the_cashflow_quadrant

S ght. sai rich dad. I have yet to find an insurance company that will Your health or accident risk and pay you for that privilege. But that is hat

W of confusiiW," said -Mjke~ ''It Still- dQc,-i 0-( 02a.Lesitx~se- "

ffit-mw-t-s -msms-- -%s~& 'N&~, ",-s,,&-v'-- \-Z, -0, .

assume everything is risky... and they pay for it. But as the years go on, The CASHFLOW Quadrant

and you become more comfortable with your experience and education on the right side of the Quadrant, your vision will improve and you will begin to see

what people on the left side cannot see. And you will understand why see' security to avoid risk is the riskiest thing you can do. You'll develop your own

financial vision and not have to accept other people's opinions simply because

they have a job title of banker, or stockbroker, or accountant, or whatever. Yo

be able to see for yourself, and know the difference between financial facts and

financial opinions."

It was a good day. in fact, it was one of the better lessons I could remern was great because it began to open my mind to things my eyes could not see.

NUMBERS REDUCE RISK

Without those simple lessons from my rich dad, I doubt if I could have my passion and built the educational system of my dreams. Without his

insistence

on financial literacy and accuracy, I know I could not have invested as wisely,,m

so little of my own money and earned such high returns. I always remembered bigger the project and the faster you want to succeed, the more you need to ht,

accurate. If you want to get rich slowly, or just work all your life and let somone

else manage your money, then you do not need to be as accurate. The want to get rich, the more accurate with numbers you must be.

The good news is that due to advances in technology and new products, i much easier today to learn the necessary skills for building your own

system an

quickly developing your financial literacy.

YOU C4N GO FAST.. BUT DONT TAKE SHORTCUTS

"To reduce your taxes, buy a bigger house and get deeper into debt so can get a tax write-off."

"Your home should be your largest investment."

"You'd better buy now because the prices always go up." "Get rich slowly."

"Live below your means."

If you put in the time to study and

learn about the subjects required on It .

right side of the Quadrant, such statements won't make much sense. t might make sense to someone on the left side of the Quadrant, but not to someone or,

the right side. You can do anything you like, go as fast as you like, make as inud,

money as you like, but you have to pay the price. You can go quickly, but remember, there are no shortcuts.

This book is not about answers. This book is about looking at financial

134

The C4SHFLOW Quadrant

MIlen(7cs and objectives from a different point of view. It's not that one point of

1 ,

view is better than another; it's simply smarter to have more than one point of

W.

in reading the following chapters, you may begin looking at finances,

business

and Iffe from a different point of view.

n ce

ith

the

Re u

is d

V

7he CASHFLOW Quadrant

136

7-be CASHFLOW Quadrant

PARTH

CHAPTER 8

How Do -1

Get R 0C

When I am asked, "Where did I learn my formula for getting rich?" I

reply,

Tla~ng the game of Monopoly as a kid."

Some people think I am kidding, and others wait for the punch line,

expecting

a joke, Yet, it is not meant as a joke, and I am not kidding. The formula for getting

kh in monopoly is simple, and it works in real life as well as in the game.

'FOUR GREEN HOUSES.. ONE RED HOTEL

You may recall that the secret to wealth when playing Monopoly is simply

to

buy four green houses and then trade them in to buy a large red hotel. That is all it

ges, and that is the same investment formula for wealth my wife and I used. When the real estate market was really bad, we bought as many small houses

we could, with the limited money we had. When the market improved, we in the four green houses and bought a large red hotel. We never have to work because the cash flow from our large red hotel,, apartment houses and mini

rages pays for our lifestyle.

IT WORKS FOR BAMBURGERS ALSO

, Or if you do not like real estate, all you have to do is make hamburgers, build

2business around that hamburger, and franchise it. Within a few years, the Tbe CASHFLOW Quadrant

increasing cash flow will provide you with more money than you can spend.

In reality, that is how simple the path to extraordinary wealth can be. In o words, in this high-tech world, the principles of great wealth remain

simple a

low tech. I would say that it's merely common sense. But unfortunately, when comes to the subject of money, common sense is uncommon.

For example, it makes no sense to me to give people a tax break to lose money and spend their lives in debt. Or to call your home an asset when it

re

is a liability that drains cash from you every day. Or to have a national gove,

that spends more money than it collects in taxes. Or to send a child to school

study in the hope of getting a job, but not teach that child anything about mon

IT IS EA S Y TO DO WIL4 T RICH PEOPLE D0

Doing what rich people do is easy. One of the reasons there are so many wealthy people who did not do well in school is because the "to do" part of

becoming wealthy is simple. You do not have to go to school to become rich ' TI

"to do" part of becoming rich is definitely not rocket science.

There is a classic book I recommend you read: Think and Grow Rich by Napolean Hill. I read this book as a youngster, and it greatly influenced

the

direction of my life. In fact, it was my rich dad who first recommended I read

book and others like it.

There is a good reason why it's titled Think and Grow Rich and not Work Hard and Grow Rich or Get a job and Grow Rich. The fact is, people w 0 wo

't .

the

the hardest do notwind up rich. if you want to be rich, you need to' Mik." independently rather than go along with the crowd. In my opinion, one great a

of the rich is they think differently from everyone else. if you do what everyone

else does, you'll wind up having what everyone else has. And for most people,

what they have is years of hard work, unfair taxes and a lifetime of debt.

When someone asks me, "What do I have to do to move from the left side the Quadrant to the right side?" my response is, "It's not what you have to

'do'th

needs to change. it's first how you 'think' that needs to change. In other

wordsyj~'~

who you have to 'be' in order to 'do' what needs to be done."

Do you want to be the kind of person who thinks buying four gree and turning them in for one red hotel is easy? Or do you want to be the

person who thinks buying four is hard?

green houses and turning them in for on

Years ago I was in this class on goal setting. It was the mid-1970s, and I reaE) ch

could not believe I was spending $150 and a beautiful Saturday and Sunday to learn how to set goals. I would rather have been surfing. instead, here I

was

The CASHFLOW Quadrant

paying someone to teach me how to set goals. I nearly backed out several times,

but what I learned from that class has helped me achieve what I want in life.

The instructor put up on the board these three words.

BE - DO - HAVE

d

'n nt

~0

iey. ly

The

J this --k V,o,k " Think at asset

~one

,pie,

Iside of ,do' that ords, it's

She then said, "Goals are the 'have' part of these three words. Goals such

as to

have a nice body, or to have the perfect relationship, or to have millions of dollars,

F~or to have great health, or to have fame. Once most people figure out what they

wa'nt to have, their goal, they begin listing what they have 'to do.' That is why

people have 'To

Do' lists. They set their goal and then begin 'doing.' "

he first used the goal of the perfect body. "What most people do when they a perfect body is go on a diet, and then go to the gym. This lasts for a few weeks and then most are back to the old diet of French fries and pizza, and

~stead of going to the gym, they watch baseball on TV. This is an example of 'doing' instead of 'being.'

S

want

"It's not the diet that counts; it's who you have to be to follow the diet

that

counts, Yet, every year millions of people look for the perfect diet to follow in

order to become thin. They focus on what they have to do, rather than who they

Wave to be. A diet will not help if your thoughts do not change."

She used golf as another example: "Many people buy a new set of golf

clubs

b hopes that they can improve their game, instead of starting with the attitude,

mind-set and beliefs of a professional golfer. A lousy golfer with a new set of golf

clubs is still a lousy golfer."

Then, she discussed investments: "Many people think that buying stocks

or

mutual funds will make them rich. Well, simply buying stocks, mutual funds, real

e0te and bonds will not make you rich. just doing what professional investors do

does not guarantee financial success. A person who has a loser mentality will

iways lose no matter what stock, bond, real estate or mutual fund they buy."

Next, she used an example of finding the perfect romantic partner: "So

many

~epple go to bars or to work or to their church looking for the perfect

person, the

Tn~m (I their dreams. That is what they 'do'. What they 'do' is go and look for

%,,ftstead of work on 'being the rightperson.'

)ts one of her examples about relationships: "In marriage, many people try for one red t , A, "

the other person so they can have a better marriage. Instead of trying to

970s, and I really Lnd Sunday to

, here I Was

Up the other person, which often leads to fights, it is better to change yourself

J , sk said. "Don't work on the other person; work on your thoughts about that

The CASHFLO W Quadrant

As she was talking about relationships, my n1ind drifted to the many

people I

had met cwer the years who were out to "change the world" but were not getting

anywhere. They wanted to change everyone else, but not change themselves.

For her example of money, she said, "And when it comes to money, many people try 'to do' what the rich do and 'to have' what the rich have. So

they go

and buy a house that looks rich, a car that looks rich, and send their kids to the

schools where the rich send their kids. All this does is cause these people 'to d

by working harder and 'to have' more debt, which causes them to work even harder... which is not what the truly rich do."

I was nodding my head in the back of the room in agreement. My rich dad I d' not use these same words to explain things, but he did often say to me, "People

think that working hard for money, and then buying things that make them look

rich, will make them rich. In most cases it doesn't. It only makes them more They call it 'Keeping up with the joneses,' and if you notice, the joneses are

exhausted."

During that weekend class, much of what my rich dad had been telli began to make more sense. For years he lived modestly. Instead of wo

to pay bills, he worked hard to acquire assets. if you saw him on the s

looked like everyone else. He drove a pickup truck, not an expensive c

one day, when he was in his late 30s, he emerged as a financial powerhouse. People took notice when he suddenly bought one of the prime pieces of real estate in Hawaii. After his name hit the paper, it was then people realized that this

quiet unpretentious man owned many other businesses, lots of prime real estate,

and when he spoke, his bankers listened. Few people ever saw the modest houstOM

he lived in. After he was flush with cash and cash flow from his asse s e n bought a new large house for his family. He did not take out a loan. thpatih~'aash,ll

After that weekend class on goal setting, I realized that many people tried "doing" what they thought the rich did and tried "having" what the rich

had. Th

often would buy big houses and invest in the stock market because that is what

t ey

they thought the rich did. Yet, what my rich dad was trying to tell me was if h ly.

p

still thought and had the beliefs and ideas of a poor person or middle-class ~emn,

and then did what the rich did, they would still wind up having what the poor

middle class have. "Be-Do-Have" began to make sense.

14(

The CASHFloW Quadrant

THE CA SHFL 0 W Q UADRANT IS ABO UT BEING..

NOTDOING

Moving from the left side of the Quadrant to the right side of the Quadrant is

out

did

at this state, house en

d cash.

d They hat

if they person, oorand

riot so much about "doing" but more about "being."

it is not so much what the "B" or "I" does that makes the difference; it is

more

how they "think." Who they are at their core "being."

The good news is that it does not cost much money to change your

thinking.

b fact, it can be done for free. The bad news is that sometimes it's hard to change

some deep core thoughts about money that are handed down from generation to generation, or thoughts that you learned from friends, from work and from school.

Yet, it can be done. And this is what this book is primarfly about. It's not so much

a "How-to book" on "What to do" to become financially free. This book is not about what stocks to buy, or what mutual fund is safest. This book is primarily

about strengthening your thoughts (being), so that you can take the action (doing)

~at will enable you to become financially free (having).

SECURITY IS THE ISSUE FOR "E's "

As a generalization, people who seek out the "E" quadrant, when it comes to Money, often greatly value security. For them, it is often true that money

is not as

. Mportant as security. They may take great risks in other areas of their lives, such

as sport parachuting, but not when it comes to money. 7he CASHFIOWQuadrant

PERFECTIONISM IS THE ISSUE FOR "Ss "

Again, this is a generalization... yet what I have observed among people w are currently in the "S" quadrant, but are trying to switch from the left

quadrant to

right quadrant, is the "Do it yourself' mentality. They like to "Do it themselves"

because they often have a great need to make sure things are done "right."

And

since they have a hard time finding someone else to do it "right," they do it on

their own.

For many "S's," the real issue is "control." They need

A big part of being a human being is being human. And being human mea having emotions. All of us have the same emotions. We all feel fear,

sadness.

anger, love, hate, disappointment, joy, happiness and other emotions. What us individuals is how we each handle those emotions.

When it comes to risking money, we all experience fear... even the rich. difference is how we handle that fear. For many people, that emotion of fear generates the thought, "Play it safe. Don't take risks."

For others, especially those on the right side, fear of losing money may h them think this thought: "Play it smart. Learn to manage ri

Same emotion, different thought... different being...

havm*g.

THE FEAR OF LOSING MONEY

sk." different doing ... di

In my opinion, the greatest cause of human financial struggle is the fear of losing money. And because of this fear, people often operate too safely, or

with

too much personal control, or they just give their money to someone they think,

an expert and hope and pray that money will be there when they need it,

If fear keeps you prisoner in one of the financial quadrants, I recornfne~d read Emotional Intelligence, by Daniel Goleman. In his book, Goleman

explains

the age-old puzzle of why people who do well academically in school do