Lately I have been having a lot of conversations with students and clients about Robert Kiyosaki’s Cash Flow Quadrant. This is one of the most powerful financial diagrams ever created.
Remember that the four quadrants are:
Left Side of the Quadrant:
“Employee” and “Self employed”
Right side of the Quadrant:
“Business Owner” and “Investor”
The biggest difference between the left side of the Quadrant and the right side, other than tax rates (much higher on the left side) is the difference in mindset or context.
For example, on the left side of the quadrant, any money you spend is an expense. On the right side, money you spend is an investment. We always want to minimize our expenses. However, we want to maximize our investments.
If I come to you and offer you a 30% return on investment and tell you that there is a minimum $4,000 investment, I know you are on the right side of the quadrant when your first question is, “Can I invest more?” Because if you can get 30% on $4,000, surely 30% on $10,000 would be better. In fact, at that rate of return, most people would want to invest as much as possible.
However, if you were an employee or self employed person, your tendency would be to think of this as an expense and you would want to minimize it.
This is just one example of the difference between the left and the right side of the quadrant. At my CPA firm, ProVision, we see the difference in thought process between our clients who have really moved over to the right side of the Cash Flow Quadrant. They never complain about fees, because they see them as an investment and want the most out of their investment.
On the right side, your should only be spending money that provides a strong return on your investment. This is true whether it is an investment in real estate or an investment in tax consulting or tax return preparation fees.
So if you are just in the process of moving from the left side to the right side of the Quadrant, keep this change in context in mind. Don’t look at your expenditures as expenses – make sure all of your expenditures provide you with a return on investment. And remember that your greatest ROI will always come from reducing your taxes and from your other team members.
Financial education is an important tool to successfully move from the left side to the right side of the Quadrant. Visit Wealth Strategy U (ProVision’s online financial education resource) for a complete list of my tools and resources available to you.