California and the Death of the Gig Economy

A lot of people I know drive for Uber or Lyft (or sometimes both). They use it as a side hustle, a supplementary source of income. They like it because they choose when to work and for how long; it doesn’t interfere with their work or life schedule. A former coworker of mine has used Uber to pay down debt, driving forty or more hours a week on top of his full time retail job. I also know another coworker who quit his retail job to drive for Uber and Lyft full time. It didn’t last very long until he gave up.

I always chat with Uber drivers when I use the service as it’s always interesting to see how people are using the driving app to conform it to their lives. Sometimes the drivers are retirees. Some are in school. Occasionally there will be the full-time driver who drives daily all day. They all like the flexibility of making their own schedule, they can take breaks whenever they want, they earn as much as they want, and they collect their fares every week. (Under Uber’s new Uber Instant Pay program, some areas can even withdraw instantly when a threshold is met.) These ridesharing businesses are the quintessential ‘gig economy’ jobs — you perform a service (gig) for a company as a contractor and you’re paid for your service. No strings attached, everything’s temporary and it’s essentially on the contractor’s terms: when you want, as much as you want, and you accept what the company is offering for compensation. This is the new normal.

So is it any wonder labor activists are against it? This past week a bill was passed in California’s senate to “end rampant misclassification” of workers as independent contractors according to The Sacramento Bee in an article entitled “California sees to make Uber, Lyft drivers employees with passage of new California labor rules.” From the same article:

“It makes sure that the one million independent contractors in California get the wages and benefits they deserve,” said Assemblywoman Lorena Gonzalez, the San Diego Democrat who authored the bill.
But the loudest voices raising concerns about the bill have been gig economy companies. Ride-share companies Uber and Lyft and delivery service DoorDash have pledged to spend a combined $90 million to take the issue to voters in 2020 if they don’t secure some relief from the new employee classification test.

If you’re unfamiliar with it, a contractor is not the same as an employee. A contractor is someone a company pays for a service, who is not employed by the company, and is paid 100% of their compensation — the employer does not do any withholding and it is up to the contractor to claim his compensation on his own taxes (You may have heard of the 1099 form that companies send to their contractors at the end of the year totaling everything they were paid that year for services). An employee is someone who is contractually bound to work for the company, and is bound to various state and federal labor laws. A contractor receives no benefits, insurance, pension, etc from the company because the don’t actually work for them.

In the first five years of my company, I relied solely on contractors to grow my business. Why? Because my company had very few contracts with clients. We were hired on a per-need basis, not on an extended contract. This meant there was no guarantee of work and we could only sub-contract help when it was needed. Employees would have been a huge drain — we would have had to make payroll (including payroll taxes, benefits, etc) twice a month even if no jobs or new clients were coming in; we’d be out of business in months. Contracting allowed us to hire when we needed to and not be beholden to paying someone when there wasn’t work.

So back to this California bill to give “one million independent contractors the wages and benefits they deserve.” The problem is in the fact they’re independent contractors to begin with; they agreed to Uber (and Lyft) terms of service when they started driving for them. Like my former coworker who quit to drive Uber full time, these contractors are attempting to make a career in ridesharing. It’s not designed to be such. It is, after all, a ‘gig economy.’ It’s a chance to make money on the side, on the schedule you set, and in turn you’re helping Uber and all the people who need a quick ride somewhere. By making these independent contractors employees, California is going to upend this free market system.

Let’s think it through, shall we? California forces Uber and Lyft drivers (as well as various others such as port drivers, musicians, translators and even freelance journalists) to be classified as employees. The drivers sign contracts with these companies and are now entitled to health benefits, unemployment insurance, workers compensation, etc. Big win for Ms. Gonzalez and the labor activists. Drivers will now get more than they bargained for, and so will riders.

Right off the bat costs go up because employees are expensive. In addition to the compensation (which shifts from a per ride basis to an hourly wage, given labor laws and must be $12 an hour per current California law, and even higher in other California towns), employers must pay towards medical benefits, unemployment insurance and employer payroll taxes, workers compensation, and the HR expansion to meet the new 1 million employees added to the company. That’s a lot to ask from a company that just posted a $5.2 BILLION loss in one quarter this past April. The company suffered billions in losses for the years 2017 and 2018 as well. So who pays for these employee benefits?

You, the rider, do of course. Uber and Lyft fares in California will have to increase to compensate for the increase cost of the driver — remember, the driver was only making money per ride, now they must be paid for every hour on the clock. At some point it might be just cheaper to have your own car if you Uber regularly.

The other thing that will immediately change for the drivers is schedule. As employees, they become beholden to when Uber or Lyft schedules them to work. No longer can an Uber or Lyft driver pick up a fare on the way to somewhere the driver is already headed. You can’t drive for an hour and then take the rest of the day off. Or take a whole week off and come back and start picking up fares again. You’re an employee now, and the company will tell you when you need to be driving and for how long.

Drivers would also no longer be able to reject a fare, take breaks whenever they wanted, and would be forced to drive during slow times when there may be no fares at all. This last one is essentially waste — an employee is driving a car, using gas, with no fares because it’s slow time. It costs the driver and the company.

As an independent contractor, federal law allows you to write off expenses related to your work. Uber and Lyft drivers write off their gas, mileage, car repairs and maintenance. These expenses can be deducted from federal taxes. You lose these deductions when you’re an employee. Uber and Lyft can technically offer to reimburse you for them, but they’re not required to do so. You definitely cannot claim mileage and gas as an employee on your federal taxes. (I know this because I once tried to argue claiming miles and gas for having to drive to work with my tax accountant, who laughed at me.)

A lot of drivers will also use both Uber and Lyft apps to maximize fares. Since drivers are paid only when they take fares, using both apps ensures minimum downtime and the maximum amount of fares. If you’re employed by Lyft, you can’t use the Uber app while you’re on the clock. This means lost fares and also means less of a supply of drivers for people who need to get somewhere. An employee of Lyft driving around will drive right past an Uber rider looking for a ride.

There is also the issue of automation. Uber (along with other companies) has been spending heavily in research of self-driving cars and automated driving. Right here in Pittsburgh, Uber has their ATG (Advanced Technologies Group) developing self-driving car systems. If Uber was forced to take on the additional costs of labor under California law, the first thing they’ll want to do with automation is relieve those costs. Guess which state Uber will start piloting their fleet of automated vehicles when they become road-approved. If McDonald’s can do it with kiosks, Uber will do it with self-driving cars.

Given the shift drivers will undergo, I have to wonder if people will just quit driving for Uber and Lyft after becoming employees. On the flip side, both companies could also lay off drivers to save costs. Those that drove on the side in their off hours would likely have to quit driving for Uber or Lyft or risk it impacting their other employment. My coworker who drove in the free time of his retail job would have to choose one or the other since Uber would be providing a set schedule. Regardless of his choice, his income drops because he loses a source of revenue.

From the first glance here it appears Assembly Bill 5 could have disastrous effects on personal income in the state of California. People working as contractors on their terms will be forced to conform as am employee or lose out on their former gig. Jobs could be lost to automation. Some companies may up and move, taking their jobs with them or choose to cut back because they can’t afford to take on these contractors as employees. So why would California’s legislative body and Governor Gavin Newsom pass AB 5?

Very much like the Fight for 15 movement, it gives the perception of looking out for the ‘little guy.’ As Newsom himself said, AB 5 “will help reduce worker misclassification — workers being wrongly classified as ‘independent contractors’ rather than employees, which erodes basic worker protections like the minimum wage, paid sick days and health insurance benefits.” But there’s another big shift not being mentioned here — payroll taxes.

As an independent contractor, any compensation does not have taxes withheld. If a company hires you for $100/hr and you work 5 hours, you receive $500 from the company and are responsible for filing your own taxes. After making $600, the company is legally required to send you a IRS 1099 form, showing how much you made. Under AB 5, this goes away. You’re now an employee, and beholden to tax withholding. Your taxes are taken out of your paycheck immediately…including California state tax and all applicable local and federal taxes.

As the Tax Policy Center puts it:

But California’s new law goes well beyond mere tax reporting rules. It reclassifies these workers as employees, with all of the tax and labor law effects that implies. Massachusetts already has adopted similar rules for defining employment, and New York’s Labor Department has said that Uber drivers are employees who are eligible for unemployment insurance benefits. Now that California has jumped in, don’t be surprised if other states move aggressively to turn on-demand workers into employees—both to protect worker rights and collect some additional revenue.

And without being able to write-off your expenses, you — now as an employee and not a contractor — will pay more overall in taxes. It also prevents creative accounting practices, deductions, underreporting, or any other method that could potentially be shortchanging the state of California on tax revenue. As an employee, they’re just taken out of your paycheck.

Regardless of what actually happens, this California senate bill will certainly change the nature of the gig economy.

5 Reasons Why You Should Quit Your Job

If you’re reading this blog, I imagine you’re unhappy with your current employment. Why do you want to quit your job? Maybe it leaves you unfulfilled. Maybe it’s your co-workers, your boss, the company you work for. Maybe you just don’t want to work in retail, or in a cubical, or weed gardens. You want to dance, or sing, or paint, or maybe your wish is to join the circus or run your own nudist colony.

Maybe you don’t have a calling, you just know you can’t work for anyone else any more.

Believe me, I feel your pain. I spent over a decade working jobs (they were good jobs too, paid well with excellent benefits), trading time for paychecks. I spent years staring out windows, burning spare time reading about my passions, and never fully committed my brain to anything. All I know is, I wanted out.

Know why you want out. It leads to setting a goal. That leads to making a plan. A plan gives you steps to follow to lead to the goal.

Still lost? That’s okay. The Matrix has you. If you take a moment to really look around — look at your coworkers, your neighbors, your friends and family — how do they live? Maybe they all meander in jobs too. They don’t talk about quitting to live their dream, they talk about their next vacation, what they just bought, or that new promotion at work. They are trapped in The Matrix too. Together, you serve a company with your time, energy, and mind. As Seth Godin says in The Icarus Deception:

“The overwhelming impact of more than a century of cultural indoctrination can’t be overstated. We have embraced industrial propaganda with such enthusiasm that we have changed the very nature of our dreams…Being a human today means more wealth, better health, and the leverage to influence others. But it also a fundamentally different existence from the one we had for a millennia before this…The industrialist needs you to dream about security and the benefits of compliance. The industrialist works to sell you on a cycle of consumption (which requires more compliance). And the industrialist benefits from our dream of moving up the corporate ladder, his ladder. [Godin’s emphasis]”

What Godin means by “industrial” and the “industrialist” in his book is the large, “too big to fail” type companies that are the byproducts of the Industrial Age. This Age has shifted the company culture many decades ago, and includes the Baby Boomer’s mantra of “go to school so you can get a good job to stay at until you retire at 65.” While this advice may have been prudent in the 1940s and 1950s, today it is a TRAP.

There are many reasons to quit your job. Probably countless personal reasons. But if you want to escape the Matrix and an outdated work culture, here are five of the biggest reason to do so:

#1. You Are A Replaceable Part

Most companies are built around systems. What is a system? To borrow an example from The E-Myth Revisted by Michael Gerber, McDonald’s is the perfect example of a business system. To build it, McDonald’s designed policies and procedures to dictate how their burgers were to be made, the items on the menu, how their restaurants were to be run, and every employees job responsibilities. The idea was to have it all in place so ANYONE could be hired and plugged into this system. You didn’t need a college degree, you just had to be able to follow policy.

This makes opening McDonald’s restaurants that much easier, and it ensures a similar experience to the customer regardless of which location they visit. McDonald’s had consistency across the board. For the employee, this means you can be replaced. Sure, you know the policies backwards and forwards, you have lots of experience and can handle pretty much anything that pops up. But if you quit, they can plug anyone in to replace you. You are not special. You hold no power over the company.

Back to Godin: “In the industrial age, the age of standardization and interchangeable parts, it’s all about being safe. The system is so valuable, the processes to polished, that safe guarantees productivity and profits. Keep it moving. Keep it efficient. Keep it reliable.”

#2. You Have No Control

I worked for two large companies in Apple and T-Mobile; I’ve seen the games played in the ranks of middle management. I started out at the lowest rung of both companies: part-time sales representatives in retail stores. As soon as I poked my head up to explore the possibility of moving up, I could quickly see the games and politics being played. Give a former entry-level employee a little bit of power as a manager, and it quickly goes to their head. Suddenly, they are POWERFUL, they make the decisions and rule over the lives of those under them (in making the schedule dictating raises and pay, etc). It only gets worse for their managers and the managers above them.

If you take an entry level job, there is always the hope or plan to move up. To make more money, be bequeathed that meager amount of power, to carve out a little larger piece of life. But the truth is, it’s not always up to you.

Not long before leaving T-Mobile, I applied for promotion to a regional business sales position. I had the best business sales in the market, plus I owned my own business so I could speak the language of business owners and their needs. Moreover, not long before I applied I had had an awesome month of sales: In May 2018 I finished second in the company in sales numbers. Out of nearly 15,000 retail sales reps, I was number 2 overall. I thought these qualifications would make me a shoe-in for the job. Furthermore, the position had been open for months as no one else applied. I threw my hat into the ring, followed up with the manager who opened the position, and waited. And waited. And waited. I followed up again and was assured interviews were happening the following week. They never came. Months later I found out the manager of the position I applied for didn’t want to hire anyone. Hiring someone meant his sales quota would go up, which he didn’t want. It was easier to leave the spot vacant to protect his numbers. Were there any repercussions? Did T-Mobile care one of their successful, achieving employees was denied a promotion because of a manager’s covering of their own butt? Of course not.

Games. Politics.

You may be the most qualified person for a promotion in the world, but there’s no guarantee you’ll ever get it. Here’s another one: My brother-in-law worked for a Brazilian restaurant for 14 years. He loved it, loved the company, and wanted a career with them. He had moved up from server to head waiter. He knew a lot of the company brass. Last year he was fired from the company by a newly-hired regional manager. The reason? The new regional manager just didn’t like him. Job lost. Career derailed.

You can work as hard as you want, but there are no guarantees. You do not control your own destiny when you are an employee.

#3. Time

This was always the biggest one for me to quit my job. Maybe your job isn’t terrible. Maybe you like your co-workers. But the truth is, your job eats a lot of your time. It eats hours, days, weeks, and years of your time. It eats away the best years of your life — years of good health and energy. If you work until you’re 65, you’re finally released back into the wild but with less energy and health. Maybe you retire and immediately spend more time in the hospital. You’ve traded away your time for a steady paycheck.

One of the most prescient (and scary) things I’ve ever heard about working as an employee is “Your paycheck is your bribe to delay your dreams.” It hit me like a ton of bricks because it’s TRUE! I think the greatest sin in the world is people giving up on what they truly want to do with their life out of complacency. The system has made it easy — and socially acceptable! — to enter the workforce and not pursue what we want most. There’s no stigma to it. How many times have you heard someone say “I always wanted to be…” but they never did it because they “had to work.” They looked around and everyone else was doing the same thing. Giving up on your dreams has become a herd mentality.

#4. You Are Being Fleeced

You’ve heard me mention The Cashflow Quadrant in this blog before, but I always go back to Robert Kiyosaki when it comes to the “E” quadrant and taxes. As an employee, you will always be in the WORST tax situation! Employees have no tax deductions. Employees have no write-offs. Employees are paid in wages, which are taxed at the maximum levels. Employees collect their pay AFTER taxes are taken out.

It’s not just wages. Worked hard for a project or event and made some overtime? Taxed at the maximum level. Do a great job and get a bonus? Bonuses can be taxed even HIGHER than earned income. Does your company offer free stock? T-Mobile did, and when the shares vested, nearly 40% were taken for bonus taxes. Then, if you sold the shares you did get, you were taxed again for capital gains. Invest in company 401k? If you draw from it after retiring, it’s taxed upon every withdrawal. If you pull money from it before retirement age, it gets taxed PLUS penalties.

When working people complain the rich don’t pay enough (or none at all) in taxes, I always have to laugh. The rich aren’t doing anything illegal or unsavory, it’s the tax code that’s designed to be that way. If you remain an employee, you will always be taxed the hardest. The rich are not employees. Still not hitting home on you yet? Imagine you make $40,000/year for 40 years (leaving out raises and bonuses). That’s $1.6 million dollars in earned income over a career. Nearly $500,000 of that will be paid in income taxes. This also assumes taxes don’t go up for 40 years (which they ultimately will). Don’t forget you’re also paying additional fees like unemployment insurance, which, if you stayed employed for 40 years, you never drew from and ultimately never used.

Next time you get a paycheck, take a good look at the withholdings. Your end of year W2 is also a good statement of how much you’re losing to taxes and withholdings.

#5. The Worst Thing That Could Happen is You Get Promoted

So you work a job at a company. If you’re lucky, you’re putting in 40 or so hours and you get your weekends off. Some people refer to this as the “5/2 rule” or “5 for 2 rule.” You work five days to get two. (Again, this is a product of the industrial age as the M-F 9-5pm American work week coincides with the child’s school schedule) But, you’ve committed to your job and career (even if you hate it). You hope to move up, get a bigger office with a little more pay. Maybe you get to make some decisions. You finally get a little control.

The problem is you’re now working way beyond 40 hours a week. In retail, you’ll find the pay structure changes at the management level — managers are salary. Why? Because they work way beyond 40 hours and have to be on call at all times. There’s no escape.

When I was promoted from my Apple retail store to Apple corporate, I was given a laptop and an iPhone. Awesome! The catch? I had to have them both with me AT ALL times — even vacations! I once took a conference call on Christmas Eve just before family dinner. I was hunkered in my childhood bedroom on a call while the rest of the family enjoyed themselves. Getting promoted makes you a larger piece of the machine. You’re a bigger cog. The bigger office and more pay sound appealing, but you’re trading even more of your life away.

At T-Mobile I had been promoted to assistant manager in a retail store. Pay went slightly up, while commission went down. But I was suddenly responsible for a lot more, went to more meetings and sat on more calls. I had to come in on days off if a sales person called off. More time was lost for an minuscule increase in compensation. I stepped down after 6 months, going back to sales. I didn’t notice the change in my paychecks.

Honorable Mention: You Will Be Replaced

Not everyone is (currently) at risk of this, but automation and robotics are beginning to threaten those in the lowest level of the labor pool. For so many companies, human labor is the most costly element. Outsourcing jobs to foreign countries was only a half-measure. Complete computer automation for companies is coming very soon.

A kiosk that takes orders at McDonald’s is not paid a wage. It has no overtime, no workers comp. It never needs to take a break and will never call off. It doesn’t have a 401k or medical benefits package. Sure it may break down, but the cost of repair or replacement is certainly less than an employee requiring medical leave or surgery. If am employee costs $40,000/year and a machine that can do the same job costs $40,000 and lasts for 10 years than the machine is the better investment. It may sound cold, but it’s a numbers game: $40,000 vs $400,000 (not including medical benefits and perks).

It’s the 21st century and human machines will be replaced by metal ones.

Required Reading: 5 Takeaways From Cashflow Quadrant

“The only difference between a rich person and a poor person is what they do in their spare time.”

Robert Kiyosaki

One of the segments I want to do with this blog I’m called “Required Reading,” which essentially is a combination book review and recommendation. I’ll write a post on a particularly educational or useful book and break down the top 5 takeaways.

If you’re reading this blog, you’re probably familiar with the name Robert Kiyosaki. He burst on the scene in 1997 with Rich Dad Poor Dad and has built an empire around financial literacy and education. Cashflow Quadrant was the follow up in 2000 to the hugely successful 1997 book and the Kiyosaki book that had the biggest impact on me.

I usually recommend this book very early to people who want to change their financial lives. It’s not a how-to book. It’s not a “baby step” book that tells you what to do. It’s a book that rewires your brain and changes how you think about money, jobs, and wealth. Kiyosaki breaks it down in very simple terms, exposing the reality behind things we take for granted, such as being an employee and the tax system. Cashflow Quadrant is very much required reading for anyone looking to break out of the rat race. Below are my top 5 takeaways from the book (but you should really read the whole thing):

#1. As an Employee, The System is Against You

The said ‘quadrant’ of the title is made up of four types of income: “E” (Employee), “S” (Specialist or Self-Employed), “B” (Business Owner), and “I” (Investor). The vast majority of people are “Es” and are also the most disadvantaged of the four. As an employee, taxes (income, social security, medicare, etc) are taken from you before you get any money. You pay taxes and get what’s left. As an “S” or “B” you have tax advantages, such as deductions and depreciation. These lower the amount that’s taxable; you spend money and pay taxes on what’s left. To make matters worse, “Es” are also taxed at the highest rates!

“Your boss cannot make you rich,” Kiyosaki writes. “The reality is, your boss’s job is not to make you rich. Your boss’s job is to make sure you get your paycheck.” Which is then taxed. If you remain an employee, you’re working hard for taxes and what’s left. Being an employee also usually takes away a lot of your time. You’re at the whim of a manager or company — you must adhere to their schedule and demands. If you’re unwise about your money skills and budgeting, “then all the money in the world cannot save you…if you budget your money wisely, and learn about either the “B” or “I” quadrant, then you are on your own path to great personal fortune, and, most importantly, freedom.”

What’s even more messed up is the fact that The System only gives tax breaks for “Es” if you go further into debt. Think about it: as a business owner, your expenses and the “cost of doing business” are deductible from your income, reducing what you pay taxes on; as an “E” the only tax breaks you get are from taking on debt like a home mortgage or student loans. These two (usually large) loans have tax deductible interest. But you have to go into big time debt just to get the deduction. Simply put, you want to get out of the “E” quadrant as fast as possible.

#2. In Debt vs Indebted

“The more people you are indebted to, the poorer you are. And the more people you have indebted to you, the wealthier you are. That is the game.”

This one is brilliantly simple. If you owe a bank a mortgage, another bank credit card debt, another institution student loan debt, your parents $100 you borrowed, you are in debt to someone else. Your earned money is taken away by these debts. However, if someone owes you, you earn money by these debts. As a property renter or bond buyer or lending via a Peer-to-Peer lending service, people are indebted to you. “We are all in debt to someone else,” says Kiyosaki. “The problems occur when the debt gets out of balance.”

“The world simply takes from the poor, the weak, the financially uninformed. If you have too much debt, the world takes everything you have…your time, your work, your home, your life, your confidence, and then they take your dignity, if you let them. I did not make up this game, I do not make the rules, but I do know the game…”

#3. Mind Your Own Business

Kiyosaki shatters “Industrial Age” adages and beliefs against the rock of reality that is the 21st century. “Go to school and get good grades, so you can find a safe, secure job with good pay and excellent benefits,” he points to as out-of-date advice. “Work hard so you can buy the home of your dreams. After all, your home is an assent and is your most important investment.” “Having a large mortgage is good because the government gives you a tax deduction for your interest payments.” “Buy now, pay later.”

As Kiyosaki points out, people who “blindly follow” the advice above often end up as employees (“making their bosses and owners rich”), debtors (“making banks and money lenders rich”), taxpayers (“making the government rich”), and consumers (“making many other businesses rich”) The people following this advice are making everyone else rich but themselves! “They work all their lives minding everyone else’s.”

To break out of this, you must move into the “B” and “I” quadrants. Move from the employee to the employer. How do you do this? Start a business. Offer a product or service. To enter the “I” quadrant as an investor, learn about finance and investing. Buy stocks or bonds that generate income. Or buy an existing franchise! Don’t work at McDonald’s, own one. It may seem like a leap, but as Kiyosaki will repeat over and over, it’s about financial education. Don’t grow other people’s businesses, grow your own.

#4. Assets and Liabilities

Find any YouTube interview with Kiyosaki (or read any of his books) and I guarantee you will hear him mention these two things. “An asset,” he likes to say, “puts money into my pocket. A liability takes money out of my pocket.” He punctuates this always by stating “your home is NOT an asset!” The mindset is that buying a home with a large mortgage is an asset — this is archaic thinking — because the mortgage interest is tax deductible. But you still have the monthly mortgage payment. And property taxes. And Private Mortgage Insurance (PMI) if you put down under 20%. Plus you have renovations and repairs. But a home becomes an asset when your rent it. The rent brings in monthly income. The repairs and renovations become tax deductible as business expenses.

Thinking more about these two things really changed my focus on spending money. When I spend money now, I think “is it an asset or a liability?” “Will it make my money or cost me money?” I get excited when I buy a new stock or more shares of a stock I already own. They’re going to go to work for me and make money. I had to buy a new car not long ago and groaned about the new liability — but if I use it to Uber or Amazon Flex, now it’s an asset because it puts money in my pocket. The gas I use and tires I purchase are now business expenses.

Assets and liabilities are as core to wealth as supply and demand.

#5. Other People’s Time and Money

“OPT” and “OPM” as Kiyosaki calls them are “found on the right side of the quadrant.” A “B” Business Owner and “I” investor become wealthy using other people’s time and money. It sounds sinister, but think it through. If you’re an employee, you have a job because someone built a business around an idea or product. Your paycheck is the direct result of someone else’s time and money. Put yourself on the other side of the equation: by putting in the time and money to start a business, you begin to earn back both at the expense of someone else’s who works for you.

The “I” quadrant is the most unique. In the “I”, Kiyosaki says “money works for you.” This is why I love investing so much. If I buy shares of Coca-Cola, the company is doing the work for me. The stock may increase in value, making me money. Then, every quarter, they pay me money in the form of a dividend. I don’t work for Coca-Cola. I don’t attend any meetings or drive anywhere. I don’t even get a paycheck from them. I get increased asset (there’s that word again!) value and a dividend. Best of all, I still have all of my time to dedicate to something else (or nothing, if I chose).

Kiyosaki: “A few years ago, I read this article that said most rich people received 70% of their income from investments, or the “I” quadrant, and less than 30% from wages, or the “E” quadrant. And if they were an “E”, chances were that they were employees of their own corporation.”

I have barely scratched the surface of Cashflow Quadrant with this post. It was one of the earliest books I read when I wanted to change my thinking on finances and wealth and it had one of the greatest impacts. It pulled back the curtain. It shook me out of a sleepwalking daze of going to work day in and day out, collecting a paycheck that was heavily taxed and withheld. It put me on the path to financial freedom. I cannot recommend it enough! To help you on your own personal wealth journey, I added a link to buy a copy below by clicking on the cover or here.