There are only four ways to make money

in this world. Employee, self-employed,

business owner, investor.

And the one you're in decides whether

you build wealth or spend your life

chasing it.

Today I'm going to show you which one

you're in, why you're stuck there, and

how to cross over to the side that

builds wealth.

I learned this framework back in August

2017 from a book called Cashflow

Quadrant. But before we break down the

four quadrants, one story first. Because

once you get this story, the quadrants

explain themselves.

Two guys, Ed and Bill, live in a small

village that has no water.

The elders decide to hire them to solve

this problem. The first guy, Ed,

immediately runs out, buys two buckets,

and starts carrying water from the lake

every single day. Morning to sunset.

Hard work, good money, the village is

happy. Ed is happy.

The second guy, Bill,

disappears for months. Nobody sees him.

Ed is thrilled. No competition.

But then, Bill comes back with a

construction crew. And they build a

pipeline directly from the lake to the

village. Bill's water is cleaner, it

runs 24 hours a day, 7 days a week, and

it costs 85% less than Ed's water.

The village immediately switches. Ed

panics, buys more buckets, hires his

sons, works nights and weekends.

But you cannot compete with a pipeline

using buckets.

Meanwhile, Bill takes his pipeline to

other villages, then cities, then

countries. He earns a penny from every

bucket delivered, but billions of

buckets are delivered every day. He

earns money while he sleeps, while he's

on vacation, while he's at dinner with

his family.

Ed works hard his entire life

and dies with financial problems.

Bill builds once and earns forever.

Here is the question to ask yourself

now.

Am I building a pipeline

or am I carrying buckets?

Your job is a bucket. Your salary is a

bucket and there's nothing wrong with

buckets. We all need them to survive.

And let me be open with you.

I used to hate my buckets.

When I started reading books like this,

I would come home from my 9-5 job and

feel angry.

Angry at my job, angry at my boss. I

thought my job was the thing standing

between me and success. I thought if I

could just quit tomorrow, everything

would change magically.

I was wrong.

My job was not the problem. It was

feeding me while I built my pipeline.

My salary paid for the rent so I had a

roof over my head while I figured things

out.

So, if you are carrying a bucket right

now, listen carefully.

Don't hate it.

Your bucket is not your enemy. It's

buying you the time to build your

pipeline.

But remember this, a bucket will never

make you free.

No matter how heavy the bucket is, no

matter how fast or how many you carry.

Because the moment you stop carrying,

the water stops.

So, carry your bucket with gratitude.

Then go home and build your pipeline.

That's lesson one for you.

Now, here comes the most important

question.

Where do you build it?

And to answer that, we need to

understand the cash flow quadrant.

It is a simple drawing. Two lines, four

boxes. One for each type. On the left

side you have the employee and the

self-employed. And on the right, the

business owner and the investor.

Each quadrant is like a different

country. They have their own language,

culture, and values. People in each one

are motivated by completely different

things.

Let me show you what I mean.

Employee.

Picture a software engineer at Google or

a marketing manager.

High-skill, respected career.

The employee trades time for a paycheck.

And what they value most is security. A

steady salary, benefits, a predictable

life.

Listen to an employee for 5 minutes and

you'll hear it. They say things like,

"I'm looking for a safe job with good

pay and great benefits." Or, "I just

want something stable."

If you've ever said those words out loud

or in your head, you're in this

quadrant.

And look, being an employee is not a bad

thing. It's honest work. Many E's are

brilliant, hard-working people.

I was an employee for years. So, I'm not

looking down on this quadrant. I know

what it feels like.

But, the problem is your entire income

depends on one source.

One job, one employer, one decision made

by someone else.

If that disappears, your income

disappears with it.

Now, let's talk about the hard part.

Taxes.

An employee in most Western countries

pays somewhere between 35% and 50%

of their income in taxes once you add

income tax, social security, and health

care. And the cruel part is the

government has already taken its cut

before the employee gets to spend a

dollar.

The employee earns, gets taxed, spends

what's left. Let's move to the second

quadrant. Self-employed.

A lot of people realize the employee

problem, so they make a move. They leave

the job, go self-employed, become their

own boss.

And on paper, it sounds like freedom. No

more boss, no more being told what to

do.

They don't realize they just walked from

one trap

into a bigger one.

Because as an employee, they had one

job. Now they have 10 different jobs

they have no idea how to do.

Invoicing, marketing, selling,

accounting, and operations.

Picture the average freelancer. The

doctor with their own practice, the shop

owner, the consultant.

Working harder than ever.

Earning well, maybe, but exhausted

because everything still depends on

them. This is Ed, the bucket man of our

first story.

Listen to a self-employed person and

you'll hear the common line,

"If you want it done right, do it

yourself."

Or,

"Nobody else does it better than me."

Or,

"I can't find good people."

The moment you truly believe nobody does

it better than you,

you can never step away.

You can never scale.

You become the business, and the

business can never grow bigger than you.

The dentist who goes on vacation also

sends his income on vacation.

Self-employed people often work way more

hours than employees, and pay roughly

the same in taxes. Depending on your

country, 30 to 50% when you add it all

up.

Similar to employees, when a

self-employed person stops showing up,

the money stops, too.

Business owner.

Picture Elon Musk, Jeff Bezos,

the guy who owns 12 car washes in your

city. They are the business owners.

The business owner doesn't own a job,

they own a system.

And that system has people running it

for them.

A true business owner can leave their

business for a year, come back, and find

it more profitable than when they left.

They don't do the work themselves. They

build the machine that does the work.

Listen to a real business owner and

you'll hear a completely different kind

of language.

Yeah, I'm looking for a president to run

my company.

Or

we need to build a better supply chain

for that.

Or

who can I hire to handle this?

Notice how none of those sentences have

the word I doing the work.

That's the shift. That's the whole game.

So, ask yourself one question.

If I stopped working tomorrow,

will my income stop, too?

If yes, you're still in the S quadrant,

no matter what your business card says.

A real business runs without you.

In our first story, this is Bill, who

built the pipeline.

The business owner also has a secret

weapon, something called OPT,

other people's time.

You and I have 24 hours in a day. A

business owner with 20 employees has 20

times of that.

That's how the right side scales past

what anyone person can do alone.

And the taxes are even more interesting.

A business owner can legally pay 15% to

25%,

sometimes less.

Not because they're cheating, because

the tax code is written for them.

The secret is that businesses don't pay

tax on what they earn.

They pay tax on what's left after

expenses.

Earn, spend, pay tax.

Compare that to the employee. Earn, pay

tax, spend.

Same country, same laws, completely

different order.

Investor.

Now, picture Warren Buffett or a real

estate investor who owns 50 rental

properties.

The investor makes money with money.

Everyone else earns through effort or

systems.

Investors earn through ownership.

Listen to a real investor and you'll

hear something that sounds almost like

another language.

What's my cash flow on that? Or what's

the ROI?

Or

is that income or capital gains?

The investors have their own secret

weapon. OPM.

Other people's money. They use the

bank's money, other people's savings, to

buy assets that generate returns. They

profit from money they never earned.

Now, let me show you how absurd this

gets with taxes. Because a real investor

can pay 0%

in taxes.

Let me walk you through how.

Say Warren Buffett decides to buy a big

company. Does he write a check from his

own bank account?

No.

He goes to a bank, borrows the money,

buys the company with the bank's cash.

Now, pay close attention to what just

happened.

Borrowed money is not income. So, it's

not taxable.

The interest he pays on that loan is tax

deductible, so it actually reduces his

taxable income.

The company he just bought produces

profits, but those profits get

reinvested, spent on growth, used to buy

more assets. By the time anyone

calculates taxable income, there's

almost nothing left to tax.

Meanwhile, the company grows. His

ownership stake grows. He's getting

richer every single year without ever

triggering a single tax bill. And when

he needs cash to live on, he doesn't

sell his stock. Selling would mean

paying capital gains tax.

Instead, he borrows against his assets.

More debt, which is not income and

because of that it's not taxable. They

earn, then spend on acquiring income

generating assets.

Then borrow to live their lifestyle. Pay

almost no taxes.

Let that sink in.

An employee working 60 hours a week as a

surgeon pays 45%

in taxes.

An investor who never goes to an office

can legally pay close to zero.

Same country, same laws, completely

different game. The tax code isn't

broken.

It's doing exactly what it was designed

to do.

Because governments need people to take

risks, start businesses, hire workers,

invest capital.

An employee

doesn't take those risks.

So, the government rewards the people

who take the risks with lower taxes and

incentives.

Remember our first bucket versus

pipeline story? If Bill was the

businessman, someone who gave him money

to hire construction workers and buy

pipes is the investor in his business.

So, now you know the map. You know which

side you want to be on.

But, knowing where to go isn't the same

as getting there. Because moving from

the left side to the right is not a

small change.

It's a full rewiring of your habits,

your beliefs, your language, and your

identity. It's one of the hardest things

you will ever do in your life.

So, to make it easier, let me share

seven strategies that I wish someone had

given to me 10 years ago.

Number one,

stop buying liabilities.

Your house is your bank's investment,

not yours.

Open two balance sheets side by side,

yours and your bank's.

Your mortgage sits in your liability

column. The exact same mortgage sits in

your bank's asset column.

You're the employee, they're the owner.

And this isn't just about your mortgage,

this is the game of capitalism.

Who is indebted to whom?

The more people indebted to you, the

wealthier you are.

The more people you are indebted to, the

poorer you are.

Every mortgage, every car loan, every

credit card balance, every one of them

makes you someone's employee.

So, how do you flip it?

How do you stop being the employee and

start being the owner?

You stop buying things that take money

from you and start buying things that

pay you.

The first kind is a liability. The

second is an asset.

That's the entire game. So simple that

most people refuse to believe it.

I know that some of you are thinking,

"I don't have money for a rental

property."

Good, you don't need one.

A YouTube video that earns you $50 a

month, that's an asset. A book, an

online course, a dividend stock, a small

share in someone else's business.

Real estate is one asset. It's not the

only one.

And it's definitely not the one you

should start with.

So, look at every monthly payment

leaving your account right now.

Every single one is a piece of you being

rented out to make someone else rich.

Your job now is to flip the equation.

Spend your money on something that pays

you over time, not on something that

takes more money from your pocket.

That's how you move from the left side

to the right side of the quadrant.

Number two, find a mentor.

A mentor is someone sitting at the top

of the mountain eating oranges

while you're still at the bottom

scratching your head trying to figure

out how to get up there.

If you decided tomorrow you wanted to

climb Mount Everest, what would you do

first?

You'd find someone who has already

climbed it. Someone who knows which

routes are dangerous, which weather

patterns kill people, which mistakes the

inexperienced always make.

You would never say, "I'll just figure

it out on the way up."

But when it comes to money,

business, starting a YouTube channel,

that is exactly what most of us do.

I know it

because

I did it.

I wasted almost 3 years trying to be

successful on YouTube. I made every dumb

mistake you can imagine. Mistakes I

could have easily avoided if I had just

put my ego aside and asked for help.

Olympic athletes are the best in the

world at what they do. And still, every

single one of them has a coach.

Think about that. The people who are

already the best have coaches.

The people who've never started a

business think they can figure it out

alone.

That's the whole problem.

This is why these days I have no problem

paying $1,000 for 1 hour of

consultation.

I'm buying back years of my life. I'm

buying every mistake they already paid

for.

I'm buying the shortcut.

So, stop trying to climb the mountain

alone.

Find someone who's already at the top.

Pay them. Learn from them.

And if your mountain is building a

YouTube channel,

you can reach out to me for

consultation.

I've already paid for those mistakes.

Link is in the description.

Okay, now that my shameless

self-promotion is over,

let's get to the next one.

Number three, escape the lifestyle trap.

Before you can build anything, you need

to stop digging the hole deeper.

There's a trap most people never see

because they're living inside it.

It goes like this.

You go to school, get a job, start

earning. Suddenly, you can afford things

you couldn't before. An apartment, a

car.

Then you meet someone, fall in love, get

married. You take a mortgage and buy a

house.

Then the child arrives.

And now you absolutely cannot afford to

lose your job. So, you work harder, get

promoted, get a raise. And one day, it

hits you.

The more successful you become,

the more trapped you are.

Every raise brings higher taxes. Every

promotion brings less time. Every

upgrade to your lifestyle brings more

bills.

The trap gets tighter the more

successful you become.

And the scariest part is,

this feels completely normal.

Because everyone around you is doing the

exact same thing.

So, the next time you get a raise,

before you upgrade anything, ask

yourself one question.

Am I making my life better?

Or,

am I making my cage bigger?

Because every dollar you spend to a

bigger lifestyle is a dollar that can't

go toward your freedom.

Number four, win the emotional battle.

Money is a drug.

When you receive money in a certain way,

as a salary, as a freelance payment, you

get wired to that way.

Your nervous system gets addicted to it.

And when you try to change, the part of

you addicted to the old way fights back

hard.

It feels like cutting off oxygen.

This is why changing quadrants is so

emotionally difficult, even for people

who completely understand it

intellectually.

The rational brain knows exactly what to

do. The emotional brain won't let you do

it.

In moments of high emotion, the

emotional brain is 24 times more

powerful than the rational brain.

That's why they say financial IQ is 90%

emotional IQ.

So, here's what to do.

Next time you feel that resistance,

don't fight it.

Just notice it and keep moving anyway.

The discomfort isn't a bad sign. It

means you're changing. So, when it shows

up, don't run from it. Name it.

This is just the old me fighting back.

Then keep going.

Number five, build systems, not

products.

Let me ask you something.

Can you make a better hamburger than

McDonald's?

Fresh ingredients, quality beef, good

bread.

Almost everyone says yes.

Now, can you build a better business

system than McDonald's?

That's where most people go silent. This

is the trap that kills most

entrepreneurs before they even start.

They fall in love with their product,

spend years perfecting it, and then

wonder why they're not growing.

Wealth is not built in products.

Wealth is built in systems.

Next time you go to McDonald's, don't

look at the burger.

Look at the trucks delivering the

ingredients, the training manual that

teaches every new employee to say the

same words in every country.

That is the business.

The burger is just the excuse to build

it.

So, whatever you're building, ask

yourself,

am I building a product or am I building

a system?

Fall in love with the machine that makes

the burger, not just the burger itself.

If it can't run without you, you don't

have a business.

You have a job.

Number six, become a level four

investor.

People always ask,

is real estate a good investment? Are

stocks good?

Is gold good?"

And the answer is always the same.

"I don't know. Are you a good investor?"

Because the asset class is almost

irrelevant. A skilled investor makes

money in real estate, stocks,

commodities, businesses. An unskilled

investor loses money in all of them.

The investment doesn't determine the

outcome, the investor does. There are

five levels of investors. See if you can

recognize yourself.

The first three levels are where most

people live. Level one spends more than

they earn.

Level two

only saves

and loses to inflation every year

without realizing.

Level three hands their money to an

expert, hopes for the best, and blames

the expert when it goes wrong.

The real investor starts at level four,

the professional.

The professional takes control,

educates themselves, manages their own

money, makes mistakes, learns from them,

gets smarter.

Level five, the capitalist,

uses other people's money to build

assets,

has teams,

thinks bigger,

creates value rather than just captures

it.

Most so-called investors are on level

three, and then they want to become

capitalist.

Anyone who jumps from level three to

level five is gambling, not investing.

Because if you haven't learned to manage

your own money yet,

what do you think happens when you start

playing with someone else's?

You don't just lose your money,

you lose theirs, too.

So, get to level four.

Start making your mistakes right now

with your own money.

Small mistakes,

painful enough to learn from, small

enough that they don't destroy you.

Because the investor you become at level

four is the only reason you'll ever

survive at level five.

Number seven,

when you actually build wealth.

The only difference between a rich

person and a poor person

is what they do in their spare time.

Not their salary or education.

Their spare time.

I know what some of you are thinking

right now.

I have a 9-5. When exactly am I supposed

to do anything extra?

Most people think the only way to build

wealth is to quit their job, take a

massive risk, and bet their family's

future on an idea.

That's not true.

Think about it. Two people work the same

9-5, same office, same paycheck, same 40

hours a week. But, what happens in the

14 hours a day they're not at work?

That's where the lives split.

One of them comes home, opens a beer,

scrolls on their phone, and goes to bed.

The other comes home, watches a YouTube

video on real estate, sends three emails

about a side business they're building,

and reads for 20 minutes before bed.

Fast forward five years,

same job, same paycheck, completely

different lives.

Your boss's job is not to make you rich.

Your boss's job is to make sure you get

your paycheck. Your job is to make

yourself rich.

When you're at work, work hard. Give

them everything. That's the deal you

signed.

But, your future doesn't get built at

work. It gets built in the hours around

work. Before the work,

after the work,

on the weekends when everyone else is

wasting time.

If you work hard on the left side, you

work hard forever.

If you work hard on the right side,

in those small pockets of time around

your job,

you have a chance of never needing that

job again.

So, stop thinking of your day as work

and rest. Start thinking of it as three

parts. The hours that pay the bills, the

hours that build the future, and the

hours that recover you for both.

If you don't have the second category,

you're not building anything.

That's it for this video. If you want to

see more book summaries like this one, I

will put two videos on the screen for

you.

Increasing your financial IQ and Rich

Dad, Poor Dad.

Thanks for watching.