
the_cashflow_quadrant
.pdfMake 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
and 111'sil were for the most part, not affected. |
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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
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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