Tuesday, November 4, 2014

#39 Adopt an Entrepreneur/Investor mindset

Having worked in the oil patch for a decade, I know quite a few wealthy people.  My father asked me the other day how most of my wealthy friends made most of their money.  My response was that the overwhelming majority of the wealthy people that I know, became wealthy by either starting a business or by taking a financial interest in a company by buying or owning company shares.  I struggled to name anyone I know who is wealthy who got that way from being an employee.  I believe this is a important learning and it reminds me of a few books I read by Robert Kiyosaki.

I first tried reading Rich Dad, Poor Dad by Robert Kiyosaki in 2002.  Tim, a co-worker of mine, had leant the book to me after reading it himself.  He was excited about what he had learned and suggested I should read it to learn how to become wealthy.  I got about halfway through the book and thought "Where is this recipe to building wealth that Tim talked about?".  The book doesn't specifically lay out what kind of investments to go into, it just went on talking about owning real estate and building businesses.  "Hell, I don't need this, I have a good job making good money... I don't have the time to do shit like buy rental properties.  This books sucks!"  I didn't finish the book.

The next time someone recommended I get into Kiyosaki's stuff was in 2007. By then Kim and I were well into into aggressively saving and investing our money so I was looking to maximize our investment dollars.  Another co-worker, another Tim oddly enough, was listening to self-help books and podcasts on his MP3 player and he recommended I try out Kiyosaki's book "Rich Dad's Cashflow Quadrant".  I listened to it. Then listened to it again.  This time I 'got' what Kiyosaki was saying.  The Rich Dad series is really about mindset and how you look at, and earn, money.  There is no recipe.  You create the recipe.  The focus of the book is in how somebody earns money, with emphasis on financial risk and reward.  In Cashflow Quadrant, there are 4 main earner mindsets.  They are summed up as:

Employee - You earn an income by working for someone else. You have no financial interest or risk in the success of the business.  If you stop working the money stops coming in.

Self Employed - You earn an income by working for yourself.  You take on the financial risk of your business but you also do ALL the work.  If you stop working, the money stops coming in.

Entrepreneur (Business Owner) - You earn an income by building and (possibly) operating a business.  You take on the financial risk of the business but you do some work and pay other people to do work to make the business a success.  At some point, your business may run on its own.

Investor - You earn income by investing your money in other people's business or in publicly traded businesses, such as those listed on the stock market.  You take on the financial risk of the business, but have no active role in running it.

Cashflow Quadrant from Kiyosaki.

Many people fit in to multiple earner mindsets or quadrants as Kiyosaki calls them.  The biggest learning I got out of Kiyosaki's Cashflow Quadrant book was that in order to become Financially Independent, you need to move towards the Entrepreneur/Investor side of the spectrum.  Being an employee or being self employed earns you a paycheque but often gives you nothing more once you stop working.  It is when you get your money working FOR YOU in the form of a business or investments that you are able to step back from working.  By moving to the E/I side of earning income, you begin to detach yourself from being dependent on other people to look after you, whether that be an employer or the government.

We were naturally moving towards that mindset on our own in the early 00's but after reading Kiyosaki's Cashflow Quadrant book, we ratcheted it up and were ready during the 08-09 financial meltdown to take advantage of investment opportunities and use leverage to buy quality stocks in the same way real estate investors/landlords buy rental properties.  We went directly to the Investor quadrant early while still in the Employee Quadrant, investing in dividend income and growth stocks.  By using our employee income to build our Investor income, we have gradually moved from one side of the quadrant plot to the other.  At present, about half our income comes from the Employee quadrant, and half come from the Investor quadrant.  At some point our investor income will be all we need to meet our monthly liabilities.  At that point we will be financially free.

By taking on an Entrepreneur/Investor mindset I believe a person takes on more risk, but acquires more freedom.  They are more in control of their life and less dependent on others.  It takes more discipline and motivation to take that path, but I believe it has been very worthwhile for us. While I do not suggest everyone go out and start a business, stocks are available to everyone once you have some savings to put to use.

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