference in income size. On it’s left side, You can see  Employees and Self employed, and on right side are Business owners and Investors.

Why is that?

OK, let us start from the beginning. What defines Employees? Well .. they  have a job. Meaning, they are working for someone else, have superiors, have a fixed working hours (mostly), and trading their knowhow and knowledge for a monetary compensation. When they are not working (do not have a job), there is no salary – no income. I think that this was already covered in my previous post.

So, what then defines Selfemployed?

Well, in comparison with employees, they  are owners of their own business. Thus, they work for themselves, do not have superiors, and their worktime is not fixed. Bit they have some extra expenses employees do not have to worry about. I believe that any Entrepreneur will confirm that their working hours are not 8 but more often 12 to 14 hours a day. Working for themselves that long and that hard, they should earn more than employed people, and they mostly do. But where is the point that equalizes them? Employed and Selfemployed?

At the moment when selfemployed person stops working, it all stops. As same as if they are just employed, once they stop working, there is no more income. But in this case it is even harder, because there is more consequences for entrepreneur. Once closed shop looses it’s clients, and they are hard to get back if it is reopened. So if they decide to reopen, they have to start from scratch, which is not easy.

What these 2 ways have in common?

It is simple, being employed or selfemployed, You earn 100% of income / compensation for Your work, as long as You are working. Your income is ACTIVE, since  You are WORKING for MONEY.

Now let us see what the other side says.

Business owner, as implied, owns a business.

What differs him from Selfemployed is a fact that he has employees, but even more important he owns a SYSTEM. System of operations, by which those employees are working for him, making him money, generating profits. Of course, becoming business owner is not that easy, and not even possible without initial investment. How much of an investment depends on many factors, but let us take some restaurant as example. How much would cost to own or rent a good location, how much is equipment, interior and decoration, legal and any other permits, initial food & drinks, and at least 4 employees. This would be a bare minimum of items. Now multiply this 12 or 24 times (next year or two) and see how much money is there. There is big question if in year 3 you have grown Your restaurant that good, so you can say, you are finally working with profits. Fact is that most of small to medium enterprises do not reach 5th birthday.

And at the end are Investors.

It is easy to define what they do… They invest money  in Business owners or Selfemployed. They do not have any contact with jobs or businesses that are major for those who are being funded. All what they expect is to get that money back with interest. Of course to become investor, one got to have enough money, and yet again, fact is that roughly 5% of human population can be in that circle now. That is a good picture of  how much money are we talking about now. This is definitive only mechanism in which money is working for money, with no active working role in process.

What is in common in these 2 ways of earning?

Basic thing is that there is no more 1:1 ratio regarding work and money. To put is simply, these people DO NOT HAVE to show up for work each day. Their companies or investments are working for them. Their income is PASSIVE, since they do not personally WORK FOR MONEY.

In another words, Employees and Selfemployees get 100% income of 100% of their own work, Business owners and Investors get 1% income of 100 or more employees, without having to work themselves.

Now, hopefully it is a bit clearer how money:time ratio is moving through work, few more sentences WHY is that so.

Employees are what they are, because they are looking for safety (or at least an assumption of safety, through promise of steady income), through good salary, and good benefits.

Selfemployed people like to have more control over their life and work, usually are more confident and can be described through: “If You want to get it done right, do it Yourself.” Their main theme is independence.

Business / company / system owners  are interested in сreating wealth. They have great goals and they are aware that they cannot achieve them alone. That is why are they alway looking for best people in their industry to add them to their team. Doing so, they level up their business and create even more profits.

Investors quite often come from business owners. Those who managed to crate wealth, now want to get to the point of  total financial freedom,  because business owners still have to be involved in work in their own companies. Becoming investors, they are free of that, and their only interest is size of profit they are making on their investment.

 

I hope that You can now understand better why are some things happening in certain manner. Changing positions within this quadrant is possible and natural. Thing is only in awareness and clear understanding of our current position in life, and if are we satisfied with that, or maybe we strive for more. Text above is just representation of places where we can get.

 

Next topic will be soon… until then Share, Tweet or Google+ it…. with people You think this might be interesting, or make a comment 🙂

Thank You.

 

 

 

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