We all want answers to certain questions about money. Where is the wealth of this country and who controls it? Can we as individuals increase the size of the pie? Can I grab a generous slice for my personal consumption and build a family legacy?  

The answers to these questions lies in understanding the 5% principle. This states that a mere 5% of the people are known to have a special advantage over the other 95%. The most astounding fact about the 5% is that their “special advantage” boils down to simple traits and skills that anyone can develop: mindset, networks, habits, associations and knowledge. Ignoring the blatant mathematical impossibility, I want to make this bold assertion. In theory, everyone could be in the 5%! The top tier is not actually reserved for the elite, but it is specifically set apart for the enlightened.

Robert Kiyosaki’s book ‘The Cash Flow Quadrant’, is the typical starting point for enlightenment on this subject. He places each person into one of four quadrants, based upon the strategy utilized to produce income. Those who understand how money works will be motivated to migrate into quadrants which offer the best opportunity to gain and grow wealth.

The Upper Left Quadrant

The “E” or Employee quadrant represents the default way of living. Our educational system has prepared us to live and operate here. We are taught to get a good education and find full employment with retirement benefits. For generations, this strategy has been held up as the ultimate goal. Only recently have we begun to acknowledge the truth: no one can obtain real wealth as an employee.  

“E” quadrant people trade time for money.  Income is restricted by employers. Wage increases can be attractive for the first 10 years or so but generally will flatline suddenly at some point while financial needs continue to rise. Many employees work for forty-five years and then retire to live on an income that is half their earlier wage. And, tragically, 15% – 30% of adults in the U.S. will die before reaching the traditional retirement age of 65. Taxes in this quadrant are high and are taken out before the employee receives a paycheck.  

The Lower Left Quadrant

This quadrant offers at least an illusion of greater possibilities for a worker. This is the “S” or Self-Employed quadrant, where professionals like doctors, lawyers or entrepreneurs may opt to open their own shop or establish an online business. In well run business profits are good and savvy business owners enjoy setting their own hours and salaries. They enjoy tax advantages due to having more tax write-offs and being able to pay taxes after accounting for salaries and other expense. And yet Kiyosaki claims that the tax burden in this quadrant exceeds that of the other three, because they will pay additional taxes—like sales taxes. In addition, many “S” businesses are debt-ridden by massive student loan re-payments and expensive equipment required for their businesses. Many would describe these as people who “own a job” because they are still basically just trading time for money. 

Switching Sides

In all, 95% of the population operates in the quadrants on the left side, where they control just 5% of the wealth. But with a change in mindset and acquisition of knowledge, anyone can move to the right side of the quadrant. There the percentages are reversed—5% of the people control 95% of the wealth! The pie is undoubtedly larger and the individual has a much greater opportunity to obtain a sizable slice.  

Imagine if $100,000 is allocated in two separate pools to be given away. One pool contains $5,000 and another $95,000. At a given signal, people in a select crowd are invited to grab whatever they can get. No knowledgeable person would run to the pool of just $5,000?And yet, most workers are completely unaware of the other pool because it is hidden behind a curtain of financial illiteracy.

Let’s pull back the curtain and take a look at the right side of the quadrant. Think of the left side as the “me” quadrants, where the individual has no resources other than her own, individual efforts. The right side becomes the “we” side which leverages systems and the efforts of others.  

The Upper Right Quadrant

The upper right is the “B” or Business quadrant. Franchise operations, subscription and network marketing systems fall into this quadrant. “B” business owners rely on passive, residual income generated by the system to provide a stream of income that does not require active, daily work and continues after retirement. They have greater control over taxes, because the government rewards them for hiring workers. A strong “B” business generates profits and creates wealth that is spread throughout communities and passed on to future generations.  

The Lower Right Quadrant

On the lower right is the “I” or Investment quadrant. Here things – investments – rather than people work for the business owner.  These business owners use money to make more money. Real Estate is one of the most popular types of “I” businesses.

The Bad News

The obvious conclusion is worth chewing on a bit. A full 95% of us are clamoring and clawing for a tiny sliver of the available wealth, watching and wailing as economic conditions go from bad to worst. Hard work alone does not work. There are only so many hours in a day that are available for one individual to work. Stuff happens, and everyone needs time for rejuvenation and to assist with family. Employers cannot afford pay wages that will keep up with inflation.

The Good News

Now for the good news: we all have the ability to take the leap from the left side to the right side. There, opportunity is plentiful for anyone who is knowledgeable, persistent, hungry, patient and plugged into a community of these same kinds of people. By acquiring wealth thinking, each of us can learn to leverage systems and escape into the 5%.  

Read more of Gail’s article on Plaid or connect with her on her website.