Tag: financial independence

Working my way through the Cashflow quadrant

What is the Cashflow Quadrant?

Robert Kiyosaki’s Cashflow Quadrant
There are four sectors of the Cashflow Quadrant – E (employee), S (self-employed), B (business-owner), I (investor)

The Cashflow Quadrant describes four ways of making money – as an employee, a self-employed individual, a business-owner, or an investor. You are not limited to earning income in only one category at a time.

The most common way to make money (and what most people are trained for in school) is to be an employee. As an employee, you’re working for a company or organization and trading your time for money. You generally have the most “security” but the least amount of freedom as an employee (think W-2). You work the hours your employers set, follow their rules/handbook, and as a result, get paid a set wage (usually based on an hourly rate, but sometimes as a salary). Examples of this are everywhere – the cashier at the store you go to, the secretary at your office, a warehouse stocker, a janitor, teacher, office administrator, etc.

The second way to make money is as a self-employed individual (think 1099). Here, you don’t have a “boss,” but instead you are your own boss. It sounds great, but essentially you own your job here. You still trade time for money, but now you trade off some of the safety/stability of working for someone else and having a guaranteed paycheck for having to earn new business everyday. If you don’t sell something, you don’t get paid. Examples of this include lawyers, real estate agents, the owner of a landscaping company where the owner is doing a fair amount of revenue-generating/business-sustaining work, etc.

After that, you can move to the right side of the quadrant and start leveraging other people’s time or money to make you money.

In the business owner quadrant, you move yourself out of operations. You are no longer physically doing much of the work. Instead, you have employees doing the work on your behalf. You have scaled to the point where not everything hinges on you. If you decide to leave for a few weeks (or months), the business will still make money because of the people you have working for you, and the systems/processes you have in place. Think of Jeff Bezos, Steve Jobs, and Bill Gates as examples of this, but it can be on a much smaller scale too. Do you think any of them are out selling their products on an individual level, making the product, or packaging the product? Can they leave for vacation (or pass away) and have the company still survive (or thrive)? They leverage other people’s time so they can accomplish more.

Lastly, we have the investor quadrant. Anybody can be in the investor quadrant as long as they are investing in an asset that produces returns positive returns. The ultimate goal in the investor quadrant though should be to have your investments produce enough passive income to cover all of your expenses. once you get to that point, you won’t have to work another day in your life. You can choose to work, trillion time for money or being a business owner and working on your business, but you do not have to work. There are many ways to invest in assets, whether that is through index funds, mutual funds, cryptocurrency, and my personal favorite – real estate. Here, you leverage either your own money or, preferably, other people’s money to work and earn more money. The idea is that your money is working for you even when you’re sleeping.

Where I’ve been

As I write this, I’m now 31 years old. I’ve been working in some capacity for over half of my life now. I started working part-time jobs in high school on an alpaca farm, at a pizza shop, and landscaping. I took the first quarter off from work in college, but other than that I worked a minimum of 25 hours per week throughout the school year (and 40+ hours per week in the summer) at an office, as a personal trainer, and landscaping. After graduating, I began working 55-60 hour weeks at a food packaging plant, as a personal trainer and CrossFit coach, a gym manager, and a salesperson/project manager. I understand what it means to be an employee – trading time for money. I decided that this wasn’t the best path for me, even though I see how it makes sense to many people. The problem I had with it was two-fold. First, no matter how productive I was, my income was always capped. I could help the company make record profits, but it didn’t necessarily translate to an equal payday for me. But don’t hear what I’m not saying – I didn’t necessarily need to be paid in equal proportions to what I earned for the company. The business owners were the ones who took the risk to build the business and who spent the time, money, and energy in developing systems for me to succeed. It’s just that I knew my income and my family’s future would be capped if I stayed there. The second limiting factor for me as an employee is that I love learning and trying to implement new ideas. But as an employee, I had to stick to the rules and keep following what was working. I felt my innovative side was being stifled and I wanted to make my own rules. This led to my career change last year…

Where I am

As of June 2020, I became a licensed Realtor in the state of Ohio. The primary locations I focus on are Medina, Cuyahoga, Summit, Lorain, and Wayne counties. I generally work with people looking for a primary residence, and it ranges from first-time homebuyers, people looking to upsize, or people looking to downsize. That being said, my wife and I invest in rental properties and we work with other investors ranging from single family rentals/house flips, small multi-family, or commercial properties (such as apartments).

I’m now on a great team (The Casey Team) and working with an amazing brokerage (Russell Real Estate Services).

But even though I’m on a team, it’s still a 1099 (self-employed) profession. If I don’t sell houses, I don’t make money. I can cold call, door knock, show houses, and write offers, but if I don’t perform and close deals, I don’t get paid. It’s a 100% commission career and it can be stressful at times. But here, the harder I work, the more money I should make. My income isn’t capped.

As I mentioned, my wife and I do invest in real estate, but we also invest in the stock market with our IRA plans and her 403b. We also have the kids set up with UTMAs (Uniform Transfers to Minors Act) so they will be off to a good start once they become of age. We do not touch any of the cashflow from the rentals, dividends, or increases in equity that we receive from these investments and rather re-invest them so they can grow larger for us. This is similar to the example used for “make thy gold multiply” told in The Richest Man in Babylon.

Where I’m going (my plans)

My goal is to be able to retire by age 50. I don’t ever see a time when I want to stop working – I enjoy work, learning, and improving myself everyday. But I don’t want to have to work. If my family and I want to go on a long vacation, I want to be able to pick up and go.

With that being the end goal, I need to change a couple of things. First, I need my investments to produce a greater return. My goal is to do that through buying one new rental property every other year for the next 5 years, then hopefully increase to one per year (or more) for the following 15 years. We would hire a property manager so we are not handling the day-to-day items and it becomes a much more passive system.

I also want to move from the S (self-employed) quadrant to the B (business-owner) quadrant. While I don’t have any plans to open a brokerage, mortgage company, or title company, I would like to eventually be a partner on the current team I’m on and to get more Realtors on our team. Then we can have them out making deals while we help provide the support for them (with leads, office administrators, inside sales agents, stagers, photographers, etc). This will take time to build, and we will have to write up processes (and tweak them as we go). But this would eventually free me from the trading time for money conundrum that so many of us face.

If you have any tips or suggestions, feel free to leave them in the comments or to message me directly.

Getting your money to work for you

We “wanted to have our money work for us, rather than spend our lives physically working for money.” – Robert Kiyosaki in Cashflow Quadrant

When you are an employee working for someone or a corporation, you have the least amount of freedom. You are told how much vacation you get, what benefits you may or may not have, how many hours to work, and how to do your job.

When you are self-employed, you own your job. You have a little more freedom with the choices you make, but if you stop working (if you go on vacation, get sick, etc), the money stops coming in.

When you are a business owner, you have systems and processes in place so employees can continue working without you being present. You are still working, but rather than being the bottleneck where how much production or revenue is created depends on you and your time constraints, you could literally leave for a month or more and come back to a still-functioning business. Or, as Michael Gerber says in The E-Myth, instead of working in your business, you are working on your business. Instead of focusing on the day-to-day tasks, you’re focusing on big picture goals to move your business/company forward. Do you think Jeff Bezos packages the items you ordered on Amazon and ships it to you (the employee) or does he focus on new acquisitions to grow his business?

Lastly, you can be an investor. A professional investor gets their money to work for them, providing passive income. The greater amount of income your investments make, the longer you can afford to not work if you don’t want to. The money is working in your place. Eventually, if you can get your income from investments to cover all of your expenses, you technically won’t have to work another day in your life (barring something catastrophic happening to your investment).

Over the next couple of days, I plan to lay out my background for where I’ve been, where I am now, and what my goals are for the future (regarding obtaining financial freedom). I encourage you to comment in the section below to share any information about yourself, your plans, or what you think of my plans.

Freedom = Happiness

What most people really want (even if they don’t know it) is freedom. When you see a photo of someone standing by their brand new expensive car with their beautiful husband/wife, and the best attire, it’s not that you necessarily want that. You want the freedom that having that kind of money can buy. You want to be financially free! Freedom brings happiness. Whether it’s the freedom to choose what work you’re going to do or not do, where you want to live, or what your plans are for the day, you want to have the choice (power/freedom) to make that decision completely on your own, without any outside influence. You’ll soon find out that material possessions only buy fleeting happiness. You’ll be happy for a short period of time, but it will not last.

Thoughts on finance, student loans, and taking ownership of your life

“Even today, what to study and how to study it are more important than where to study it and for how long. The best teachers are on the Internet. The best books are on the Internet. The best peers are on the Internet. The tools for learning are abundant. It’s the desire to learn that’s scarce.” – Naval Ravikandt

That’s the sad part about the student loan crises that we have going on right now. People are going into major debt (a debt that is not even forgiven if you declare bankruptcy) for an obsolete product. Many adults, including myself, graduated from school and do not get paid to do whatever they received their degree in. I feel fortunate to have had some help along the way and be out of debt (I received a small amount of scholarship money – for working hard and applying, $10,000 was given to me to use for school, my aunt and parents would help with groceries when they could, and I worked between 25-30 hours per week the last three years of school. I also worked about 15-20 hours per week during my freshman year when the university recommended NOT to work at all that first year. Finally, I worked 40+ hours per week every summer and after graduating school, I worked about 65 hours per week with three jobs for the first six months to pay off any remaining debt). But many people choose not to work when they’re at school. Or they choose a school for prestige and do not care about the cost. If that’s the case, they have to accept responsibility for their debts. Yes, our country has a problem that we need to fix regarding the cost of schooling. But it does not owe anything to us. And if we can’t change what Congress is doing (if they’re not going to help), then we shouldn’t just throw up our hands and say “well, that’s just the way it is. Everyone has student loans, car loans, a mortgage on their home, and credit card debt. I guess I will too.” No. You should do what you can to avoid that. Apply for scholarships every day. Work your butt off. Go to a community college first then transfer to the in-state university/college of your choice that you can afford. Of course, you will be working the whole time and saving more than you earn. When it’s time to buy a house, don’t listen to the loan officer and get the most expensive house “you can afford.” You’ll be house-poor and end up taking an eternity to pay off your mortgage. Don’t burn through cash and live paycheck-to-paycheck. Trust me, you will be much happier when you’re not worried about bouncing a check or how you can afford your next meal.

What to think about when setting New Years resolutions

January 1st is here, which means many of you have already set (or will be looking to set) New Years resolutions. Resolutions get a bad reputation sometimes, but they shouldn’t. You should always strive to improve your life. What gets mocked though is how many yearly goals not only don’t get achieved, but are discarded/forgotten by the time February 1st rolls around.

So how do you avoid becoming a cliche by actually keeping your resolutions? Follow these 5 steps to have a greater chance at hitting your goals…

1. Figure out what your goal is in the 7 major categories of life. These categories are: family, relationships, physical, mental, spiritual, financial, and career.

2. After figuring out what your goals are, ask yourself when each goal should be realistically accomplished. Is it something that can actually be accomplished this year? Maybe it will only take 90 days or maybe it will take 3 years. Either way, if it’s important to you, don’t scrap the idea just because it doesn’t fit into a “yearly” goal timeline. Instead, break the goal down into milestones…in order to achieve Z, you need to get to Y by this date. But in order to achieve Y, you need to get to X by this date. Continue doing this until you have broken it down to what you need to do TODAY.

When each goal is broken down into manageable chunks of what needs to be done, always set a timeline for when you should hit each milestone as well (not just the overarching goal). This will let you know if you’re on track to hitting your yearly goal. If you reach a milestone date and haven’t achieved that milestone yet, it allows you to pivot early enough to still (hopefully) complete your big goal.

3. After figuring out what your goals (and milestones) are and when they can be realistically accomplished, the next thing you need is to have a powerful “why” behind them. Why are you resolving to achieve that thing? Why is that important to you? Will it make you feel better (intrinsic motivation) or is it to impress other people (extrinsic motivation)? Did you come up with it yourself or are you following along with what you think your spouse or your boss wants you to do?

You should be excited to get started, but as you begin to struggle, or when you don’t see results right away, you will be tempted to quit. The voice inside your head will begin to tell you that you didn’t really want that in the first place or that whatever your goal was isn’t really important. That’s just you giving yourself an out. But if you have a “why” behind the “what,” you will be more likely to keep at it when the times get tough. Your “why” should excite you and it should improve your life in some way.

4. Now that you know what your goal is, when you need to achieve it by, and why it is important to you, you need to figure out how you’re going to do it. Once again, it is best to figure this out by breaking it down.

First, you need to have a clearly defined time of day to work on your goals. Look at your goals daily and figure out the time you will work on your goal every single day. Will it be every morning when you wake up, as soon as you get off of work, or right before bed every night? Stay consistent with what time you work on your goals. Make this a habit!

Secondly, you’ll be more effective when you have a dedicated place to work on your goals. Where you will work on achieving your most important next action step for the day? Will your “sacred place” be at the gym, your office, a coffee shop, the basement, etc.? You need to define your work space. Especially now, with so many people working from home, you don’t want to blur the lines between when you’re supposed to be working and when you’re supposed to be spending quality time with your family. If you blur the lines, it will be too easy to not be truly focused on anything (making all aspects of your life suffer).

The last part of the “how” to achieve your goal is to understand what is the ONE thing you need to do today to get you closer to your milestone goal. I discussed this earlier when I mentioned breaking down each goal to the point of what you need to do TODAY to get you to where you need to be for the next milestone…What actions (leading measurements) are important to track every day that predict success for your achievement goals (lagging result)? What is the ONE thing you have to do that day to move you closer to achieving your next milestone? Remember, every journey of 1000 miles starts with a single step. You have to take small, consistent action to get to where you want to go.

5. Finally, you need to determine who can help you achieve your goals. This will probably take multiple people (probably at least one person for each goal). Is it a loved one who cares about that particular goal just as much as you do? Is it a friend or co-worker with a similar goal? Or maybe you find a group/community online to help encourage you when you’re down, but hold you accountable as well? No matter what the case, share your goals with others. Saying it out loud and writing it down means that you can’t hide it when you don’t achieve your goals. Take ownership of your goals, of your successes when you hit them, and of your failures if you don’t. The only person who can make you do this is you, but it always helps to have support along the way.

Keep these five things in mind when setting goals/resolutions. Of course, try to make them S.M.A.R.T.E.R. (specific, measurable, actionable, risky, time-keyed, exciting, and relevant) and, again, focus on WHY it is important to you. You need to have a deep intrinsic motivation to do something in order to keep pushing through the tough times.

Good luck and happy new year!