the_cashflow_quadrant

long, hard work finally get to the person. Many "S's" just burn out. That

is why so

many highly educated professionals change firms or try to start something

new, or

die, Maybe that is why the average life expectancy for doctors and lawyers

is lower

than it is for most others. Their average life expectancy is 58. For everyone else, it

is in the 70s.

For those who do survive, they seem to have become used to the

idea of

getting up, going to work and working hard forever. That seems to be all

they

know.

A friend's parents remind me of this. For 45 years they have spent

long hours

in their liquor store on a street comer. As crime increased in their

neighborhood,

thev had to put steel bars up on the doors and all the windows. Today,

money is

passed through a slot, much like in a bank. I go by occasionally to see

them. They

lkn~fju conWer that the government offers you tax breaks for going

-a into debt, the path to financial freedom is virtually impossible for most in the T" quadrant and for most in the "S" Quadrant. I often hear

twtants tell clients who begin earning more income from the "E" quadrant to r house so they can receive a bigger tax break. While that might make

to someone on the left side of the CASHRO W Quadrant, that makes no to someone on the right side of the Quadrant.

7,be CASHFLOW Quadrant

WHO PAYS THE MOST TA"S?

The rich pay few income taxes. Why? Simply because they do not earn their money as employees. The ultra rich know that the best way to avoid taxes

If people earn money in the "E" quadrant, the only tax break they are offered I pei

CASHFLO W Quadrant, that is not too financially intelligent. To people on the 60, A

side, that is the same as saying, "Give me $1, and I will give you $.50 back."

is to buy a bigger house and go into greater debt. From the right side of

the

TAXES ARE UNFAIR

I often hear people say, "It's un-American not to pay taxes."

Americans who say this seem to have forgotten their history. America was founded out of tax protest. Have they forgotten the infamous Boston Tea

Party 0,6 inde

1773? The rebellion that led to the Revolutionary War which separated the American colonies from the oppressive taxes of England,

This rebellion was followed by the Shay's Rebellion, The Whiskey

Rebellio4st

Fries Rebellion, The Tariff Wars and many others throughout the history of the

United States.

There are two other famous tax revolts that were not American, but also demonstrate the passion with which people object to taxation:

sin

The story of William Tell is a story of -tax protest. That is why the arrow

w2s pe

shot off his son's head. He was angry about taxes and risked his son's life in

protest.

And then there was Lady Godiva. She asked that taxes in her town be lowered. The heads of the government said they would lower the taxes if sh

would ride naked through the town. She took them up on their dare.

TAXADVANTAGES

Fmoi

N01

The re I income

M[myMmAdvaaftg"

earn n,, column:

FewTm dommunwWw

laxes are a necessity of modern crvAization. Pidblems afisewhen taxes

fered e right

arty of

Il ion,

was

in

she

The CASHFLOW Quadrant

~&omt abusiveand mismanaged. In the. next ~ew 'years, YY1Xions of bab-y boomers

will begin to retire. They will shift from the role of taxpayers to retirement and

Social Security recipients. There will be a need to collect more taxes to support this

shift. America and other great nations will decline financially. individuals with

money will leave in search of countries that welcome their money, instead of penalize them for having it.

A BIG MISTAKE

Earlier this year, I was interviewed by a newspaper reporter. During the interview, he asked me how much money I made during the prior year. I

replied,

"Approximately a million dollars."

"And how much did you pay in taxes?" he asked.

"Nothing," I said. "That money was made in capital gains, and I was able

to

indefinitely defer paying those taxes. I sold diree. pieces of real estate -and put them

through a Tax Code Section 1031 exchange, I never touched the money. I just reinvested it into a much larger property." A few days later, the newspaper ran this

story.

"Rich man makes $1 million and admits to paying nothing in taxes."

~ Jid say something like that, but a few choice words are missing, thus 6ioning the message. I do not know if the reporter was being malicious or

if he

simply did not understand what a 1031 exchange was. Whatever the reason, it is a

perfect example of different points of view coming from different quadrants. As I

said, not all income is equal. Some income is much less taxed than others.

MOST PEOPLE FOCUS ON INCOME

NOTINVESTMENTS

The reporter earns his income in this column:

earn my money in this

me ~m

r

Income Statenent

Reporter

A

Balance Sheet

)'be 6:45,VyZ0 wV21ad"myl

Re

He earns his money ~-_

in this quadrant:

I earned my mill n this quadran

I me

And today, I still hear people saying, "I'm going back to school s I raise," or "I'm working hard so I can get a promotion."

Those are words or ideas of a person who is focusing on the in of the financial statement or the "E" quadrant of the CASHFLOWQu

are the words of a person who will give half of that raise to the government andf

work harder and longer to do it.

In an upcoming chapter, I will explain how people on the right-hand side the Quadrant utilize taxes as an asset, instead of the liability it is for

most peoP16

on the left side of the Quadrant. It is not a matter of being unpatriotic; 't's a n,

of being a person who protests, and'fights back legally, to defend the right to

as much money as possible. People and countries that do not protest their tax

are often people or countries with depressed econornies.

GET RICH QUICKLY

For my wife and me to go from homeless to financially free quic mean earning our money in the "B" and "I" quadrants. In the right-hand quadrants,

can get rich quickly because you can avoid paying taxes legally. And by being

kly

Taxes and debt are two of the main reasons most people never feel

financiall,

secure or achieve financial. freedom. The path to security or freedom is found onli

right-hand side of the CASHFLOW Quadrant. You need to go beyond job sec# is time to know the difference between financial security and financial freedom.

to keep more money and have that money work for us, we found freedom quickly.

HOW TO GET FREE

58 illion ant:

gcl I

unin hose and

e of

ople matter o keep X IC s

nt

, you ng able

cially 1~

on the rity. It

59

Tbe CASHFLOW Quadrant

WHAT IS THE DIFFERENCE BETWEEN

I..1011 SECURITY,

2.FLNANCIAL SECURITY, and

3.FINANCIAL FREEDOM?

As you know, my highly educated dad was fixated on job security, as are

most

people of his generation. He assumed that job security meant financial security...

that was, until he lost his job and could not get another job. My rich dad never

talkedabout job security. He talked instead about financial freedom.

The answer to finding the kind of security or freedom you desire can be

found

in observing the patterns found in the CASHFLOW Quadrant.

, 1. THIS IS THE PAITERN FORJOB SECURITY

SCHOOL

1VP-

People with this pattern are often good at performing their job. Many spent years

M school, and years on the job gaining experience. The problem is they know little

about the "B" quadrant or the "I" quadrant, even if they have a retirement plan.

They feel financially insecure because they have been trained only for job or

professional security.

TWO LEGS ARE BEITER THAN ONE

To'bocorne more financially secure, I suggest, in addition to performing

their

jobs in the "E" or "S" quadrants, individuals become educated in the "B" or "V

quadrants. By having confidence in their abilities on both sides of the Quadrant,

The CASHFLOW Quadrant

they wA) naturg))y feeJ more secuTe, even if they have on)yq Me money, Knowledge is powerall they have to do is wait for the opportunity to use th knowledge and then they'll have the money,

That is why our maker gave us two legs. If we had only one leg, we wo 'd 'u

always feel wobbly and insecure. By having knowledge in two quadrants, one the left and one on the right, we tend to feel more secure. People who know about their job or their profession only have one leg. Every time the economic

winds blow, they tend to wobble more than people with two legs.

2 THIS IS THE PATTERN FOR FINANCIAL SE

This is what financial securitv looks like for an "E":

IL

Instead of just putting money into a retirement account and h in f r op' g 'o

0

best, this loop signifies that people feel confident in their education as Wth an

investor and an employee. just as we study at school to learn a job, I suggest),

study to learn to be a professional investor.

The reporter who was upset about me making a million dollars in my column and not paying taxes never asked me the question, "How did you

the million dollars?"

To me, that is the real question. Legally avoiding the taxes is easy. Making million was not so easy.

Vould

onc on

[ow

Dmic

RITY

g for I-lie oat an

~ est you 19

y aSSCL u malh

[aking the

The C4SHFLOW Quadrant

A second path to financial security could be:

And this is what financial security looks like for an "S":

k~- \041~

This is the pattern described by the book The Millionaire Next Door,

written by

Thomas Stanley. It is an excellent book. The average American millionaire is self-

employed, lives frugally, and invests for the long term. The pattern above reflects

that financial life path.

The CASHFLOW Quadrant

This path, the "S to the B," is often the path that many great

entrepreneurs,

like Bill Gates, take. it is not the easiest, but in my mind, it is one of the best.

IWO IS BEIYER THAN ONE

So being educated in more than one quadrant, especially one on the left an one on the right, is much better than being good in just one. In Chapter 2,

1 refer

to the fact that the average rich person earns 70 percent from the right side and

percent from the left side of the Quadrant. I have found that no matter how

mu

money people make, they will feel more secure if they operate in more than on

quadrant. Financial security is having a secure footing on both sides of the CASHFLOW Quadrant.

MILLIONAIRE FIREFIGHTERS

I have two friends who are examples of success on both sides of the CASHFLOW Quadrant. They have tremendous job security with benefits, and have also achieved great financial wealth on the right side of the

Quadrant. B

are firefighters working for the city government. They have good, steady pay,

excellent benefits and retirement plans, and work only two days a week. Three

days a week they work as professional investors. The remaining two days, they

relax and spend with their families.

One buys old houses, fixes them up and collects rent. At the time of this writing, he owns 45 houses that pay him $10,000 a month net, after debt,

taxes

maintenance, management and insurance. He earns $3,500 as a firefighter, his total monthly income more than $13,000 and annual income about $150, and growing. He has five more years before retirement, and his goal is to ha St.

left and 2, 1 refer

e and 30 ow much than one

and they nt. Both

pay, Three s, they

)f this

t, taxes, er, making $150,000 to have