Transcription
His books are thought-provoking and go against the grain of most other personal finance gurus. One of his most well-known concepts is the cash flow quadrant. He challenges your thinking around making active or passive income and forces you to think about whether you're going to be an employee, business owner, self-employed, or investor.
Mentor me. Robert, my rich dad showed me when I was a little boy was a diagram known as a cash flow quadrant. And the quadrant is made up of the four different people who make up the world of business. So my rich dad said, in the world of business, there's E and E stands for employees. An employee, he says, you can always tell who they are by their core values and what they employee. Whether the president or the janitor of a company will always say the same words. The words are, "I'm looking for a safe, secure job with benefits." That's what makes them an employee, 'cause their core values is are security.
The other, other one of the four is the S, or the small business owner, or the self-employed. And again, their core values will cause them to use the same words, which are, "If you want it done right, do it by yourself." S means they're also solo. They generally one person act, or they operate by themselves.
On the right side of the quadrant are the B's. And what rich dad said the B stood for was big business, or like Bill Gates. Forbes defines big business as 500 employees or more. And their words are different. They said, "I'm looking for a good system, a good network, and the smartest people I know to help run my business." So they're unlike the S. They don't want to run the company by themselves. They want smart people to run their companies for them.
And then the fourth of the quadrant is the I, and I stands for investor. These are people who have money work hard for them. These people have people have people work hard for them. And these are the people that work hard for the rich. Here, and, and the thing of note here is that most people who go to school are programmed for the E and the S. For example, my poor dad, who always said to me, "Son, go to school so you can get a nice, safe, secure job." And so my poor dad wanted me to be an employee. And since the time I was a kid, get a safe, secure job, steady paycheck, and benefits. Okay. I didn't want to be an employee. And I said, "Mama, Mom and Dad, I want to be a rich man." And I fought with my dad. So my mother finally said, "Son, if you want to be rich." My mother was a registered nurse. And she said, "If you want to be rich, the richest people I know are doctors." So my mom wanted me to come over here, be a specialist, or a small business person. I said, "There's only one problem with that, Mom. Doctors are really smart." And she says, "You got a good point there. Not going to be a doctor." So I, you know, so I went to school. I have a Bachelor of Science degree. I can drive ships, and I can fly planes. I flew for the Marine Corps. But that I've never used any of that education because because I wanted to become a business owner. So it was my rich dad who basically said to me, you know, "Become a business owner and learn to be a professional investor."
So one of the big differences here between these people is that it's called taxes. See, in 1943, in the U.S., the federal government passed a law that said employees had to pay tax before they got paid. So when you go to, when you get your paycheck from your employer, you open it up, and voila, the government's always taken a sizable chunk of it. And the harder you work, and the more money you make, the more money they take from you. So that's why it's not that good to be an employee because you can never get ahead because the more you work, more money you make, the greater they pay in taxes.
Now, the, the doctors and lawyers and attorneys, you know, accountants were all laughing. Say, "These guys, they get, you know, they're getting paying a lot of taxes." So naturally, the federal government changed the laws again. So in 1986, in the U.S., a thing called the 86 tax reform act. And it basically took a lot of the benefits away from people who are self-employed, small business, doctors, and lawyers. So today, in America, unfortunately, these guys pay the highest percentage in taxes. It is tragic. And a lot of people think they're investors, but what they're really doing is they're just giving their money to people like mutual funds companies and all that. So they're not investing, but they're not really investors. See, the big tax breaks are on this side. You know, the laws are pretty tight here, but this area is very, very gray. So by being a business owner on the right-hand side of the quadrant, you can make a lot more money and pay a smaller percentage of taxes legally. And the key word is legally. In the investor quadrant, it is possible to make millions of dollars and pay 0% taxes legally.
And so it was my rich dad who said to me, he says, "You know, Robert, if you really want to be rich, learn to build businesses." It made more sense to him to work hard to build a business, something you owned, and something you'd pass on for generation to generation to your kids. Whereas my poor dad said, "Work hard." But my rich dad said, "Why would you work hard for something you'll never own and you can get fired from right away?" Again, that was the difference in values. So my rich dad suggested I learn how to be a business owner and learn how to be an investor. And that's one of the big differences on this side of the quadrant. These people here work for security. They work for money. Also on this side over here, their key value that they want is they want freedom. They don't want to have to work at a job anymore. They don't want to have to work for the rest of their lives.
So one of the beauties of business for the 21st century, it allows people to make the transition from the E and the S side to the B side, especially. And so you can become a big business owner. And the difference between S and a B, small business and big business, it's most of these guys can't quit working. Most small business owners, if they stop working for more than a month, the business collapses. You know, they don't really have a business. Most of these people own a job. So the beauty of business for the 21st century, it allows these people to make the transition to the B side so that you don't have to keep working hard for money. And the money can actually come in passively. Then, once you have your business up and running, then I always recommend you then begin investing with your excess cash, paying less and less in taxes. And that's the reason the rich are getting richer.
For people who want to make the shift over to the B quadrant, which is what I would recommend for people, one of the beauties of a network marketing company is that you can do that for a very low price. And that's why I talk to people about considering network marketing. If you were to build a Microsoft, it would take you hundreds of millions of dollars. But a network marketing company allows you to start at a very low rate. They'll be patient with you. They'll take their time to transition over here. And the reason why that time is so important to most people is it takes time to change those values. And the most important thing is, once you take the time, let's say it takes one year, two years, five years, whatever time it takes, once you see the the value or the core values of this side and this side, you're unstoppable. Today, I would never go back and get a job. Why should I? I'd rather stay on this side, build companies, pay less taxes, and make more money. But the key is, a person needs to change the values from my poor dad to the values of my rich dad.
One of the challenges of being self-employed is that you're your own boss. You're the solo act, like in the S quadrant. You're the individual. You do it on your own. Whereas in the B quadrant, you're a team player. You have to depend upon your team and count on your team. So the problem with being an S is that let's say you're in a traffic accident, there goes your income. And let's say you get older and you haven't set enough money aside to retire on, that means you'll probably have to work for the rest of your life because you don't have anybody else to fall back on, not a team to count on. So one of the problems with the S, although most people say it's the most satisfying of all work, it is a solo act and you're totally on your own. Personally, I'd rather be a member of a team. They can count on me, and I can count on them.
Thank you guys so much for watching. I'd love to know what your thoughts are on the cash flow quadrant, where you feel you fit in, and what you've learned from this video, and what you're going to make an impact in on your business, on your life. Leave it in the comments below. Really curious to find out. And if you like this video, my personal goal is to reach a million subscribers on this channel. So anything that you can do to help, share it, tweet it, add it to the playlist, tell your friends, I'd really, really, really appreciate it. Thank you guys so much for watching. Continue to believe, and I'll see you soon.