The Cashflow Quadrant. Robert T. Kiyosaki

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What do I love about: The Cashflow Quadrant?

Robert the author of the popular rich dad poor dad does a great job describing people’s financial situation based on 4 parts of a quadrant. He articulates the benefits and dangers of each group. I particularly love that he provides action steps to make it to the right side of the quadrant. The right side is the side associated with financial freedom.

What do I not love about: The Cashflow Quadrant?

Zilch

Who should read: The Cashflow Quadrant?

Are you curious on how to become financially independent?

Do you want a reminder of the fundamentals of personal finance?

If you answered yes to any of the above then this book is for you.

Who should not read: The Cashflow Quadrant?

I recommend this book for everyone because lets be honest, who does not want to financially free?

Notes from The Cashflow Quadrant

Part I: The Cashflow Quadrant

The 4 quadrant

The quadrant represents where you get most of your income from. It is

Employee:

He will typically say “I am looking for a safe, secure job with good pay and excellent benefits”

Self-employed:

He will typically say “My rate is $35 per hour” or “My normal commission rate is 6% of the total price”

Business:

He will typically say “I am looking for a president to run my company”

Investor:

He will typically say “Is my cashflow based on an internal rate of return or net rate of return?”

7 level of investors

Level 0: Those with nothing to invest.

Level 1: Borrowers. The people who solve financial problem by borrowing.

Level 2: Savers: They put small amounts of money usually on a regular basis. They typically save to consume rather than invest.

Level 3: Smart investors

3A: I cannot be bothered group. They just let their money sit and do little

3B: The cynic. They know all the reasons why an investment will not work.

3C: Gambler. They look at investment and stock markets the same way they look at a Las Vegas craps table.

Level 4: Long term investors. They are actively involved in their investment decisions and lay out long term plans

Level 5: Sophisticated Investors. They have good money habits and can afford to seek more aggressive or risky investment

Level 6: Capitalist. Few people get here. They are typically the B or I

Interesting points from part I

When the fear of losing money and failing becomes too painful inside, a fear all of us have, I chooses security and most choose freedom.
Thinking is the hardest work there is. That is why so few people engage in it.
Ultimately, it is not how much money you make that matters but how much money you keep and how long that money works for you. Every day I meet a lot of people who make a lot of money, but all their money goes out the expense column.
Many people are so afraid of losing, they choose not to invest or risk their money at all no matter how much money they could make in return
Diversification: People who seek security use the word diversification a lot. Why because the strategy of diversification is an investment strategy for “not losing”. It’s not an investment strategy for winning. Successful of rich investors do not diversify. They focus their efforts.
If history is an indicator, a person who lives to the age of 75 should anticipate going through one depression and two major recessions
I recommend learning to be an investor rather than giving your money to somebody else to invest for you. If you simply turn your money over to a mutual fund or to an adviser, you may have to wait until you are 65 to find out if that person did a good job.
Financial intelligence is not so much how much money you make, but how much money you keep, how hard that money works for you, and how many generations you keep it for.
It was my rich dad that stressed to me that your home is not an asset but a liability. He could prove it because he taught us to be financially literate so we were able to read the numbers.
A big secret is that true investors make more money in bad markets. They make their money because the non-investors are panicking and selling when they should be buying.
Unsuccessful people are people who never fail.
What you think of me is none of my business. What is more important is what I think about myself.
A deal has to make sound economic sense in good times and bad.
Financial blindness is when a person cannot read numbers, so they must take someone else’s opinion. Financial insanity is caused when opinions are used as facts.
Too much due diligence is also called ‘analysis paralysis’

Part II: Bringing out the best in you

Passion builds business not fear.
Professional investors are people who risk little of their own money and yet still make the highest return. It is the people who know little about investing who take the risk and earn the least in return. From my point of view, all the risk is on the left side of the quadrant. People on the left pay to take risks and the people on the right side get paid to take risk.
Rich Dad continued his lesson: “If you want to be successful on the right side, when it comes to money, you have got to know the difference between facts and opinions.
Don’t work on the other person; work on your thoughts about that person.
The greatest cause of financial struggle is the fear of losing money
Financial IQ is 90% emotional IQ and only 10% technical information about finance or money
To be successful as an investor or business owner, you have to be emotionally neutral to winning and losing. Winning and losing are just part of the game.
You can always quit so why quit now?
Giants often trip and fall. But worms do not, because all they do is dig and crawl
Be careful when you take on debt. If you take on debt personally, make sure its small. If you take on large debt, make sure someone else pays for it.
Depression is made up of the 2 human emotions, anger and sadness. Anger with one’s self and sadness over loss. Economic depressions are emotional depressions.
Nobody said it was fair….for this is not a fair country. We are a free country. There are people who work harder, are smarter, are more driven for success, are more talented, or are more desirous of the good life than others. We are free to pursue ambitions if we have determination
Build a business and buy real estate. Make a lot of money via C corporations and shelter your company through real estate.
When the fear of losing money comes up, most people’s minds automatically start chanting these words:
“Security” rather than “Freedom”
“Avoid risk” rather than “Learn to manage risk”
“Play it safe”, rather than “Play it smart”
“I can’t afford it” rather than “how can I afford it?”
“It’s too expensive,” rather than how “what is it worth, long term?”
“Diversify”, rather than “Focus”.
“What will my friends think?” rather than “what do I think?”

Example of wealth transfer

Money continues to flow from the left side to the right side of the quadrant. It always has. Many people are deeply in debt, yet they pour money into the biggest stock market boom in the history of the world. The people on the right side of the quadrant will sell at the top of the market, just when the last cautious people on the left side overcome their fear and enter the market. Something newsworthy will happen, the market will crash and when the dust settles, the investors will move back in. They will buy back what they just sold. Again we have another transfer of wealth from the left side to the right side of the quadrant. It will take at least another 12 years for the emotional scars to heal of those who lose money…but the wounds will heal, just as another market is nearing its peak.

Part III: How to become a successful “B” and “I”

Remember the journey of a thousand miles begin with one baby step
Remember to dream big, think long term, underachieve on a daily basis, and take baby steps. That is the key to long term success.
Never get addicted to the idea of high-paying jobs. Develop patterns of thinking only in assets and income in the form of CAPITAL GAINS, DIVIDENDS, RENTAL INCOME, and RESIDUAL INCOME from businesses and royalties.

7 Steps to be financially free

It is time to mind your own business
Take control of your cashflow: Golden rule-pay yourself first. Focus on reducing personal debt
Know the difference between risk and risky: e.g. a house could be an asset or a liability depending on the direction of the cash flow
Decide what kind of investor you want to be
Seek mentors
Make disappointment your strength. When people are lame they love to blame
The power of faith

Why Real Estate is a good investment

Pricing: Prices of real estate are most times so low that mortgage payments were far lower than the fair market rent for most properties
Financing: The banks will give me a loan for real estate but not on stocks.
Taxes: If I made $1million in profit from stocks, I would have to pay nearly 30 percent in capital gains tax on my profit. In real estate, however, the $1million could be rolled tax free into the next real estate transaction. On top of that I could depreciate the property for even greater tax advantages
Notes: An investment must make economic sense before the tax benefit for me to invest in it. Any tax benefit only makes the investment more attractive.
Cashflow: Rents most times do not decline even though the real estate prices had declined
Opportunity to become a bank

3 qualities of people born into poverty that eventually become wealthy

They maintained a long term vision and plan
They believed in delayed gratification
They used the power of compounding in their favour