We all have some sort of idea about Financial Independence. I had also explained the kind of mindsets required to achieve Financial Independence. But knowing about Financial Independence and the kind of mindsets needed to achieve Financial Independence is not enough. The result always comes from actions. So in this article, I will explain about action to be taken towards Financial Independence. Actions needed to be taken depend upon the cash flow quadrant in which you make money.
How do you make money?
Individuals can be divided into four quadrants depending on how they make money. The quadrants are – Employees, Self-employed, Businessmen and Investor. Let’s understand one by one how each quadrant makes money. The same is represented as cash flow quadrant in the following diagram.
Employees make money through their salary. They work for the employer to build their business and get a salary in returns of their services. They get paid only when they work. Once they stop working their income drops down. So they always need to get involved to make their income. This kind of income is called active income.
Employees always have fixed time and routine for each day. They go to their work in the morning and come back home in the evening. They have fixed income as their salary. They use their salary to meet their daily expense and save some part of it for emergency and future needs. They always work for money. But money never works for them.
They have a fixed time and a fixed salary. They have very limited opportunity to leverage their time and money. As I had already explained in my previous articles that leveraging is the key skill of building wealth quickly. Thus, they aren’t able to build their wealth quickly.
As we know, it is the wealth which determines the value of assets of an individual. Also, lower the value of assets means lower the sources of passive income. Lower the passive income means lesser the chances of achieving Financial Independence.
Self-employed or Small-business owner
Self- employees work for themselves. Although they create some kind of odd jobs but have limited opportunity to leverage their time and money. They are not able to expand their business due to lack of financial intelligence. They always fear to lose money. They never want to leverage their money to re-invest in their business to make it a scalable model.
These kinds of peoples are generally an expert in a particular field. They know how the system works in their business, but never able to make a systematic operating procedure to teach their employees to learn their business. They always have a fear that once their employees learned about their business, they will become a competitor in the market.
Individuals of this quadrant are not able to generate passive income. They make money only when they work for their business. If they don’t work for their business, their businesses are not able to generate income for them. They don’t own their business but their business owns them.
Individuals of this quadrant build a large business. They had great Financial Intelligence. They make their business a scalable model. They hire many employees to leverage their time to a great level.
They develop a systematic operating procedure, so that their employee can run their business in their absence. With a scalable model, their businesses grow rapidly and they make a huge amount of money from their businesses.
Also since they generate a huge amount of money, they pay their employee well. This way they retain their employees in their business. Their employees don’t become a competitor in the market even after learning their business. Some companies also make some contractual clauses. This prevents their employee to do business in the same field even after resigning their job for a particular period.
Due to good pay and reputation of the company, employees agree to sign such contract willingly. Also, very few people want to leave a good paying reputed job to take a risk in business. But not willing to take a risk becomes the greatest risk for them. They keep working for money for their entire lifetime.
These groups of people own their business and business work for them instead they work for business. They keep leveraging their time by hiring more employees and expanding their business. More they leverage their time wealthier they become.
I would like to bring here the formula of growing wealth from my previous article.
Wealth= Rate of accumulating money X Time
Business owner increases their wealth mostly by leveraging their time.
These groups of people have enough passive money that they grow their wealth by just leveraging their passive money. They just use their power of money. Money works for them and keep them buying more and more assets. These people keeps leveraging their money and becoming wealthier.
Here Investor doesn’t mean only who invest in the stock market. But, it means all investor irrespective of their field of investment. It may be in real estates, stock market etc.
90/10 Rule of money
Approximately 90 percent of the money is owned by only 10 percent of business owner and investor. While only 10 percent of the money is owned by nearly 90 percent of employees and self-employed quadrant peoples.
Peoples in the business owner and investor group are mostly financially independent. They have a huge source of passive income.
Action to be taken toward Financial Independence
Changing job does not guarantee you to Financial Independence. This is a common practice by the individuals in the employee quadrant. They keep changing their job for the sake of a hike in their salary. They thought a higher salary will lead them to get out of their financial problem and make them financially Independent. But such is not the case. Higher they earn more they have to pay as taxes. Lifestyle also increases with their salary and financial challenges remain as it is.
For becoming financially independent you need to develop sources of passive income. Since the business owner and investor quadrant have a source of passive income. What does it signify? Simply, it signifies that you do not need to change your job but to change your quadrant to the business owner or investor.
How can you change your quadrant from employee to business owner or investor?
Resigning your job immediately to start your business does not sound good. I believe this is not a great idea. Rather I will suggest becoming more proficient in your job.
Confused? Let me explain. What happens when you become more proficient in your job? Your performance increases tremendously. Most of the companies provide incentives or bonus as per your performance. This will provide you some extra money to invest in building your assets. Only getting more incomes and not investing in your assets will never lead you to financially independent. I will strongly suggest investing in learning to build assets or business. This will give you good returns. But only learning and not taking action will also not give you a result. It is equally important to take action.
Another benefit of becoming proficient in your job is you able to manage your time well. As you know from the formula of building wealth, time is a direct factor in building wealth. Wasting a single second will directly affect your mission to Financial Independence. If you can manage your time well, you will get some time to utilize in building your business. Most people excuses about not having time.
Be consistent with your habit of investing and using your time in productive manner. Trust me; a day will come when you will be able to retire from your job with financial independence.
Self-employed or small businessmen
Most of the individuals in this quadrant resign their job to get free from their bosses. They wanted to be their boss. Although they get free from their bosses, they are not able to change their quadrant to business owner or investor. Only difference happen is earlier they were accountable to their bosses, now they are accountable to themselves.
Although I believe this quadrants of people has dared to take a tough decision. But I believe they are not able to successfully expand their business due to a lack of their financial intelligence. They also lack in mindsets to achieve Financial Independence. Most of them are of employee mindsets.
I strongly believe this quadrant of people must invest in learning to build their business or assets to scalable model. Also, they should change their mindset to develop passive income instead of working hard for active income.
Peoples in this quadrant already have big business, which generates passive income for them. They enjoy their passive income and feel financially independent. Although they must leverage money they make to switch their quadrant from Business owner to Investor.
This quadrant enjoys the most, the real feeling of Financial Independence. They know how to own several assets simultaneously. Individuals of this quadrant are generally financially free and money work for them.
This article is aimed to describe how people make money in different quadrants and what action to be taken by individuals in different quadrants towards Financial Independence. A major part of money belongs to business and investor quadrant, while the employee and self-employed or small business quadrants struggle to make money. Thus, action to be taken toward Financial Independence is to change your quadrant to Business and Investor quadrant. It is also described here about actions to be taken by individuals to change their quadrant to Business or Investor quadrant.
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