The income you generate from assets is called passive income. The reason B and I income is a much surer bet for generating wealth than E and S income is, as we previewed, the fact that assets are the way to compound your money without your labor. The central function of investing remains the same whether you’re a high-flying B or a worker in the E or S categories investing for retirement.) While Kiyosaki devotes a lot of space to advocating readers set their sight on that kind of wealth, you don’t need to own a B-category business to invest at a smaller scale, even if you’re aiming to “cross over” to living on passive income. (Shortform note: You only need to generate B category-level capital in order to invest if you’re aiming to be a capitalist. The kind of wealth that provides financial freedom is almost always generated in the I category, where it compounds without your labor. Kiyosaki says the best path to wealth is to make a significant amount of money in the B category and then use that capital as an investor in the I category. I’s need to be comfortable with risk, since managing risk is the foundation of investing. Examples of passive income include dividends from stocks, interest on bonds, and rental income. Instead, their livelihood comes in the form of assets that generate passive income. Beyond the initial investment, they don’t have to work day to day like those in the other categories do. In the I category, investors commit money (called capital) to something and expect to make a profit. The tutoring company owner profits from the work and time of the E category tutors she hires. However, when the tutor becomes the owner of a tutoring company, she owns the system that finds and trains tutors, connects students to tutors, markets the service, and takes care of logistics. For example, when a tutor sells her expertise and teaching abilities, she is her own product and her own business, which puts her in the S category. The distinction between S’s (small business owners) and B’s (big business owners) is subtle, in part because B’s often start off as S’s. B’s need to be skilled in delegation and leadership, as well as have a high degree of financial literacy. A B’s income is the profit from their business, and their business is considered an asset. People in the B category own their business and generate income by its profit, though they no longer do the day-to-day labor of making it function. People in the B category control not only a business, but a business system. According to Kiyosaki, this is the surer path to financial freedom. While in the E and S categories you generate income in exchange for the work you do, in the B and I categories income comes primarily from assets you own. Kiyosaki says that while lower-, middle-, and even upper-middle-class parents teach their kids the out-of-date financial path we just outlined, rich parents teach their kids the income generation strategy of the Business owner (B) and Investor (I) categories. Like most economists, Sethi sees some inflation as a part of a healthy economy.) The B and I Categories: The Way to Wealth However, Sethi does not have the same doomsday outlook about the impact of inflation on the economy as a whole as Kiyosaki has. (Shortform note: In I Will Teach You To Be Rich, personal finance author Ramit Sethi agrees with Kiyosaki that saving your money means you’ll lose some to inflation. He says when you save money, you’re really just letting it lose value due to inflation. Kiyosaki is adamant that parking your money is one of the worst things you can do with it. Reason #5: Inflation Will Dilute Your Savings (Shortform note: While the rich do use everyman investment tools like Roth IRAs, they also have access to stock deals and assets that are inaccessible to most.)
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