Cashflow quadrant

How Exactly Do People Get Rich in the Economy?

Introduction to Rich People

We all know the one person we meet that is filthy rich, yet nobody knows how. A question we all ask, how exactly did he or she get rich?

Throughout my entire life, I thought it was hard to be rich. I always thought that people with wealth were lucky or ridiculously smart. Luckily, my dad one day explained to me how people actually get rich.

The Path of Rich People

What people do not understand is that rich people, in general, are not much different from everyone else. They eat, sleep, and shower the same as ordinary, middle and lower class people.

The real differences of rich people come into their mindset about money. Rich people pay themselves first instead of paying their bills first. Many of you probably think this is crazy unless you read Rich Dad Poor Dad, but in reality, it makes a lot of sense.

When rich people get a check, the first thing they do is take a percentage and give it to themselves first. The money they receive will go into investments, buying something new for themselves, and all sorts of things they would like to do. After they pay themselves, they will then pay for all the necessary expenses and such.

Employment

People who get rich may have a job, but many own businesses. An accountant, doctor, and lawyer may have a financially secure life, but they are not necessarily financially free. These people would not be considered rich to me, and rather upper-middle-class unless they are entrepreneurs on the side.

Rich people tend to start businesses. With a normal 9-5, you must trade your time for money. Wealthy individuals will look at this and realize that time is the most valuable asset a human has, and they should not trade it for employment. Rich people would like to have control over both time and money.

The Cashflow Quadrant

 

Cashflow quadrant

If you look at the Cashflow Quadrant detailed in Robert Kiyosaki’s book, you will notice a few things. The right side of the quadrant is where rich people tend to live. On the left side, an individual trades time for money. The E quadrant “Employee” tend are the biggest example of this. In the S “Self-Employed” any business they start will own them. S quadrant people must work or they will not make money.

When you look at the right side, you will see a different picture. People in the B quadrant “Big Business Owner” they have control over the business. The business will make money whether or not they show up for work that day because they have created the system to do so.

Investors are the most wealthy of the bunch usually. Investors have created a portfolio so massive they are able to live passively off dividends and capital gains. What is important to note, an individual can be in one, two, three, or even all four quadrants.

Lots of rich people are both big business owners and investors. Both of these allow for the individual to be in control over both time and money.

Investments

Rich people tend to spend a lot of time picking investment out. What rich people excel at is using the capital to create more capital. They will buy assets such as real estate, stocks, and businesses to continue to grow their wealth.

Real estate is common among the rich. Buying and renting out properties provides them a passive income stream and also they profit off of any capital gain when they decide to sell a property.

Same thing with stocks. A rich person spends a lot of time either picking out stocks for themselves or paying an advisor to do so. They do this because stocks are a liquid investment they can access easily, while also receiving dividends. Most people already invest in stocks through a 401k, but the rich do this for their individual portfolios.

They will also buy a business if they think they would like to expand their wealth much quicker. A cashflow positive business can make for a great asset to an investor.

Inheritance

A lot of rich people will get rich through inheritance also. Inheritance is common with a lot of people, and especially with the rich. This takes nothing more than luck.

Theft and Illegal Activities

A good portion of rich people may involve themselves in illegal activities. Illegal activities being insider trading, selling drugs, money laundering, etc. All of these are not safe investments and are subject to A LOT of risks. I do not suggest using these as a strategy for getting rich.

With anything illegal, you will be putting a target on your head. The IRS, DEA, and other government agencies have become extremely skilled at catching people partaking in illegal activities. Do not be stupid. 

Luck

In reality, a lot of people are able to get rich through a lot of luck. Whether it is an inheritance, winning the lottery, or with a one really good trade, luck has a lot to do with it. The trick to being lucky is to take calculated risks with a profitable edge.

A profitable edge means that the investor will have a more than 50% chance of being profitable. Mathematically, this is a long-term solution to increasing your income. A lot of these techniques can be done online, and I suggest you check them out.

Conclusion

The rich are consistently looking for ways to increase their income. They are masters of cash flow and understand income is what really makes someone rich. What separates the rich and the poor is poor people are consistently looking for a better job, and the rich are looking for better investments.