What is your initial response when you see this title, “How do you earn your money?” Some of you may be thinking, “There’s more than one way?” while others of you may already be counting two or three income avenues from your own ventures. Whatever your level of understanding currently, I know you’ll be able to get something out of this post.
Four Different Income Methods
According to Robert Kiyosaki, there are 4 different methods for acquiring money today, and your level of wealth is directly related to which area you are currently participating.
The Poor Ways to Earn Your Income
1. Employee – This is an income-earning method that is quite familiar to all of us. I, in fact, have a job within a corporate office and would be labeled as an employee (that is, outside of my web ventures). I am paid hourly and do not have much fluctuation in earnings from year to year.
2. Self-Employed – Believe it or not, being self-employed is much like being an employee. You might make more money, but at the same time, you are most likely putting in more time. If you feel like you are the magic that makes your business run, then you belong in this category.
The Methods of the Wealthy
3. “Big” Business Ownership – This is a business that is owned by you, but rather than you being the magic, you have developed a system that works time and time again, no matter if you are at the business or not. A great example of this is Ray Kroc’s franchise, McDonalds. Ray developed a system that sent all of the new McDonald’s owners to Hamburger University, not Ray’s office. He made money day in and day out whether he was there or not.
4. Investing – You may think you’re an investor, but this category is for those that $250,000 of discretionary income to invest. If they lost it all, it wouldn’t change their lifestyle one iota. Basically, this method allows your money to earn more money. If you don’t already have money, this is not an option for you.
The Difference Between the Poor Ways and the Methods of the Wealthy
Have you already noticed the difference between the poor methods and the wealthy methods? Basically, the poor believe that there should be an even exchange between time and money. If I work 10 hours, I deserve $100 and so on. If they are not actively working, they believe that they should not be paid.
The wealthy believe in doing work now (perhaps for no money) that will yield them an income repeatedly in the future. They understand that $1 per day for the rest of their life is worth much more than $100 immediately.
Do your best to think like the wealthy. Delay your gratification and look into the future 10 or 20 years. How will your decisions today affect the future? Once you begin thinking with this mindset, the response to your challenges should become clear, allowing you to transform your current life and begin walking the path of the wealthy.
Are you striving to become a “Big” business owner or investor? What are your plans to become wealthy?
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This is excellent!
Every time I see those get rich quick schemes they always make building wealth out to be some crazy mission–and it doesn’t have to be. The secret to building wealth, as you said with the McDonald’s example, is to invest your money and time into things that are scalable. Even one high grossing McDonald’s restaurant won’t make you filthy rich, but thousands will. Good call on his part.
I share this comment a lot–I might have even posted it here–but I think it also has a lot to do with just going out and doing it. Going back to McDonald’s, my girlfriend’s grandpa had a shot at opening one way back in the day. He passed it up, fearing that it would fail stupendously. I can only imagine what might have come from that one McD…probably several, if not several hundred. Either way, it would have been millions back then…well maintained, it could have been hundreds of millions, if not even a billion dollars. It’s insane to think about how just a little hesitation can change everything.
I love the McDonald’s example, and I have heard of other that had the opportunity to open their own McD’s franchise back in the day and passed it up. I wonder if he’s kicking himself today?
On opportunities that come my, I never say “no” immediately. I listen, learn, and then make an educated decision based on the market, and it’s potential success. You never know what’s going to be the next big thing, so keep your eyes and ears open!
I am an investor and always look for more opportunities to provide residual income. That is one reason I created the iDRiP app for dividend Investors who want to retire as early as possible!
Great job Frank! Keep looking for those passive income opportunities, and pretty soon, you’ll be living large on the residual!
I’m working on building wealth slowly but surely. My first goal is to build a business based around software and websites. Along the way I’d like to excel in my professional career so that I can continue to fund my businesses and ultimately, I want to be a big business owner leveraging the efforts of many. Even though I like investing, I am more of a hands on person. Maybe private equity would work for me.
I like your aspirations! You may feel like you business is building slowly, but it sure is moving faster than those that are doing nothing!
I love that you are already considering the leverage of other people and systems already. With that mindset, you can almost turn anything into a success.
I ran across Kiyosaki’s book “Rich Dad, Poor Dad” in the year 2000 at the local library. I thought it was a wonderful way of considering assets and liabilities. I then read “Cash Flow Quadrant” which does help you to think about what you have just mentioned. The bottom line is not how much you make, but how much you keep in the end.
Some people will debate whether or not Rich Dad is real or if Kiyosaki really made money in real estate or other ventures as opposed to conducting seminars. I am of the opinion that it matters little to me. I am taking the ideas and principles, applying them to my situation, and making the best out of it all.
This article also reminded me of the Kyosaki story, and his psychology of a business owner. No matter how he started his message is compelling, and masterfully presented. Apply it to real estate, or anything. It’s all about a subtle shift in changing the way you value your time. Inspiring stuff.
So true Hunter. These methods can be applied to anything. As long as you have a system (or team of people) in place to allow a residual income, wealth should flow your way easily in the end. It definitely takes time, but all good things do! 🙂
@ CashFlowMantra,
I love your attitude! I heard of all the disputes against Kiyosaki as well, but in the end, they really don’t matter. His principles are priceless! There’s definitely a poor way to earn money (hourly) and then there’s the rich man’s way (passive residual earnings). If we continually follow the ways of the wealthy, good things will happen!
Investing is not earning money in the sense most income earners understand it.
I’d love to hear you expand your thoughts Terry! Are you thinking about investing as a profession? Daytrading? Living off from dividends or earnings?
I must be the investor based on the choices. When I retire (again), I will not be dependent on that (investment) income on a day to day basis, however I like that it will grow by itself. Since I will be required to withdraw 3-4%, I will use those funds for the extras such as travel, cars, and fixing up my home. BTW, no matter how much money I have, $250k loss would be devastating!
Sounds like you’re in a pretty good position krantcents! Keep it up!
As for the $250k, if you had $20 mil, then you wouldn’t sweat it so much. It’s just the matter of getting to that $20 level.
I’m definitely looking to build a big business some day – hopefully in the next two years, but I wont quit my job right away – I enjoy what I do and they pay me well. My business would also be a nice side-hustle, so i’m looking forward to that as well.
I’m with you Jeff. I would love to build the “big business” that is described, but I’m not willing to give up my day job to do it. I am currently building my business in the evenings, and if there is definite promise, then I’ll be able to slip away from my day job without risk.
I think we need the poor way method in order to have some financial stability. When you know you will receive a set amount of money every week, you can plan things accordingly. But when your income is erratic and unpredictable like the rich way method, it becomes hard to live worry-free. I suppose the real smart ones will have both way methods for income source.
Charles,
Yep, the poor way is great for planning from week to week, but at the same time you can begin building your rich methods, and once your rich methods start becoming more frequent and predictable, then you can ditch the poor method and devote all of your time to becoming wealthy through big business or investing. Thanks for the comment!!
robert kiosaky extensively points out in rich dad poor dad these four quadrants and extensively expands his point. back then, when i first read the idea of 4 unique types of income was revolutionary for me. great post.
For many, it really is a revolutionary observation. I’m fortunate that I picked up the book early in life. I now have plenty of time to acquire the wealth that’s available. Good luck to you too! And thanks for the comment!
Great point about the disparity between the rich and the poor.
@Mark. Thanks for noticing this point within the post! The rich and the poor have very different paths when it comes to finances. The sooner you understand that, the sooner you can become one of the rich.
Excellent post Bucksome! I love it and it is so true. I have seen it in my own life with my family and friends. It is amazing the difference how you think about money such as the poor mans way vs the rich mans way and how that affects your earning potential.
I know many people who just cannot fathom earning money from anything other than working for an hourly wage and they struggle with the concepts behind some of the things my husband and I are doing.
I also greatly agree about the self employed point. Many people do not view it this way, but if they sat down and worked out the hours they put into the business compared to how much they make they might be surprised to see their wage is not as high as they thought.
We live in such a short-term minded society today, that many cannot fathom the idea of working today in order to earn money in the future. If they work for 1 hour, they want to get paid for 1 hour! This is not how the rich accumulate their wealth.
Often times, the rich become wealthy because of a decision they made years ago, and they’ve simply followed a plan along the way. The money was not always rolling in without effort, but somewhere along the way, the earnings began to increase exponentially! That is how many of the stories go. Wealth doesn’t come fast, but when the money’s rolling in, it doesn’t easily stop. 🙂
First time reader. Clicked through here from … somewhere.
I love Kiyosaki for this very idea, and it changed my life about 10 years ago. Since then I’ve followed that advice (there is very little other useful advice from RK) and pursuesd the goal of retiring by 40. I documented my progress in All-In: How I Made $800,000 in a Lifetime and $15,000 Last Week It’s such an easy concept, yet people can live their whole lives and miss out. Nice blog, I’m subscribing.
Sounds like you’ve made some awesome progress since 10 years ago Alex! Reading RK is one thing, but puting his method into action is another. You are a great inspiration to us all! 🙂
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