I recalled when I was young, one of the first financial book that I read was Rich Dad, Poor Dad by Robert Kiyosaki.
He mentioned about how the rich earn their money through businesses and real estate, while the poor focus on their jobs and save money. And of course, the rich always get richer and the poor always get poorer. Hence is life fair to the poor? It never was.
Subsequently, he came out with another book titled "The Cashflow Quadrant" and I didn't complete reading the book as I couldn't totally apprehend what it was trying to say entirely at that age of mine. However there was this cashflow quadrant which caught my eye and I find it very interesting:
Basically this is a Cashflow Quadrant where each and every of us are being break down into one of the four categories based on their financial intelligence. Some of them could belong to two categories but no one could possibly be in all four categories. The trick is to move from an Employee (E) to Self Employed (S) and to Business Owner (B) and eventually Investor (I).
The left quadrant are the guys that are earning active income constantly using their own time, effort and energy whilst the right quadrant focuses on earning passive income from your businesses or investments. The question is how do you actually move on to different sectors from E, S, B, I and with B and I being the most valued categories.
However I have slightly different perspective when it comes to Cashflow Quadrant. Robert Kiyosaki focuses on how the people from the left column could successfully move to the right column to achieve success. In this current age and time, I believe we could actually be able to take part or be in four categories at any one time but this involves master prioritization of tasks, expert time management and hard work.
Therefore, my financial aim is to build multiple streams of positive cashflow coming to my bank account each and every month. Of course some of it you need to use your time and effort to exchange and maybe some with lesser effort until passive income take over.
For me, I will be trying to build positive cashflow from all categories at any one point of time. That is how my name of SG Cashflow Investor came from, which is primarily the cornerstone of my strategy.
Employee (Active Income):
This is your full time job where you earn your main active income. At the start of any person's working cycle, this would be the main source of income. The income which is being earned from the employment should be saved, retained as much as possible and transfer to investment.
The key risk is being stuck in a monotonous job where there are no job progression. Many office workers dread the coming of every week Monday where the usual routine of travelling in packed public transport rushing to work place to clock 8 to 10 hours of work and then back home. There are risk of having horrible bosses and political colleagues to work with, and you have to constantly prove your worth in order to survive in the competitive corporate world.
In addition, there is also increasing risk of retrenchment especially for PMETs in their 40s and above in this current volatile economy. At the point of writing, I just received news that one of my childhood friend whom is in his mid-40s was out of job since March this year and he has nothing to do at home beside looking for job? As such, you should always prepare a back-up plan while you are still employed to minimize any risk of job/income loss in times of crisis.
Self-Employed (Active Income):
Self-employed means you could own your business such as insurance agent or property agent being full-time or part-time.
There are also many side hustles which you could do during your free time and hopefully one day it could generate revenues to replace your main income. Blogging is one of the hustles which I'm working on. Other examples you could do is setting up online websites and advertising, selling of items online or developing other interests or hobbies you might have and where it could convert to some small sidelines.
Self-employed sits on a slightly higher-tier than being an employee as you are your own boss, you manage your own time and income depending on the Clients you serve. There will not be any risk of retrenchment however you need to be disciplined enough to continuously find and develop new business and sales to maintain or increase your income. The only set back is you still have to work to continue receive your income and once you stopped working, the income stop as well.
Business Owner (Passive Income):
Business owner is the most difficult to achieve for majority of us here in this category. Being a business owner involves large amount of money and risk, and there is always an element of risk and uncertainty as all businesses are not guaranteed for profits. Do you have $100k or $200k to start a business from scratch? Do you have time and expertise for that? Are you willing to risk it to succeed? Do we have enough capital to endure the period?
Indeed there are so many uncertainties where the business could fail however we do witness some great businesses breaking even within the first 6 months or less than a year, and subsequently the company is making profit for the Business Owner months after months. This can be a great source of back-up plan and you do not have to be physically there once the business is up and running by a team. Examples are investing in a franchise business or some other small businesses with a couple of friends or partners.
Investor (Passive Income):
Investor where you focus on investing your extra money for dividends and passive income. We are now at the right time to invest in great stocks and reits where 20 years ago all these were not available. Being a reit hub in Singapore offers opportunity to investors like us to invest in different real estate and to be rewarded with dividend yields ranging from 4% to 9% on an annual basis.
At the beginning, you will not see much returns but you have to be patient and persevere to build your portfolio day by day with dividends as reinvestment until one day, your passive income coupled with capital gains will surpass your expenses or even replace your employment income.
Of course, the aim is to invest as much as you can building a million worth of portfolio so you can achieve FIRE. One of the few bloggers that inspire me is Dividend Warrior and AK71 with their portfolio and I do inspire to build a similar one like them.
The rewards could be very enriching on a long term basis and you don't have to spend any of your time and energy in maintaining the portfolio except for some re-alignment or management once a while.
As such, one of my most favourite quote for investing is by Charlie Munger (the right-hand man for Warren Buffet):
In conclusion, I would say Cash is King but healthy positive Cashflow is Father of King.
Regards,
SG Cashflow Investor
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