The "Kiyosaki Approach" Adaptation to Financial Freedom

I am a keen reader of Robert Kiyosaki's writings as he explains how one can achieve financial freedom by transitioning from an Employee/Self-Employeed to a Businessman or an Investor by accumulating assets and maintaining budget discipline.

In understanding this theory, we first have to understand how the world makes its money from; and why an employee will not be as wealthy as a businessman or investor

The world has 4 types of income earners and can be split into 4 quadrants, The Employees, The Self Employeed, The Business owners and The Investors:

The employee makes money by working for a business,

The self-employed makes money by working for the business while thinking he is actually running a business,

The Business owner has a system in place whereby the employees oversee the function of the system,

The Investor makes money by using his money to make it work for him instead of him working for the money.

The reason why one can never be wealthy when being on the left side of the quadrant is simply because:

1) The more you work, the more your income gets taxed

2) You could get a loan for tax deductible interest payments but that reduction in tax payment is replaced by the loan payment (interest on credit card)

And Most Importantly

3) You're working for money while businessman and investors have money working for them; Money doesn't get sick, tired, bored, moody or frustrated while us human beings do, and when it happens, our capacity to receive income becomes compromised.

In other words;

The route to being wealthy and financially free is to have money working for you. This can be easily done by accumulating INVESTMENTS which will produce income. The stage whereby income from your INVESTMENTS > EXPENSES is when you have achieved financial freedom as you no longer have to work as the money you have spent to produce money will make the money you need to cover your active expenses.

While all this sounds simple and straightforward in theory (spend money to generate more money), how does one apply such logic to today's world when today's investments are so expensive in return for poor value? (a $100 house generating $5 per year; mere 5% return).

The key is to constantly SAVE! pay yourself before using the money for anything else! Set aside 10-20% and maintain that budget surplus.

The reason why saving is important is because you are saving to accumulate enough money to purchase an investment (house, shares) that will help support your active income (salary/wage).

When's the best time to buy these investments? When the market crashes! Thats when prices become extremely low as fear spreads throughout the market everyone is afraid and confused. When people are lost and lacking leadership, the most reassuring thing to do as a human is to follow someone's lead.

Which is why when market crashes occur, the gradient of the drop is often very sharp as when nobody is buying; prices fall fall and fall.

Taking advantage of this behavior among the masses is often creates new wealth as the house that was once worth $100 could now be worth $60-70 as the seller now has fewer potential buyers due to the market downturn or because rent could have gone down due to the market crash.

Market crashes have been reoccurring since the Dutch Tulips of 1649 as humans are at times irrational and emotional investors.

Given how often history repeats (the recent subprime mortgage being a testament to that) a wealthy person wannabe should aim to save up enough for the next crisis so that he too can be wealthy by taking the opportunity to purchase investments when they reach their low during a crisis.