The book, “Rich Dad Poor Dad” by Robert Kiyosaki talks about the difference between how the wealthy use their time and resources.
In particular, it defines how the rich invest in building assets that generate reward many times over whereas the ‘poor’ (meaning working class and those not financially free) are stuck on a financial treadmill of trading time for money that they can rarely get off, as the way they make money is by swapping the time in direct proportion to the amount of money they make.
One of the most important principles to consider when trying to amass great wealth is that of immediate versus delayed gratification. The majority of employees are focused on the here and now, they want instant reward for the effort they are putting in today – whereas the wealthy are happy to build systems that might take a number of years to be revenue producing, but when they do produce revenue it is substantial and sustainable, just like a fruit tree that keeps producing fruit.
Kiyosaki posits there to be four categories that people fare in when it comes to making money; employees, small business owners (i.e. self employed), big business owners (i.e. those creating a business or system that is greater than swapping their time for money in that it utilises the principle of time leverage), and investors.
Employees are clearly the most common demographic, yet unfortunately, they are usually the lowest paid yet the highest taxed. They get a raw deal for such a popular choice, but in many ways, they are the backbone of modern society – particularly in countries such as Britain where the NHS provides free healthcare to everyone; both urgent and non-urgent, in fact, even holistic therapy, countries need people to be paying tax, and the great thing (from the government’s perspective) about employees is that they are being taxed directly from source so it’s very easy to collect and there’s no issue of tax evasion.
Being an employee has its benefits, in that it is a stable and consistent paycheck that creates a sense of certainty, that many people crave. However, it is not the path to wealth as employees are usually on fixed salaries that are determined by someone else; and there’s a popular saying that states employees are paid just enough to stop them from leaving and work just hard enough to not get fired.
If you’re wanting to get wealthy, employment is not the option for you. The main reason for this is that there’s a limit to how much you can earn in this system, as you are essentially swapping time for money, and as there are only so many hours in the day, there’s a limit to how much you can make; and even if you get a pay rise there’s still a ceiling to what that amount will ever go up to.
Small business owners have the same problem, as they are often stuck in the trap of trading their time for money too – it’s just that they cut out the middleman of an employer and get paid directly by the customer; this is particularly true for personal trainers, hairdressers, graphic designers and so on.
The same limitations apply, as you can be the best at what you do, but there’s a limit to how much people are willing to pay for that particular result you are offering, and therefore, each unit of time you trade has a ceiling to its value. Also, when you stop working, your money stops coming in, which means if you were to get sick or just want some time off – your financial position starts to feel very rocky.
The big business owner, on the other hand, and this doesn’t refer to a business magnate like Richard Branson (www.virgin.com) or Donald Trump, it can refer to the hairdresser with a few salons or an ice cream vendor with a number of ice cream trucks, even a window cleaning company that employs a few window cleaners… the point is, they have time leverage.
Let’s say they charge $20 for cleaning windows. The cost to clean the windows is minimal, let’s say $1, and the staff cost of the window cleaner is, let’s say $9 for this job. That means, the profit is $10 per job. Now, as the “big business owner” you could employ enough people to clean 10 windows a day ($100 profit) or 500 windows a day presuming you have the manpower ($5,000)… however, you are not having to clean 500 windows, indeed, you might not be cleaning any windows, as your job is to manage the business.
This means you have time leverage and that’s the most important aspect of getting wealthy – you can leverage time or you can leverage money, and there are many concepts including multi-level marketing such as the8figuredreamlifestyle.com that utilise this principle. You don’t need to create a huge business. The key to financial success is leverage, and it’s a powerful differentiator when you compare a self-employed window cleaner making $20 per job, and managing to do around 5 jobs a day ($100) versus the business owner that has leverage and can make $5,000 profit by building a team and customer base.
Similarly, investors are leveraging their financial resources in order to make money – just think about how much money you would have made had you invested in bitcoin a few years ago; that’s the power of leverage and compound interest.
The bottom line is that you need leverage to become rich.
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