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Are you hauling buckets or building pipes?

Kiyosaki believes that everyone belongs in one of the above quadrants. The main difference between the left and right side is, when people on the left stop working, their income stops as well (active income), whereas, when the people on the right stop, income still flows in (passive income).

This is better illustrated by the story below:

Once upon a time there was this quaint little village. It was a great place to live except for one problem. The village had no water unless it rained. To solve this problem once and for all, the village elders decided to put out to bid the contract to have water delivered to the village on a daily basis. Two people volunteered to take on the task and the elders awarded the contract to both of them. They felt that a little competition would keep prices low and insure a back up supply of water.

The first of the two people who won the contract, Ed, immediately ran out, bought two galvanized steel buckets and began running back and forth along the trail to the lake which was a mile away. He immediately began making money as he labored morning to dusk hauling water from the lake with his two buckets. He would empty them into the large concrete holding tank the village had built. Each morning he had to get up before the rest of the village awoke to make sure there was enough water for the village when it wanted it. It was hard work, but he was very happy to be making money and for having
one of the two exclusive contract for this business.

The second winning contractor, Bill, disappeared for a while. He was not see for months, which made Ed very happy since he had no competition. Ed was making all the money. Instead of buying two buckets to compete with Ed, Bill had written a business plan, created a corporation, found four investors, employed a president to do work, and returned six months later -with a construction crew. Within a year his team had built a large volume stainless steel pipeline which connected the village to the lake.

At the grand opening celebration, Bill announced that his water was cleaner than Ed’s water. Bill knew that there had been complaints about dirt in Ed’s water, Bill also announced that he could supply the village with water 24 hours a day, 7 days a week. Ed could only deliver water on the weekdays … he did not work on weekends. Then Bill announced that he would charge 75% less than Ed did for higher quality and more
reliable source of water. The village cheered and ran immediately for the faucet at the end
of Bill’s pipeline.

In order to compete, Ed immediately lowered his rates by 75%, bought two more buckets, added covers to his buckets and began hauling four buckets each trip. In order to provide better service, he hired his two sons to give him a hand for the night shift and on weekends. When his boys went off to college, he said them, ‘Hurry back because someday this business will belong to you.’

For some reason, after college, his two sons never returned. Eventually Ed had employees and union problems. The union was demanding higher wages, better benefits, and wanted its members to only haul one bucket at a time.

Bill, on the other hand, realized that if this village needed water then other villages must need water too. He rewrote his business plan and went off to sell his high speed, high volume, low cost, and clean water delivery system to villages throughout the world. He only makes a penny per bucket of water delivered, but he delivers billions of buckets of water everyday, regardless if he works or not, and all that money pours into his bank account. Bill had developed a pipeline to deliver money to himself as well as water to the villages.

Bill lived happily ever after and Ed worked hard for the rest of his life and had financial problems forever after.

The end.

(extracted from Cashflow Quadrant by Robert Kiyosaki)

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