The year is coming to an end. Wish all of you a very successful, joyful, healthy 2022.
Here is one secret to wealth creation no one told you about. Not in school, not in business school, not in your 9-5 job. This know-how alone is worth more than you can imagine but you have to truly understand it, then embrace it. Don't dismiss the idea too easily. This is how rich people built their wealth (yes, all of them). Once you truly understand this, you see the world in a different way. The concept of the cashflow quadrant has been proposed by Robert
Kiyosaki (Author of Rich Dad, Poor Dad). Most of you will know the cashflow quadrant, so I spare you the details.
First of all, having an income is the first right step (to build wealth). It does not matter in which quadrant you are in. If you have cash coming in, you are doing something right. If you are in the E and S quadrant, I would suggest to you the following for true wealth creation: in addition to your job, try to establish yourself in the B or I quadrant. Why? Because true wealth creation only happens in the B or I quadrant. How many rich employees do you know? Exactly. (the point is: there are very few exceptions). Fancy job titles and the occasional 10% pay increase will not cut it. (Successful) Business owners and investors want 10x improvements, not 10%. Why is the wealth creation only happening in the B or I quadrant?
It is not so much the "cash" part. The important concept to understand is the equity part. True wealth is built by equity ownership. (Lets say) The business owner owns all or most of the shares in his company. The company may produce a modest profit that may result in real cash in the bank. Is the business owner rich because he earned a little cash? No. (Over a long period of time and high amounts of cash, the answer would be yes of course, but this is not the point).
The point is: if the business owner improves his company, increasing profits (or even just revenue or another meaningful metric), the valuation of his company will (can potentially) increase. This means the shares the owner owns are worth much more (this is a simplification here of course).
This improvement in the equity value of the business can produce significant wealth in a relatively short period (lets say 3-5 years). The cash produced in that time by the business alone most likely will not produce that type of wealth. Of course, in order to realize the equity increase requires selling the business and finding a willing buyer at this valuation.
Note: Reality is of course more complex. Advantage of the business owner? Does not necessarily require a lot of capital, but requires (if you do not outsource everything) high time and work energy investment. Business owner leverages people, processes and technology. The investor is doing the same as the business owner in the sense that he buys (usually) equity in interesting businesses and intends to sell that equity at a higher price later on.
The dynamics of wealth creation are the same (equity ownership). Advantage of the investor? Does require some capital but does not necessarily require high time and work energy investment. Investor leverages his cash.
Can you start a business in addition to your 9-5 job? Yes. Can you start investing in shares of businesses in addition to your 9-5 job? Yes. Can you start to think more like a business owner or an investor rather than an employee ? Yes. (nothing wrong being an employee. remember income is always good.) If the answer is yes, then build up equity over time and create wealth. Get the f*ing shares :) !! Happy new year!
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