It was a transition I needed to make after becoming self-employed. That’s where Quadrant #3 – Business Owner – comes into the Cashflow Quadrant picture. I knew that had to change, and eventually it did.” I was just selling and selling every month. All I accomplished was making the move from being an employee with a job to the self-employed quadrant where I owned a job. “I thought I was moving up the quadrants from an employee to investor, but that notion was far from the truth. “I left a large firm working as a Financial Advisor to become an independent advisor,” reports Tom Diem, CFP, at Diem Wealth Management in Fort Wayne, Indiana. Beyond the basic skills required in your business, you also need to be able to market yourself, hire the right people, and manage a budget.ĭeveloping those abilities is absolutely essential. The problem is that while a lot of self-employed people may be good at what they do, they’re not particularly adept when it comes to managing a business. That works out to be $47,996 on an annual basis. According to the Bureau of Labor Statistics, the average weekly earnings for a full-time employee is $923 in 2019. The average self-employed person in America earns only about $36,000 per year. And not many are good at steadily increasing revenue, while minimizing expenses. But once again, you’re still trading time for money. The absence of a boss, and having greater control over income and expenses are certainly advantages. Now there are some important caveats when it comes to self-employment.Ī lot of people only think they’re better off moving from employment to self-employment. That happened because self-employment gave me greater control over both my income and expenses. That is, I had to put in the time and effort to generate revenue.īut there was one major difference: I was able to make more money. Unfortunately, becoming self-employed still involves a strong measure of trading time for money. Previously provided by my employer, it was now up to me to both get and pay for the coverage. I had to get office space, office furniture, and make a choice as to the best computer equipment to buy. Where my previous employer maintained the office and paid all my business expenses, those concerns were suddenly squarely in my corner. And with that step, I went from one quadrant – Employee – over to another – Self-employed. Taking the buyout as my cue to leave, I co-founded a financial planning firm with three other financial advisors. And that largely happened because my employer had been bought out. It took me five years being an employee before I finally made the jump. Will you need a building to operate out of, hire employees, or do you need vehicles or other specialized equipment? These hurdles are probably what keep more people from becoming self-employed. There will also be questions about specific tactics. As well, you’ll have to figure out how you’re going to get paid for doing it. More specifically, you’ll have to determine what products or services you’re going to provide, and who you’ll offer them to. You must decide exactly how you’re going to become self-employed. This is an understandably scary step for people. If I was ever going to move to the wealth-building side of the Cashflow Quadrant, I was going to have to shift to Quadrant #2. And while I felt like I was building a business (it was a mostly commission-income situation), I still had a boss as well as the risk of being fired. That meant my income potential was limited. Very few people ever get rich going this route. After all, it’s safe and relatively predictable, and can even provide a comfortable living. On the positive side, I had regular hours, a steady paycheck, and important benefits, like health insurance.Īll those advantages are why most people stay employed through their entire working lives. When I graduated from college, I got a job in a brokerage firm. And if you’re not actively working, you’re not earning any income. Translated, it means you can only make so much money. The basic limitation is that you only have so much time. But it’s where I was when I read Rich Dad, Poor Dad.Īs an employee, you’re trading your time for money. It’s the standard advice, but it’s far from the best path toward building wealth. You go to college, get a degree, get a job, hopefully stash money in your retirement plan, then retire when you’re 65 or 70. It’s what people are trained to do, and the course most follow. That’s because each enables you to leverage people and money to increase your wealth, even while you’re busy doing other things. The second two, Business Owner and Investor, are on the “rich side” of the Quadrant.
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