Financial freedom is the state in which one has the capacity, cash, and resources to meet the necessary life requirements without necessarily reporting to a manager or employer due to being employed. Quite simply, it is all systems that go for gaining mastery over one’s money so as to pursue the sort of lifestyle one desires. You are free from the rat race, the uninteresting corporate job you hated 7, or the endless bills. However, you have a power that consists in the decision, which results in a better, more satisfying life.
But earning money does not come easy. Therefore, it demands a change in attitude and approach to making, saving, and spending money. I believe one of the ideal tools that can be used to explain this paradigm is Rich Dad’s Cashflow Quadrant.
Rich Dad Fundamental: The Cashflow Quadrant
The true implication of financial freedom, however, can be expressed by examining Cashflow Quadrant by Robert Kiyosaki. This model categorizes how various sorts of people make their living. Kiyosaki argues that there are two types of people: you perceive the world by the left-sided quadrant and perceive the world by the right-sided quadrant.
The Four Ways to Make Money
The Cashflow Quadrant divides people into four categories based on how they generate income:
1. Employees (E): They depend on their employers and REM and get paid to work.
2. Small Business/Self-employed (S): They are also classified as either a Small Business/Self-employed (S) since they work for themselves and survive on their own incomes.
3. Big Business (B): They own an enterprise that hires people to produce income.
4. Employees (E): They use their money to purchase assets that appreciate and also generate an income for them without working.
It is now clear to everybody who earns his living that he belongs to one of those four categories. But where you are at in life determines how much input you have over the purse strings.
The Left Side of the Cashflow Quadrant
The quadrant on the left top is where people find themselves most of the time when they start a project. Employees (E) and self-employed people (S) work for wages. They depend on earned income that is, they trade their time for dollars. They have their revenue stream as long as they are active but the minute they retire, the stream dries up.
Taxes tend to be high for the employees and the small business people. Indeed, the people on the left side of the quadrant are the ones who remit the highest taxes since they do not enjoy the advantage of the tax concessions that are extended to companies and investors.
They are categorized as having a “security” orientation: the first group represents one of the sides of the given quadrant. It gives them the security that their next paycheck is in the bag but they sell their labor for it.
The Right Side of the Cashflow Quadrant
On the right side of the figure, people search for their financial freedom most of newly created jobs. Big business owners (B) do business not for the sake of income, investors (I) invest expecting a return. They allow their money or their systems to do the talking for them.
In the B quadrant, business owners develop structures, and acquire employees to serve them. Their income does not only depend on the time they spend at work.
In the I quadrant the individuals get paid by investing their money into stocks or into real estates or firms. These ones create an avenue where they can make money without having to be actively involved in the process.
This is because the individuals on the right side reduce their taxes by using the benefits that are mandatory for business entities and investments. It enables them to accumulate wealth at a faster rate and attain financial liberation much easier than others do.
5 Habits for Inculcating Financial Freedom
The freedom that was discussed in the context of Cashflow Quadrant is not only a matter of your position on the scale. It also involves taking some practices that assist in acquiring assets and making wise financial decisions. Here are five key habits to start:
Set Achievable Life Goals
First of all, you have to figure out what the concept of ‘financial independence’ looks like for you. Is it retiring early? Travelling the world? Your goals will, therefore, determine your financial choices.
50/30/20 Budget Strategy
This simple budgeting rule divides your income into three parts:
Reasonable costs, 50 % for needs (rent, food, etc.). On average 30% towards wants (entertainment, eating out). Another essential category was savings & investments which should comprise 20% of your salary.
Diversify Income Sources
Do not have a single method of making money or a single source of income. Focus on obtaining as much passive income as possible with supplementary jobs, investments or as a freelancer for example.
Expand Your Knowledge
The more one understands money management the more is likely to make good financial decisions. Take a course in economics, read a book on personal increase, or follow some financial blog.
Asset Diversification
It is better not to invest all one’s resources in one place. Diversify your investments, meaning that invest in different types of securities for instance stocks, properties, and bonds. This works to minimize risk as well as your possibility for getting constant revenue.
The Bottom Line:
Thus, financial freedom is not just about being paid a handsome amount of money regularly. It is all about positive attitude change, embracing proper financial behaviors or practices, and learning how to manage your money. With the help of presenting and explaining the Cashflow Quadrant, one can choose the necessary strategies moving towards financial freedom.
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