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Investing – The Path To True Wealth

– Contributed content –

Digital finance display

(Ahmad Ardity, Pixabay)

30 May 2018. Whether you read the book “Rich Dad Poor Dad” by Robert Kiyosaki or The Millionaire Fastlane by MJ DeMarco, you’ll notice there is a common theme in the sense that both books talk about the difference between how the wealthy use their time and resources.

See, the rich invest their time building assets and then leverage these assets time and time again rather than trade time for money like traditional employees.

Robert Kiyosaki, especially, talks about the difference between how the wealthy use their time and resources versus the less wealthy, and of particular interest, is the concept Kiyosaki came up with known as the Cashflow Quadrant.

Here he posits there to be four categories that everyone falls into, in terms of how they make money – employees, small business owners, big business owners and investors.  While each have pros and cons in terms of social value, if the aim to get rich then it’s important to note there are intrinsic limits on how much money one can make as an employee or small business owner… because they are stuck on a treadmill of swapping their time for money.

Kiyosaki suggests the fundamental difference between small business owners and employees vs. investors and big business owners is that the small business owner and employee are both trading time for money in a very linear and transactional way; for instance the factory worker and the lawyer are both directly swapping their time for money.  Admittedly, in different amounts, but the principle remains true.

The same can be said for small business owners, as just because someone has a business, doesn’t guarantee they will become rich or financially free.  Indeed, a small business can be the worst of both worlds where people trade a reliable income in a secure job, that they can leave in the office, for an insecure income where they are working all hours and can never switch off — yet they are still stuck in the financial trap of trading time for money.  For instance, a consultant charging $300 per hour is still “stuck” in the sense of wealth creation because they only get paid when they are trading their most valuable commodity; time. If the high paid consultant can’t find any gigs, or gets sick, of goes on holiday – their income stops.

Whereas, on the other side of the cash flow quadrant where the big business owners and investors reside, they are focused on building assets and creating income generating networks that can be leveraged time and time again.

Employees are, of course, the most common demographic, yet they are usually the most taxed and the lowest paid.  It could be surmised that employees appreciate the certainty of a steady paycheck and the convenience that employment brings.  Being an employee, therefore does have a number of benefits and one of the greatest benefits when compared with being a small business owner is the ability to switch off at the end of the day, or week… however, being employed or self-employed is not usually the path to wealth as employees tend to have salaries that are dictated to them by management… and even the self-employed are trading their man-hours for cash meaning there’s an intrinsic limit to how much they can earn as there are only so many hours in a week.

We’ve already discussed the limit associated with small business owners, in that they are limited in how much they can viably make as they are still stuck in the trap of swapping their time for money.  The core difference is that they own their job. This is particularly true of solo practitioners such as personal trainers, accountants, hairdressers, graphic designers and even high paid lawyers. See, you could be the best lawyer in town, bringing in a fair amount of income – and you’ll certainly have a lot of cash… but wealth goes beyond the amount you are trading your time for.

True wealth offers a balance of having both the time and money to do whatever it is you want, when you want, with who you want… and if you’re stuck on the treadmill of trading time for money – this isn’t allowing you the freedom that is associated with true wealth.

The big business owner, in comparison, has leverage – and it’s this leverage that leads to true wealth… see, when you build an asset, let’s take a book for example, it takes a lot of initial effort but once it is created you can leverage that asset multiple times to generate income that you aren’t having to trade your time for.  This is known as passive income, and if an author gets paid a $2 royalty on each book that is sold and sells 100,000 copies each year, that’s a passive income of $200,000 – meaning they are being rewarded multiple times on their initial effort.

See, a “big business” in this context doesn’t refer to someone with a huge enterprise, it could be someone that has a few ice cream trucks and teenage employees that go out on the weekend to sell ice creams.  The point is, the big business owner has leverage – in that they have stopped directly trading their time for money in the sense of being paid X per hour, as they now have an asset and a system they can leverage.

This it the path to true wealth; because they are now managing assets rather than trading their time for money – meaning they have the time freedom to enjoy life.

Similarly, investors leverage their financial resources in order to make money – they might spend some time monitoring the temperamental wobbles of cryptocurrency or researching new trends such as in order to invest their resources wisely – but what they aren’t doing is directly trading their time for money in the same way as most people do.

The investor is leveraging his or her assets; meaning that rather than working for his or her money they have their resource of money working for them.  To grasp the magnitude of this, just think about how much you would be worth today, if a few years ago, you invested a few thousand dollars into bitcoin!  This is the power of leveraging assets.

In summary, investing be that in a business context, a real estate context or a pure financial context is the only path to true wealth because true wealth isn’t just about being paid a high salary and therefore having a bulging bank balance.  It’s about having the time and freedom to enjoy life on your terms.

Editor’s note: the opinions expressed in this post are those of the contributor and not those of Science & Enterprise.

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