Reading Kiyosaki’s ideas about the cashflow quadrant was a turning point in my life and completely changed my perception about how I should manage my wealth creation strategies. He has outlined four stages that a person should understand in order to maximise earning potential.
Employee stage a person has the ability to earn a salary and the earning potential is therefore limited to services that can be rendered in person and by work time. This indicates that at this stage a person is handicapped in terms of wealth maximization.
Freelancer stage a person provides his services directly to a company or business and is not tied up by a single employer and so can work for the person willing to pay the highest fees. This frees up a persons earning potential and therefore more wealth can be created. Downside is that a person is still limited by how much time he has to spend on each project.
Business owner stage here the owner can employ other people to work for him and can scale up the business and therefore is limited only by his resources and employees time. So the earning potential reaches even higher than previous stages.
Investor stage the person has by this time a lot of finances and can invest in multiple businesses and can get many business owners to work for him or her so wealth maximisation reaches the apex as the business portfolio becomes bigger the investor may opt to sell businesses yielding high capital gains.
So what does the cash flow quadrant mean to you? It is a means to figure out your true income earning and wealth maximisation potential and what you should do to improve your situation. This is an ideal time to create an earning strategy.
Saving more – Start by saving a part of your income that can be used as a reserve as you start to branch out into your own freelance business. Also concentrate on improving the quality of services you provide by discovering a differentiating factor that separates you from the competition – even while you work for a single employer this will help you when you become a freelancer.
Freelance services – you can provide your service at oDesk or eLance on a part time basis before you become a full time freelancer. This will give you the opportunity to find out what the market wants from you and how you can improve your expertise to command a higher fee.
Startup Stage – Always keep in mind that to truly boost your wealth you need to start your own venture so look at ways you can start your own business. Create a good business plan and pitch your ideas to venture capital companies. Also keep in touch with other entrepreneurs and listen to their own success stories this will help you with your own plans.
Investing – if you have adequate funds deciding to invest in an existing business is a major step in your financial evolution. Always look at the true value of the business and the market that it operates in also get the services of a good financial advisor who can summarise the pros and cons of the investment before committing any money. Alternatively you can invest in the stock market this will over a period of time enable you to discover which variables can result in the highest return on investment.
Earnings strategy done. Now take a look at our money making strategies to see how to ramp up your money skills.