The four quadrants of income broken down in simple terms is where one can expect to legally earn income. The four quadrants are Employee, Self-Employed, Business Owner and Investor. Understanding where you fall in the four quadrants is pivotal if your ever have the desire of becoming Financial Independent. Additionally, grasping the concepts that you should have more than one source of income and you can’t do everything on your own are equally essential. Let’s discuss the four established methods for anyone to earn income.
Employee
The greater majority of the world’s population falls into this category and it’s by no surprise. Early on in our schooling, we are taught to get good grades, so we can go to a good school. Once we graduate from that good school, we can find a good job. A job will cover the necessities. Some jobs will even provide much more than that, but as long as your are trading your time for an income for the benefit of someone else, you are limited. Unfortunately, a job which stands for Just Over Broke, isn’t the most efficient and effect way to becoming financially independent.
Self-Employed
The next quadrant is that of becoming self-employed. Here you are the owner of your job. Example, the Dentist that has his/her own practice, The Mechanic that owns his/her own shop, etc. Now you are working for your own benefit. The downfall of this quadrant is that is you don’t work, there is no income. All the responsibilities of running the operation falls on your shoulders. Yes, it’s your business, but your are essentially a slave to your business.
Business Owner
As we move into this quadrant, the concept of working less but earning more begins to come into sight. As a business owner, you have moved into the arena where you have others working for you which allow you to take a step back. With this new freedom, you can dedicate yourself to further expanding your business or exploring other opportunities. Unlike being self-employed, everything isn’t on your own personal efforts. You have grown your business to a point where you can hire additional employees and resources to help your business in the event something happened to you.
Investor
This investor is the ultimate location to be in the cash-flow quadrant. Here your money is leveraged to make you more money. Instead of having funds sitting a bank savings account earning peanuts on the dollar, the investor puts his money to work. The investor will be the funding source for the Dentist wanting to open her/his own practice. The investor can also be the funding source for whoever else is interested in starting their own enterprise. In return for lending a prospect the funds, the prospect agrees to return the borrowed amount with interest. This is basis of the hit TV show “Shark Tank”. The show depicts what’s been making investors the top desired position to achieve in the cash-flow quadrant.
The investor also has access to what’s known as residual income. Residual income is derived from past efforts which continue to produce income. Example of residual income can be rent on a rental property, overrides on your teams production, commissions on reoccurring purchases. Residual income is yet another reason, everyone should be striving to become an investor.
In Summary
There you have it, the four quadrants of income. Not only should one strive to achieve “Investor” status, it’s equally important to have more than one method of income during your journey. As an employee, you can be an investor by putting your excess funds in the stock market or purchasing rental real estate. As a self-employed individual, you can do the same. As a business owner, you can be you own best employee. The point is, you don’t have to solely be in just one quadrant. Nothing prevents you from moving in and out of all four quadrants. With that said, the quadrant that provides the most flexibility and freedom is the investor.
If you have an interest in business ownership that can begin as on part-time basis, has a minimal start-up cost, you can work from home and establish your own hours, please contact me directly at Louis@louisromero.com