If people had a choice, we would agree that everyone would’ve wanted to set themselves up with residual income. The opportunity to have income generated while you sleep, while you’re at the beach or on holiday. Income streams that continue to flow regardless of the time you put in is a dream for most people.
As a musician I’ve touched into residual income on royalties from radio rotation or album sales, but in 2017 these income streams have become close to obsolete after music streaming services and downloading took over the market.
In the last few years, I’ve made it my mission to study the options of setting up residual income streams and in this quest, I’ve learned that the overall rules for this is actually not that difficult to understand so I’d like to share them with you all in such a simple way that anyone can understand it.
There are 2 basic rules that you MUST follow in order to reach financial freedom. I often hear people talking about their dreams and how they want to “get rich” or be “financial free”. However, most of them totally neglect these simple rules and hence, never achieve the freedom they covet.
Understand that if you don’t follow these 2 basic rules, it will actually NEVER happen for you unless you win the lottery!
This information is a gathering from years of studying and reading books and the information is actually quite easy accessible, but for my part, I actually needed some mentors to tell me where to look. So hopefully you can learn a little something from this blog post to push you in the direction of reaching your dreams.
Ok, here we go!
This is the Cashflow Quadrant as illustrated by writer Robert Kyosaki in his book with the same name.
In this image you have the four ways of creating income in today’s society.
The E stands for Employee, meaning that you’re working for someone else and earning money by selling your time to your employer. We all know how that works. And it’s the safest way to never be financial free, yet for some reason the majority of people spend most of their time and focus here! But you must know, if you spend the majority of your time in this quadrant, you have no chance on reaching financial freedom except winning the lottery!
The S stands for Self Employed or a small business. Now, there are way too many people who think that they are on the road to freedom by starting their own business. However, studies show that most people in the S quadrant actually have less time and less money than if they worked the same amount of time as an employee. Don’t fall into this “entrepreneurial trap” like myself and so many other of my friends and other entrepreneurs have done before you!
The B is for Big Business or if you own a system.
There are many people who get the S and the B mixed up or they think they will start on the S and grow into a B, but the chance of doing so is extremely small and I’ve come to learn that much of the difference between the S and the B is the focus that they have. People in the S are often focused on their product or service. They have some kind of expertise in a field and they keep their focus on selling that service or product and their time is required for their business to run. However, the people in the B quadrant normally have a much higher focus on expanding the business and building leadership within their organisation. What everything actually boils down to is leadership. The B quadrant is built through great leadership and main focus on building more leaders within the organisation, while the S quadrant is built on focus on a product or expertise, often the expertise of the founding entrepreneur which means he is still selling his time instead of earning money on other people’s time.
The I is for Investment. This is where you can put your money to work for you. However, most people think of this as high risk and never get involved. Most of us know about the I, but most of us think that the jungle of stock products and securities look way too complicated to get involved into.
Now, when you look at the cashflow quadrant where 95% of people on the left side own only 5% of all assets in the world and 5% of people own 95% of all assets it is quite obvious that you must start taking steps over to the right side if you’re looking for financial freedom! It is ONLY on the right side that you’re able to generate residual income!
We all agree that earning residual income is a more lucrative way to earn money than selling your time. So if everyone agrees to that, why is it then….that only 5% of people are on the right side of the cashflow quadrant?
The answer is two things: Knowledge and Fear!
We don’t spend enough time to learn about the different opportunities, and hence we let our fear of the unknown stop us from living the life of our dreams!
Understand that rich people spend their time, energy and money on aquiring assets while broke people (the 95%) spend their time and energy working for others while they spend their money on liabilities.
So let’s look at the 2 basic rules that got my focus to shift and in a very short time has totally changed my economic situation going from dead broke and in debt, to having multiple residual income streams and a future that is looking extremely bright!
RULE NUMBER 1:
If you are looking for financial freedom there is absolutely no way around the fact that you need to put your time, energy and money to start setting yourself up on the RIGHT SIDE OF THE CASHFLOW QUADRANT! And here you can choose between the B and the I.
If you fail on understanding rule #1 and continue to use your time on the left side of the cashflow quadrant, you have to understand that you will basically work until you’re dead and you can kiss your financial freedom goodbye!
Switch your focus, today!
Ok. now that we have rule number 1 established it would also be interesting to know the options on the right side, wouldn’t it?
Some people feel overwhelmed with the opportunities out there, but when you really look at the right side of the cashflow quadrant, there are actually only three major classes that all opportunities are put into. And this brings us to rule number 2.
RULE NUMBER 2:
If you are going to get involved in the right side of the cashflow quadrant (which you must do in order to achieve freedom), you actually only have three classes to choose from.
And these are:
Business
Real Estate
Securities (Stocks, bonds, mutual funds etc.)
If you fail to choose any of these, it means that you’re still on the left side of Cashflow Quadrant and you need to go back to rule number 1!
Out of these three options, most people actually choose Business as their way to freedom. However, if you really look at it. Building your own business is the option that normally requires the most money to start, the most knowledge, the most time spent and also has the highest failure rate. How come so many people choose this option? Yes, they might have a passion for what they are doing, but I also think there’s a huge lack of knowledge in these simple rules.
Real Estate can be very lucrative, but you normally need some money to start and owning your own real estate business can also become a job and the return might not be that great in comparison to what you put into it. But it might beat buiding a traditional business in regards to the time you spend on it.
People generally think that securities has the highest risk of all these options, however the fact that it’s possible to start with a very low investment makes this option the one with the least risk. Normally this option has a “the higher the risk, the better the return” philosophy, but it is possible to find good long term options and savings plans within the jungle of the different securities available.
Now, there has come a fourth option to the market and I will explain this in later blog entries. This option is what I have chosen to put most of my focus on simply because it’s less risk, higher return and easier to understand than any of the other options.
Like I said, this information is a gathering from the overall view on economics after reading countless books, blogs and going to seminars and watching videos on the topic. I think Robert Kyosaki is one of the few that explain things in a very easy way, while it seems like many other write’s almost deliberately try to confuse people or try to impress with their fancy knowledge.
Kyosaki wrote the book Rich Dad, Poor Dad which I suggest everyone reads if they’d like to learn the basics on how to escape the slavery of modern society working paycheck to paycheck.
In this book, Kyosaki explains in a very simple way how rich people use their time, energy and money to aquire assets while broke people use their time and energy to work for the rich while they spend their money on liabilities, like I mentioned above. And I took these principles and boiled them down to this blog.
This simple knowledge has for sure changed my life. Maybe it will do something for you too so I hope you got value from this!
thanks for reading!
all the best,
Arnt
Arnt Obsidian Official Blog 