Dear daughter, another great book that teaches you about money is Rich Dad’s Cashflow quadrants: Guide to Financial Freedom by Robert T. Kiyosaki. This book, like others from the same author, is about teaching financial literacy.
As I told you before, it is extremely important to be financially literate. The more knowledge we have about finance, and how money works, the better our financial future will be.
I found out a bit late about these topics, such as debt, budget, money myths, investing, etc.
Because now I see the importance of this type of knowledge, I want you to have it.
When I tried to learn more about financial topics, I found out that none of my friends could help me. Also, I couldn’t make new friends that will help me with that.
So, I decided to look for help in books. But only books that were written by people who achieved what I want to achieve.
In my case, my main financial goal is to be financially free. So, it makes sense that for that, I have to learn more about finances.
In his book cashflow quadrants, the author gives us a new perspective on how to think and evaluate our source of income.
Parts of the book
The book is divided into three parts.
In the first part, the author introduces the cashflow quadrants:
- E, for employee
- S, for small business
- B, for big business
- I, for investor
Kiyosaki describes how our money flows depending on what cashflow quadrant we are in as follows:
- E: you earn money, the money you earned gets taxed, then you get to spend your money.
- S, B, I: you earn money, you spend money, then you pay taxes on what is left.
There is an important difference between S and B-I cashflow quadrants. The people who earn money from the B and I quadrants, get the best tax discounts.
People in the S cashflow quadrant, if are not careful, can become employees of themselves. For instance, a doctor who has his/her own practice. If he/she is the one treating patients, the employer changed, be he/she is still an employee.
The main point here is to understand the difference between employer and employee.
As a way to know whether your business is a B or an S, the author suggests you answer the following question: if you go far away from your business and you don’t work on it, when you come back, did the business grow and it is doing better now? If the answer is yes then you have a B.
But, if the success of your business depends on you doing the work, then it is an S. The S stands for small business but also stands for self-employed.
As in a previous book, I introduced to you, the author recommends starting with baby steps. Remember, the journey of 1000 miles starts with the first step.
7 steps to find your financial fast track
Then, the author gives recommends seven steps to find our financial fast track. Here are the steps:
- Mind Your Own Business
- Take Control of Your Cash Flow
- Know the Difference Between Risk and Risky
- Decide What Kind of Investor You Want to Be
- Seek Mentors
- Make Disappointment Your Strength
- The Power of Faith
In one of his other books, Rich Dad Poor Dad, the author also talks about minding our own business.
In this case, the author recommends reviewing our financial life. To set up financial goals.
After you set up your financial goals, it is time to take control of your money.
“People who cannot control their cash flow work for those who can.” Robert Kiyosaki.
In this step, the author recommends determining in which quadrant we are, and in which one we want to be.
After that, we should plan our cash flow: pay ourselves first, reduce consumer debt, a.k.a. bad debt.
If you followed my previous letters, you should know by now that the best way to carry out this step is to create a budget. In this way, you will be “telling” your money where to go, as opposed to not knowing where your money went.
The third step is about knowing what we are doing. As many investors said, the risk is not knowing what you are doing.
The next step refers to choosing what type of investor you want to be. Kiyosaki divides investors into five types. I personally don’t spend too much time trying to classify myself in one of these five types. When you start thinking about it, you will find out that we are in all categories at the same time.
Step 5 is crucial. We need mentors, dead or alive. The good news for us is that we can have mentors that are already dead. How? We just have to read their books and learn from them. Many investors consider Benjamin Graham his/her mentor. However, many of them didn’t meet the person. They learned a lot from him through his books, especially the one titled “The Intelligent Investor”.
The last step is about the power of faith. The author tells us everything there is probably to tell in one great phrase: “Believe in yourself, and start today!”
Dear daughter, as always, I encourage you to read this book. I cannot summarize all the explanations the author gives us in his book without taking the risk of making this letter too long. Something I don’t want to do.
So, take action! Start moving to the right side of the CASHFLOW quadrant. If you are looking for ideas, you can find many in the book the $100 startup.
Love you, Dad.
I share the letters I write to my daughter so more people can benefit from them. If you want to buy this book, you can check it out on Amazon using this link.