In his book “Cashflow Quadrant: Rich Dad’s Guide to Financial Freedom”, Robert Kiyosaki identified seven (7) levels of investors. The ideas are coming from John Burly but he modified the definitions based on his experiences. The 7 levels of investors according to Kiyosaki are,
Level 0: Those with Nothing to Invest
Level 1: Borrowers
Level 2: Savers
Level 3: Smart” Investors
Level 4: Long-term Investors
Level 5: Sophisticated Investors
Level 6: Capitalists
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Level 0: Those with Nothing to Invest
These people have no money to invest. They either spend everything or more than their regular income. Not all people fall under this category are low income earners. Many “rich” people are also fall under this category. In estimate, about 50% of adult population fall under this level.
Level 1: Borrowers
Borrowers solve financial problems through borrowing money. They are not conscious on their spending habits. They are using several credit cards and buying ‘toys’ that depreciate such as boats and sports cars. If they earn extra money they will buy a larger and more expensive home, thinking that they’re being good investors by doing so. These people can look ‘rich’, because they own expensive things.
Borrowers may have some assets, but their level of debt is simply too high. They even borrowing money for investment.
Level 2: Savers
Savers are the opposite of borrowers. These people save small amounts of money in low-risk, low-return vehicles such as a Fixed Deposit. They prefer to save money rather investing it. They don’t like being in debt and not willing to take any financial risks. Savers spend their time trying to save pennies instead of learning how to invest. In the times of inflation, they end up being a losers.
Level 3: “Smart” Investors
“Smart” investors are educated and intelligent people. However, when it comes to investing, they’re uneducated. There are 3 types of “Smart” Investors. They are either “I Can’t Be Bothered” type (Level 3a), “Cynic” type (Level 3b) and “Gambler” type (Level 3c).
Level 3a: “I Can’t Be Bothered” type
“I Can’t Be Bothered” type people have convinced themselves that they know nothing about money and will never understand when it come to investing. They did not bother to do anything about their money and allow it to sit somewhere doing nothing. They spend their entire lives working and satisfied with their retirement plan.
Level 3b: “Cynic” type
“Cynic” people are the expert on why investing will not work. They overwhelm with cautiousness. They are the ones who tell you how and why you will be swindled in every investment opportunity you’ll get. They know everything that could go wrong in an investment, so talking to them makes you feel discouraged, or even afraid, to invest. “Cynics” people are often afraid to make mistakes, so they spend all their time studying investments until it’s too late to execute them viably.
Level 3c: “Gamblers” type
“Gamblers” people are the opposite of “cynics”. They lack the cautiousness that overwhelm “cynics.” To them, investing is just like playing in the casino. They depend on luck to make their successful investments. However, they end up losing most of the time.
Level 4: Long-term Investors
Long-term investors are the people who have a long-term investment plan for them to achieve their financial objectives. They are generally very conservative with well-balanced financial habits. They are deligently spend time when it come to learn about investing and make a wise decision when making an investment. They understand the importance of minimising debt, live within their means and steadily increase their assets.
They are not keen to invest in sophisticated investments vehicles. Most of millionaires in America are coming from this level.
Level 5: Sophisticated Investors
Sophisticated Investors are people who have a solid financial knowledge and involve in more aggressive investment strategies. They earn more than what they spend. They are continuously seek more information when it comes to investing. They are cautious when investing, but not being cynic. They have good money habits and have a long track record of winning.
Sophisticated investors start small so they can learn the game first, but they are not afraid of failing. They can also create their own deals, which generate returns of 25% to infinity. They are focused on continuously growing their asset base, and own controlling stakes in corporations.
Level 6: Capitalists
Very few people capable of reaching Capitalists level which is the level of investment excellence. They makes more money from other people’s money, time, and talents. They usually have large businesses and large investments. True capitalist create investments and sell them to the market. They love the game of money and are generally very generous. They are the movers and shakers of the world economy by creating jobs and goods.
In every investment made, they expect the returns of 100% to infinity.
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In the end, Robert Kiyosaki stress out that for anyone who want to be a level 5 or level 6 investor, you must develop skills at level 4 first. Level 4 can never ever be skipped. Anyone who tries to skip it is actually a level 3 investor – a gambler!
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Have you identified what level of investor are you in?