the_cashflow_quadrant

Make a

lot of money via C corporations, and shelter your income through real estate.

While millions upon millions of Americans work; pay more and more in taxes; and

then pour billions each month into mutual funds, the rich are quietly selling the

shares of their C corporations, making them even richer, and then buying billions

in investment real estate. A share of a C corporation allows the buyer to share in

the risk of owning the company. A share of stock does not allow the shareholder

the advantages that owning a C corporation and investing in real estate offers.

Why did my rich dad recommend building businesses in C corporations

and

then buying real estate? Because the tax laws reward people who operate that way... but this is a subject that is beyond the scope of this book. just remember

the words of such immensely wealthy people such as Ray Kroc, founder of McDonald's.

"My business is not hamburgers. My business is real estate." My rich dad, who drummed into my head,

"Build businesses and buy real estate."

in other words, seek my fortune on the right side of the CASHFLO W Quadrato

B,as~x tz~jsea taxes aher pToTfil~'T%, "W~K"R m~

No new taxes." In 1992, President Clinton signed into law the largest tax inc'r&'

in recent history. Again, those increases affected the "E's" and "S's" but the RBIt

Xs we progress further and further away from th

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7-be CASHFLOW Quadrant

Information Age, we all need to continue to gather information from different

quadrants. in the Information Age, quality information is our most important asset.

As Erik Hoffer once said,

"in times of change...

Learners inherit the earth, While the learned

Find themselves beautifully equipped to deal with a world

that no longer exists."

REMEMBER

Everyone's financial situation is different. That is why I always recommend:

1. Seek out the best professional and financial advice you can find. For example while a C corporation may work well in some instances, it does not work well in all instances. Even on the right side of the Quadrant,

occasionally an S corporation is appropriate.

2.Remember that there are different advisors for the rich, the poor, and the

middle class, just as there are different advisors for people who earn their money on the right side and on the left. Also consider seeking advice from people who are already where you want to go.

3.Never do business or investing for tax reasons. A tax break is an extra bonus for doing things the way the government wants. it should be a bonus, not the reason.

4.If you are a reader who is not a U.S. citizen, this advice remains the same.

Our laws may be different, yet the principles of seeking competent advice remain the same. People on the right side oi)erate verv similarIv throuRhout The C4SHFLOW Quadrant

Q(

7-be C4SHFLOW Quadrant

PART III

How To Become .6 A Success I " m

;fu "B" a n d "I" 181 183

The CASHFLOW Quadrant

CHAPTER 10

Take Baby Steps

Most of us have heard the saying, "A journey of a thousand miles begins with a single step." I would like to modify that statement a little. instead I would say, "A journey of a thousand miles begins with a baby step."

I emphasize this because I have seen too many people attempt to take the "Great Leap Forward" instead of taking baby steps. We have all seen people,

who

are completely out of shape, suddenly decide to lose 20 pounds and get into shape. They begin a crash diet, go to the gym for two hours, and then jog 10 miles. This lasts maybe a week. They lose a few pounds, and then the pain,

boredom, and hunger 6egin to wear away at their will power and determination.

By the third week, their old habits of overeating, lack of exercise, and television

are back in control.

instead of taking a "Great Leap Forward." I would strongly recommend

taking

a baby step forward. Long term financial success is not measured in how big your

stride is. Long term financial success is measured in the number of steps, in which

direction you're moving and in numbers of years. In reality, that is the formula for

success or failure in any endeavor. When it comes to money, I have seen too many

people, myself included, attempt to do too much with too little... and then crash

and burn. It's hard to take a baby step forward when you first need a ladder to get

yourself out of the financial hole you have dug for yourself. The CAS11FLOW Quadrant

HOWDO YOUEATANELEPIZANY?

This section of the book describes 7 steps to guide you on your path to the right side of the Quadrant. With the guidance of my rich dad, I began

working

and acting on these 7 steps from the age of 9. 1 will continue to follow them for as

long as I live. I warn you before you read the 7 steps because, for some people,

the task may seem overwhelming and it will be if you try to do it all in one week.

So please begin with baby steps.

We have all heard the saying, "Rome was not built in a day." The saying I

use

whenever I find myself feeling overwhelmed by how much I have to learn is "How

do you eat an elephant?" The answer is "One bite at a time." And that is how I

would recommend you proceed if you find yourself feeling even a little bit overwhelmed by how much you may have to learn, in order to make the journey from the "E" and "S" side to the "B" and "I" side, Please be kind to

yourself and

realize that the transition is more than just mental learning, the process also

involves emotional learning. After you can take baby steps for six months to a

Y(

year, you are ready for the next saying which is, "You've got to walk before ou

can run." In other words you go from baby steps, to walking, and then to running.

This is the path I recommend. if you don't like this path, then you can do what

millions of people do who want to get rich quickly the fast and easy way, which is

to buy a lottery ticket. Who knows? It might be your lucky day.

ACTION BEATS INACTION

To me, one of the primary reasons "E's"' and "S's" have difficulty moving

to the

"B" and "I" side is because they are too afraid of making mistakes. They often say,

"I have a fear of failing." Or they say, " I need more information, or can you

recommend another book?" Their fear or self doubt is primarily what keeps them

trapped in their quadrant. Please take the time to read the 7 steps and complete

the action steps at the end of each step. That for most people is enough of a baby

step to get you moving in the direction towards the "B" and "I" side. just doing

those 7 action steps will open whole new worlds of possibility and change. Then

just keep taking small baby steps.

Nike's slogan "Just do it" says it best. Unfortunately our schools also say, "Don't make mistakes." Millions of highly educated people who want to take

action are paralyzed by the emotional fear of making mistakes. One of the most

important lessons I have learned as a teacher is that true learning requires mental,

emotional, and physical learning. That is why action always beats inaction. If you

take action and make a mistake, at least you've learned something be it mentally,

emotionally, and/or physically. A person who continually searches for the "right"

The CASHFLOW Quadrant

answer is often afflicted with the disease known as "analysis paralysis" which

seems to affect many well-educated people. Ultimately, the way we learn is by

making mistakes. We learned to walk and ride a bicycle by making mistakes. People who are afraid of taking action, out of fear of making mistakes, may be

mentally smart but emotionally and physically handicapped.

There was a study done a number of years ago of rich and poor all around

the

world. The study wanted to find out how people born into poverty eventually become wealthy. The study found that these people, regardless of in which country they lived, possessed three qualities. These qualities were:

1.They maintained a long term vision and plan.

2.They believed in delayed gratificatiom

3.They used the power of compounding in their favor.

The study found that these people thought and planned for the long term

and

knew that they could ultimately achieve financial success by holding to a dream or

a vision. They were willing to make short term sacrifices to gain long-term success,

the basis of delayed gratification. Albert Einstein was amazed at how money could

multiply just by the power of compounding. He considered the compounding of money as one of the most amazing inventions of human. This study took compounding to another level beyond money. The study reinforced the idea of baby steps... because each baby step in learning compounded over the years. People who had taken no steps at all did not have the leverage of magnified accumulation of knowledge and experience that comes from compounding.

The study also found what caused people to go from wealthy to poor.

There

are many rich families who lose most of their wealth after only three generations.

Not surprisingly the study found that these people possessed the following three qualities:

1.They have short term vision.

2.They have a desire for instantaneous gratification.

3.They abuse the power of compounding.

Today I meet people who get frustrated with me because they want me to

tell

them how they can make more money today. They do not like the idea of thinking

long term. Many are desperately seeking short term answers because they have money problems to be solved today... money problems such as consumer debt and lack of investments caused by their uncontrolled desire for

instantaneous grati-

185

The CASHFloW Quadrant

fication. They have the idea of "Eat, drink, and be merry while we're young." This

abuses the power of compounding, which leads to long-term debt, instead of long-term wealth.

They want the quick answer and want me to tell them "What to do."

Instead

hearing "Who they need 'to be' in order 'to do' what they need to do to acquire

great wealth," they want short-term answers to a long-term problem. In other words, too many people are fixated upon the "Get rich quick" philosophy of life.

To these people I wish them luck because luck is what they will need.

A HOT TIP

Most of us have heard that people who write down their goals are more successful than those who do not. There is a teacher named Raymond Aaron ,

from

Ontario, Canada who has seminars and tapes on subjects such as sales, goal be a better networker. While these are

setting, doubling your income, and how to

subjects taught by many people, I recommend his work simply because he has some fascinating insights into these important subjects. insights that can

help you

achieve more of what you want in the world of business and investing.

On the subject of goal setting, he recommends something that follows in line with the idea of taking baby steps instead of great leaps forward. He recommends

having great big long-term dreams and wishes. Yet, when it comes to setting goals,

instead of trying to be an overachiever, he recommends being an underachiever. In

other words, take baby steps. For example, if I wanted to have a beautiful body,

instead of trying to take a great leap forward, he recommends

underachieving by

doing less than you would want to. instead of going to the gym for one hour, commit to going for only 20 minutes. In other words, set an underachieving goal

and force yourself to stick with it. The result will be instead of being overwhelmed,

you will feel underwhelmed. By feeling underwhelmed, I have found myself looking forward to going to the gym, or anything else I need to do or change in

my life. The strange thing is that I find I achieve today by being an underachiever

instead of trying to kill myself and be an overachiever. In summary, dream big

daring dreams, and then underachieve a little bit each day. In other words, baby

eaps oj

steps'inste%a'A ~_76 _9___T_~

achieved, provide positive reini o1cement W'helP You st'y an the path to the big goal.

The CASHHOW Quadrant

and "I" quadrants. We go on vacations with people who are experts on subjects

iound in the "B" and "I" quadrants. Again we learn a lot while playing, resting, and

&nlng out. Those are ways of underachieving and yet still moving towards big and

bold dreams. I thank Raymond Aaron and his tape on goal setting for assisting me

in achieving more with a lot less stress.

Now read on, and remember to dream big, think long-term, underachieve

on a

daily basis, and take baby steps. That is the key to long-term success and the key

to crossing from the left side of the CASHFLOW Quadrant to the right side.

IF YOU WANT TO BE RICH,

YOUVE GOT TO CHANGE YOUR RULES

I have often been quoted as saying "The rules have changed." When

people

hear these words, they nod their head in agreement and say, "Yes. The rules have

changed. Nothing is the same anymore." But then they go on and do the same

old d'ang.

INDUST"AL AGE FINANCL1L STATEMENTS

When I teach classes on the topic of "Getting Your Financial Life In

Order," I

start by asking the students to fill out a personal financial statement. It often

becomes a life-changing experience. Financial statements are much like X-rays.

Both financial statements and X-rays let you see what your unassisted eye cannot.

,kfter the class members have filled out their statements, it is easy to see who has

"financial cancer" and who is financially healthy. Generally, the ones with financial,

cancer are those with Industrial Age ideas.

187

Why do I say that? Because in the Industrial Age, people did not have to 'think about tomorrow." The rules were, "Work hard and your employer or the government will take care of your tomorrows." Which is why so many of the my friends and family often said, "Get a job with the government. It has great

benefits." Or: "Make sure the company you work for has an excellent retirement

plan." Or: "Make sure the company you work for has a strong union." Those are

words of advice based on Industrial Age rules, which I refer to as the "entitlement"

mentality. Although the rules have changed, many people have not changed their

personal rules... especially their financial rules. They're still spending like there is

no need to plan for tomorrow. That is what I look for when I read a person's financial statement - whether or not they have a tomorrow.

ne CASHFLOW Quadrant

DO YOUHAVEA TOMORROW?

Keeping things simple - this is what I look for on a personal financial

statement.

Income Statement

Income

Expense

Croday)

Balance Sheet

Assets Liabilities

Cromorrow)

(Y-terday)

188

Tbe CASHFLOW Quadrant

People with no assets, which throw off cash flow, have no tomorrows.

When I

find people who have no assets, they generally are working hard for a paycheck to

pay bills. if you look at most people's "Expense column," the two biggest monthly

expenses are taxes and debt service for long-term liabilities. Their expense statements look like this:

income Statement

]Income

Expense

Taxes (APP-xitnatelY 50%)

Debt (ApproximatelY 35%)

Uving Expenses

Assets

Bahance Sheet

Uabilitles

in other words, the government and the bank get paid before they do.

People

who cannot get control of their cash flow generally have no financial future and

will find themselves in serious trouble in the next few years.

Why? A person who is only in the "E" quadrant has little protection from

taxes

and debt. Even an "S" can do something about these two financial cancers.

if this does not make sense to you, I would suggest reading or re-reading