Kiyosaki’s Fast Track to escape the Rat Race
The Fast Track model to escape the Rat Race
In the second part of his book – the Cash Flow Quadrant: Guide to Financial Freedom – Robert Kiyosaki explains the importance of monitoring and controlling your Cash Flow.
His call to action is: Mind your own business!
Become your CFO, prepare your financial statements, and control your cash flow. It is the first step to take complete control of your financial life.
If you have cash flow problems, more money will not solve them; it will only increase them. If you have poor/inefficient financial habits, more money will only increase spending and debt without positively affecting savings or investments.
That’s why it is crucial to control your spending by living within your means and controlling debt. Only in the second stage can you grow and expand your means, investing your savings and building your Assets.
Master your Assets and Liabilities | FAST TRACK
Proper cash flow management requires knowing the difference between an Asset and a Liability. Kiyosaki states that an Asset puts money in your pocket, while a Liability takes money out of your pocket. As such, anything could be an Asset or a Liability, depending on the direction of the Cash Flow. The purchase of Real Estate can be an Asset or a Liability, depending on the direction of Cash Flow!
For every Liability you have, you are someone else’s asset. For example, with any mortgage, loan and credit facility, you are working hard to repay it (to the bank): you work for someone else’s profit for several days a month, for years, until you have repaid the debt.
An important caveat to this rule derives from the difference between good and bad debt. Bad debt is generally associated with consumer credit, while good debt is associated with productive credit.
Kiyosaki takes this concept further, stating that good debt is what someone else pays for you (OPM). This is the case of a Real Estate property rented to a tenant whose monthly rent fully repays the mortgage. This type of debt is scalable.
On the contrary, bad debt is the one you pay with your personal sweat. This type of debt is not scalable and does not help you grow your wealth and financial freedom.
Therefore, you must strive for financial intelligence: the capacity to convert cash or labour into Assets that provide Cash Flow.
As an example, Robert visualises the trajectory of money (direction of the Cash Flow) between Debtors and Creditors using this canvas:
The Debtor
1) You earn money with your job. You record it in the income statement.
2) If you have bought a car on credit, the car is a Liability. You have monthly expenditures (money out) linked to this Liability. You have to repay the loan to the creditor (the bank).
The creditor (the bank)
1) The value of your Liability is equally recorded as a creditor’s Asset.
2) The monthly expenditures to repay the car are recorded as monthly income in the creditor’s financial statement.
How to apply the Fast Track to your life
While the model does not entirely rely on accounting principles, it provides an intuitive understanding of the productive side (Fast Track) and the unproductive side (Rat Race):
– The Rat Race transforms income into expenditures and liabilities
– The Fast Track transforms income into assets
Every time you can invest part of your income into Assets that produce Cash Flow, you reinforce an efficient cycle.
When you buy for rent and use the rent to repay the mortgage, or when you buy shares in the capital markets and receive dividends.
It helps to think of yourself as the bank and invest, or as a company and create value.
Sweat Your Assets, and you will fast-track your journey to Financial Freedom.
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Related articles: The Cash Flow Quadrant, by Robert Kiyosaki