This is Why The Rich Keep Getting Richer | The Cashflow Quadrant

did you know that there are only four ways to make money not 40 not 400 just four most of us probably know the book Rich Dad Poor Dad by Robert Kiyosaki but what most people don't know is that Robert Kiyosaki actually wrote part two of Rich Dad Poor Dad which he called the cash flow quadrant and it breaks down the four different types of income how they work and why this is the reason why the rich keep getting richer each one of these categories is made out of three components mindset cash flow and taxes first we have the E quadrant e stands for employee and this is where most people get started the mindset of a person in the E quadrant focuses on income security and employer benefits like a retirement account health insurance and a steady paycheck the priority of the employee is safety the safety of a steady paycheck is more appealing for the e-quadrant mindset than potential riches that might come at a higher risk so the key word for the E quadrant is safety the way people in the a quadrant make money is by working for a company or a government and exchanging their time for a predetermined amount of money whether it is salary or hourly now people in this category can still make large sums of money like a doctor a lawyer or an executive but the limitations in this quadrant make it difficult to build wealth in this category alone in this quadrant an employee typically doesn't have much control over how much money they will get paid so increasing their own income becomes more difficult since their boss controls their salary and the decision to increase their employees income a person in this category can only rely on themselves to produce money and there are only a few ways to increase their income which is normally to go back to school and find a better paying job and then there's taxes in this category taxes are very straightforward an employee Works taxes are taken out and only after taxes are taken the employee gets their money there is very little someone in this category can do to lower their taxes the most someone can do in this category is to defer some of their taxes for later like when someone puts money in a retirement account like a 401k or a traditional IRA someone in this category has to pay federal income tax which goes up to 37 percent state tax which depending on the state can go up to 13 and we have local taxes Social Security tax Medicare tax etc for high earners in this category their tax liability can go up to 40 percent or more of their income the S quadrant stands for self-employed or small business this is when someone decides to try out entrepreneurship and create income independently the mindset of a nest quadrant is to regain control and have the freedom to pursue a higher level of compensation than they would working at a job so they decide to become an entrepreneur the key word for the S quadrant is Independence the way money is made in this category is still exchanging time for money but instead of exchanging time for a fixed amount of money the self-employed exchanges time for a chance of profit people in this category take a higher level of risk than those in the first category because in this category there is no guarantee that they will make any money it all depends on the skill they have to sell their product and deliver on their promise but just as people can make no money in this category there are others that can make a large income in this category but again it all depends on their ability to sell and deliver taxes in this category have a little more flexibility since people in this quadrant can deduct expenses that are related to their work as tax write-offs but people in this category still have to pay income tax state tax and local tax if applicable but the self-employed end up paying more money and Medicare and Social Security tax than the first category this is because when someone is an employee in a company this tax is split between the employer and the employee each paying half but when someone is self-employed they are acting as both the employer and the employee which means they carry both sides of this tax liability the big quadrant stands for big business in this category the rules of the game are a little different than the previous two creating an environment where exponential growth and wealth become more achievable the mindset of a person in the B quadrant is to use leverage to exponentially grow their income there are two main types of Leverage that are widely used in this category opt and OPM other people's time and other people's money people in this category are looking to maximize the results of a business so they look for other people who can effectively run parts of their business so they can focus on growth and further expansion unlike the self-employed the day-to-day operations of the business are no longer part of the B quadrant schedule but instead the day-to-day tasks are taken care of by a system or someone else the key word for the B quadrant is Leverage at a basic level the way big businesses make money is similar to someone in the S quadrant they must be able to sell a product or a service and deliver on their promise but the goal is to do it at scale in this category the entrepreneur is no longer exchanging time for money or profit here the entrepreneur's time is used to create a system that can manage other people's time and resources effectively to maximize cash flow for the company and its investors and this system needs to work independently from the entrepreneur this makes the business a cash flowing asset once a business becomes an asset many owners decide to keep it and hire someone else to run it take the company public and sell shares to other investors or just sell the whole business since independently working businesses that produce consistent Revenue are very attractive assets for bigger investors taxes also work very differently in the B quadrant from the previous two categories first off corporations have a Max tax rate of 21 and owners of these companies often choose to pay themselves the majority of their profits and dividends instead of a large salary this is because Dividends are taxed at a Max rate of 20 percent while salaries are taxed up to 37 percent without including State local and Social Security taxes companies also have the ability to move locations to take advantage of more desirable tax laws why do you think many business people move to Puerto Rico it might be the tropical beaches or it might be because Puerto Rico has a four percent corporate tax rate and no income tax capital gains tax or dividend income tax the tax loss in this category also make debts kind of an asset companies can use debt to spend more money on growing their business than they actually make them profits leaving their taxable income to be zero or even report a loss which then can be rolled over to reduce future tax bills not only that but companies can roll over all debts into new debts this allows businesses to essentially delay debt payments indefinitely since they can keep using new debt to pay off all debt companies can also take advantage of write-offs and credits available only to companies and institutions here is where businesses can get really creative since there are many tax credits that business can take advantage of one of the craziest examples of playing the tax code is Donald Trump after his first wife passed away Trump buried her in one of his golf courses a bit of a Mad choice if you ask me this is Until you realize that this qualifies this golf course as a cemetery and under New Jersey tax law Cemetery Land is exempt from all taxes and assessments this means that this one action created a tax avoidance Trifecta where Trump eliminated three different types of taxes property tax income tax and sales tax all-in-one shots the I quadrant stands for investor this quadrant is where money turns into wealth the great thing about the I quadrant is that regardless of which quadrant you are in anyone can become an investor and take advantage of everything this quadrant has to offer but the cost of Entry to become an investor is capital how people get a hold of this Capital varies some people use their jobs to earn income save it and use it to become investors others might have other creative ways to get a hold of capital or work together with someone who has the capital the mindset of the I quadrant is detaching time for money and collecting assets that provide income without needing the investors time now in many cases the investor still uses some of their time to manage their Investments and make decisions but the person's time is no longer required for income to be produced the goal of someone in this category is the creation and preservation of wealth people can get rich in the B quadrant but they can only achieve long-term wealth by becoming effective in the eye quadrant the key word for someone in the I quadrant Is wealth there are many ways people build wealth in the eye quadrant from traditional stock Investments business ownership real estate Angel Investing private equity and on and on but there are three fundamental Wealth Builders that investors look for the first one is cash flow this is the income that assets provide to the investor whether it's ownership in businesses that provide consistent revenue or real estate property that provides rental income the goal is to have your assets provide positive cash flow that will allow you to finance your lifestyle number two appreciation this is the growth and value that an asset has over time other than just cash flow you want your assets to be worth more tomorrow than they are today this not only provides incremental wealth but leverage to play around the eye quadrant and number three taxes the I quadrant has a lot of tax benefits that other quadrants just don't have one of these benefits is the ability for investors to grow their wealth to high levels virtually tax free one of the most talked about examples of this is done through real estate in the world of real estate there's something called a 1031 exchange this allows investors to sell an asset at a profit and defer their taxes to use the money to buy more property typically the taxes deferred until the next asset is sold but many investors just continue using the strategy and continue rolling over their profits from one asset to the next bigger asset without paying any taxes this allows investors to explode their net worth virtually tax free many investors who don't want to sell their assets can simply borrow money and use those assets as collateral to buy more assets allowing them to control even more wealth as Robert Kiyosaki says the I quadrant is like a playground for rich people and just as important as it is to know the benefits of becoming an investor learning how to invest is what really makes someone wealthy and this video will show you how to master yourself to become an effective investor and as always thank you for watching and I will see you in the next video foreign

Channel: The Better Men Project

Views: 119,995

Keywords: The Cashflow Quadrant, Robert Kyosaki, Rich Dad Poor Dad, Why the rich keep getting richer, types of income, how many sources of income do millionaires have, millionaire income sources, Types of Income, how to avoid taxes, do rich people pay taxes, how do rich people avoid taxes, how to get rich, Financial education, financial education for beginners, Book summary, financial book summary, financial literacy, financial literacy for beginners, The Better Men Project

Id: 9qBgwqxZ0_w

Length: 11min 48sec (708 seconds)

Published: Thu Oct 20 2022