Which Quadrant is Right for You?
’ve had the honor and privilege of doing quite a few one-to-one Blueprint Days with our Freedom Founders members.
And within our wide age-range of members (mid-30s to mid-60s), I’ve found some common themes.
First of all, every one of our members put in the work, got their education, and likely started out as an associate or in a corporate position. But, for most of us, the dream is owning your own private practice, with the goal to live a great life. And for us in Freedom Founders, the goal is to have freedom – being able to do what you want, with whomever you want, whenever and wherever you want to do it.
Does that mean we don’t work? Of course not. But it means we can evolve from where we all started out, trading time for dollars.
Let me take you through some quadrants that will explain what I’m talking about. Most people don’t have clarity on how they need to be iterating, shifting, or moving through these quadrants – starting from an early age, when they get out of school and start on their career path.
I’m going to start with Robert Kiyosaki’s now-famous four quadrants. Most people have picked up his books, Rich Dad, Poor Dad and The Four Quadrants. I’m not an all-out fan of Kiyosaki, but he set some really good frameworks in some of his early works. So let’s talk about these four quadrants.
The first is the “E” quadrant, which stands for “Employee.” Most of us didn’t start out with a practice; we’ve all had job positions where we’ve been employees. There are people out there who like that lifestyle. There’s nothing wrong with that, but it is a choice.
I’m going to show you, through the quadrants, how you can get to freedom no matter which path you take. So, some people stay at “E,” but those who don’t often move into having their own businesses.
That’s the second quadrant, “SE”: self-employed. That’s most small business owners today – they want to “be their own boss.” So you start a practice or buy an existing one. Now you’re the owner of the practice, but you’re also the technician. We trade time for dollars as the highly-skilled technicians we were trained to be. But even though we own the business, we are workers at that business and it owns us. Not many small business owners have true freedom. They get to call the shots on some things, which is satisfying, but there is a lot of drudgery and doing things that they don’t really want to do.
The next quadrant is the “B” quadrant, for business owners. So what is a real business?
If you walk into a McDonald’s and ask to talk to the owner, they’re going to tell you “the owner’s not here.” There’s a manager, someone to oversee the operations. The owner probably owns multiple McDonald’s franchises and periodically checks up on things with the managers, but they aren’t present in the operations. That’s a real business.
The fourth and last quadrant is “I”, for Investor. The Investor quadrant is very passive. This means that you invest capital in other investment assets without necessarily controlling the entity. As a business owner, I can control that entity without necessarily having to work in it. As an investor, I’m less tied to it – more like a silent partner.
I still may want to be involved in choosing my investments and knowing the people I’ll be investing with, but I’m not going to be in the operations. I’m going to have structured agreements that give me a certain return, which are put together on a real-time basis.
That’s the quadrant which gives you ultimate freedom.
But again, some people don’t want to be passive investors. Some people want to have an active and involved role in their business. And others love being employed by a great company where they can go in, do great technical work, and come home.
So you see, those four quadrants apply to all of us. You just have to decide where you want to be. Do you want to shift through the quadrants over time? How does that look?
Let’s dig into how you might do that.
Some people want to stay in the employee category and move up the ladder there. What are their options? They can bypass quadrants 2 and 3 and go right to “investor.” And that’s probably what they should do, since they don’t want to spend their free time in business or managing investments.
Where does the problem come in? It’s where they invest their money.
The traditional financial model (Wall Street, 401(k)s, mutual funds, index investing, etc.) is not going to give any kind of a real return “pop” or inflection point to move the needle on those capital investments.
Stay away from those tax-deferred vehicles that Wall Street sells. They say “hey, you need to do this and we’ll save you taxes today.” But they forget to tell you (or don’t make a big deal of it) that you’ll have to pay those taxes later – and that the taxes will be higher, not lower. So you’ve turned 180 degrees backward from your goals.
The other problem with these 401(k) models is that they lock your money up until you’re 59 ½, and you have no control over it. I’ve talked to so many disciplined Freedom Founders members who piled up money, maybe a half-million, million, or more, and put their money in these vehicles.
That’s great, but what if they want to “go free” or have their investments working for them before age 59 ½? That money’s tied up – so they can’t go free and have to stay actively working. If you want to stay in the “E” quadrant, invest in capital assets. But you’ve got to find the right people to do it with.
Let’s go to the next one, self-employed. They can move in two different directions, and I actually recommend doing both simultaneously.
The self-employed can start moving toward business ownership, where they are doing less of the technical work. You’re typically not totally removed from the business, but you have other people doing most of the work, and you’re also putting some capital into passive investments (capital investments, not tax-deferred vehicles).
Some people want to leave the “SE” quadrant completely and move everything to the business sector. It can be done, but it takes a special breed of person to do that. But if you can make that “pop,” now you’ve got more capital that you can start moving to the “I” quadrant. At some point, you’re going to want to pull back the throttle on the businesses, and you’ll want that passive cash flow from your capital investments.
The “I” quadrant is where I love to put money into Real Estate. And you can also be a minority partner with good people in a business.
Ultimately, you have to choose if you want to end up in the business owner quadrant or the investor quadrant – or both. You can move wherever you want to from any of the quadrants, but you’ve got to be intentional about it.
The major breakdown comes from hardworking professionals who have millions of dollars of capital run through their hands, as either an employee or self-employed. And yet, when they reach their 50s or 60s, they have very little to show for all that money that passed through their hands.
Why? Because they abdicated control of their investments to the 401(k) and other traditional financial models. They didn’t put in the time and effort to make their money work as hard for them as they did for their money.
I’m trying to turn that around for them – trying to change the mindsets of hardworking people, who received great educations and do great work, but need to leverage what they’ve done so that they have options. So that they have the freedom to not be stuck, pounding it out on that same treadmill, dealing with PPO insurance, decreased margins, or any of those other headaches.
There are so many ways to run your life, but you probably don’t totally understand what all the alternatives are. That’s what we do in Freedom Founders: We open the door and show you the alternatives, and help you choose a plan based on who you are and what you want.
That’s the key. Don’t follow anybody else’s plan – follow the plan that’s designed for you. That’s what we’re really good at. My genius zone is helping other people design and construct around the four quadrants.
If that makes sense to you, we’d love to connect with you. Follow my blog, follow the Dentist Freedom Blueprint podcast, grab my books on Amazon, or jump on board and get a hold of my monthly newsletter.
P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :
1. Schedule a Call with Me:
If you’d like to replace your active practice income with passive investment income within 2-3 years, and you have at least $1M in available capital (can include residential/practice equity or practice sale), then click the link to jump on a quick call with my team. If it looks like there is a mutual fit, you’ll have the opportunity to schedule a call with me directly. www.freedomfounders.com/schedule
2. Get Your Free Retirement Scorecard:
Benchmark your retirement and wealth-building against hundreds of other practice professionals, and get personalized feedback on your biggest opportunities and leverage points. Go to www.FreedomFounders.com/Scorecard to take the 3 minute assessment and get your scorecard.
3. Ready to Step Away?
“How Much is Enough?” This simple question keeps hard-working professionals at the hamster wheel of active income far longer than they need to be. Watch this free training, and discover a proven model for determining how much you really need before hanging up the handpiece! www.freedomfounders.com/training