Published on December 11, 2009
I was deleting emails in a company issued laptop when I stumbled upon this very interesting story in my sent items. This story explains what “Passive Income” is, and I forwarded this same story to my friends way back in January 2006, a few months after I first read “Rich Dad Poor Dad” by Robert Kiyosaki.
This was the time when I experienced a paradigm shift in my head after reading the book and started to devote most of my spare time to learn all about passive income, getting out of the rat race, and financial freedom.
Although I read this story almost 4 years ago, I still want to share it with all of you here as I believe that the story clearly illustrates the difference between earned income and passive income. Enough of the chitchat, please continue reading the story below…
A Parable: Creating a Stream
Adapted from an audio segment by
Robert Kiyosaki, best selling author of “Rich Dad, Poor Dad”A Spring Runs Dry
The story is told of a spring that ran dry in a small mountain village. The leaders gathered to determine how they would supply the village with clean water. There was another spring and reservoir about a mile away but was too far for the villagers to travel.
One of the men volunteered to solve the problem by carrying water into the village himself each morning for a set fee. Since the need for water was clear, the leaders agreed to the offer and determined a fair price for each bucket of water delivered.
Early the next morning the “bucket carrier” arose and began transporting water. It was hard work but he was pleased with the immediate pay for his efforts. He awoke each day and hurriedly carried water.
The more he delivered, the higher the pay.
As time went on, he began to think there had to be a better way. So,he designed buckets that could hold more water and were easier to carry. He bought better shoes and discovered a quicker route between the reservoir and the village.
The problem was, despite all his improvements, the bucket carrier still had to get up each day to carry water.
A Better Solution?
Some time later, another villager came forward with an offer to supply water. He planned to build a pipeline from the reservoir to the village.
The leaders were skeptical but eventually agreed to the competing plan, especially since the new proposal would cost the villagers less for the same amount of water.
So, while the bucket carrier continued his daily routine, the second man began work on the pipeline.
The digging was tedious through the treacherous mountain terrain. The necessary tools and materials proved costly but he continued his work diligently for many months.
Finally, the “pipeline builder” installed the last piece of pipe and ceremoniously opened the valve while a crowd gathered. Everyone cheered as they watched clean water flow into the village cistern.
How Things Changed!
The following day the two men’s worlds changed dramatically.
The bucket carrier had to lower his prices significantly to remain competitive. He worked harder and yet found himself worrying about losing his job.
The pipeline builder, however, began enjoying the fruit of his labor. He stopped working long days and began enjoying the income his venture generated. He found the pipeline required minimal maintenance, so he was free to spend his days fishing the mountain streams and enjoying time with his kids.
Years Later
Many years later, after both men had died, the pipeline was still an integral part of village life and the pipeline builder’s children continued to enjoy the benefits of a father’s entrepreneurial spirit.
Observations…
Bucket Carrier Pipeline Builder Description Employee – Has a job Entrepreneur –
Owns a systemIncome Type Linear Income Ongoing Income Effort Constant Intensive early with
minimal laterImplications Time Poverty Time Freedom Reward Immediate gratification (paycheck) Delayed Gratification (fees for service or royalties) Examples Construction worker, Doctor, Secretary, Lawyer, etc. Author, Inventor, Artist, Musician, Business Owner, Entrepreneur, etc. (Real Estate Investor)
Consider building a pipeline…It doesn’t matter how efficient you are at “carrying water” (your job). Nor does it matter the size of your paycheck. Going to work tomorrow, next week and ten years from now will still be the prerequisite to collecting a paycheck.
When I forwarded this story to my friends almost 4 years ago, I had no idea where this adaptation came from as this was not in the book Rich Dad Poor Dad.
Now I’m quite sure that this was adapted from a story in “The Cashflow Quadrant”, also authored by Robert Kiyosaki as I have just finished listening to the audiobook version for the nth time and I heard this story near the beginning of the book.
Coincidentally, I also remember that a friend of mine and I were able to watch another version of this story just a few weeks ago when we were invited to a presentation by a certain multilevel marketing company.
They showed a video of this story to prospective recruits. By the way, my friend Roel of bloggista.com also shared a video of this version of the story through one of his posts and you may also watch it below:
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My Insights
This is exactly the kind of passive income stream that I started to create through rental income by investing in foreclosed properties.
It wasn’t easy at the start and it took quite some time. Keep in mind that I started on my quest 4 years ago. I guess what really matters is I decided to start and take action and I am still able to sustain it after all these years in spite of the challenges that I faced, and I’m sure there will be more challenges ahead.
One of the things that keeps me going is the vision that as long as I continue doing this, I will eventually be able to create a big enough passive income stream which would allow me to stop carrying buckets.
So are you carrying buckets, or building a pipeline?!
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To our financial freedom!
Jay Castillo
Real Estate Investor
Real Estate Broker License #: 3194
Blog: https://www.foreclosurephilippines.com
Follow me in twitter: http://twitter.com/jay_castillo
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Text by Jay Castillo. Copyright © 2009 All rights reserved.
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Hi Jay,
I remember reading the story of Pablo and Bruno in the book of Burke Hedges entitled “The Parable of the Pipeline”. Like Tyrone, I also read this when a friend of mine who is with Amway shared the book with me.
Btw, Roel’s site seems to be offline.
Thanks guys.
.-= Bryan Uy´s last blog ..Four (4) Keys to Successful Change =-.
Yup.. that’s the advice of Robert Kiyosaki…FOCUS on cashflow!
He said in a video of him that others are not really investors but they are FLIPPERS … 3 or 4 months ago my goal is to be the largest wholesaler/flipper by age 25 and I’m glad I change my goal to having passive income of
( blank ) __ million by age 25.
Robert also said that flipping is very tempting specially when you already make money doing it.
Ken McElroy ( rich dad advisor ) – said he never flipped properties in his 20 yr career in real estate.
In real estate the name of the game IS NOT capital gains
the name of the game is CASHFLOW!
Hi Red. In my opinion, investors can also find flipping properties very useful especially to get more capital to buy positive cashflow producing properties faster.
Have you played cashflow 101 or 202? This technique works on the game and in real life just like I mentioned in this post:Top 7 lessons I learned from playing Rich Dad’s Cashflow 101 game. Capital gains can lead to getting cashflow faster.
That is definitely true kuya Jay. I just quote what I say from Rk and Ken. and I think the fastest way to get started in real estate is doing quick turn real estate. Just be sure we don’t fall on the TRAP of investing for capital gains.
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Interesting read.
One thing that is sometimes missed in the parable is that the one who builds the system STILL has to work for it. He still needs to spend some time, perhaps working on the pipeline for years without any guarantee that the system will work for him one day. I imagine he might have pondered many times whether it was all worth it.
In short, he still has to “pay” for it in hard work, determination and courage to persist even when everyone else seem to think it is just a waste of time.
Just my two cents. 🙂
.-= Rich Money Habits´s last blog ..7 Ways to Celebrate Christmas Without Breaking Your Piggy Bank =-.
Hello Allan, excellent insight, thanks! Yes, sometimes people lose focus on the fact that building passive income streams still requires a lot of hard work at the start, although the goal is to have the system work for you in the end and earn passively.
Personally I have had those moments when I had doubts and thoughts of frustration and I was thinking if all the effort was worth it. I guess it really helps to be with like minded people and a healthy dose of perseverance and persistence also helps a lot. 😉
I first learned about this story when I attended a seminar before for multi-level marketing (MLM) or networking. If I’m not mistaken, it was AMWAY.
However, I first learned about Kiyosaki and his cashflow quadrant before way back 2004 when I joined and got scammed by a fake job offer from Platinum Plans. One of my group mate before discussed this Cashflow Quadrant and I really got amazed.
.-= Millionaire Acts´s last blog ..How to Get Cheap Car Insurance Rates =-.
Hello Tyrone, yes you are correct, that is the same company that conducted the seminar my friend and I recently attended. 🙂
What the.. a fake job offer?! Sorry to hear that you got scammed, at least you learned about the cashflow quadrant early on. That explains why you are quite advanced when it comes to Kiyosaki’s principles which usually focus on this.
Wow bro! first, thanks for the love link there and the mention. Second, congratulations! Hehe. It is indeed a big change in perspective when one shifts from the ‘usual’ side of the cash flow quadrant to the other side which talks about passive income.
This journey isn’t easy, often times brings forth disappointments and frustrations – the very reason why only a few make it.
It has been bloggista.com’s vision from the beginning to introduce people to passive income – multiple streams of passive income but i’m not as gifted a writer like you. That is why I appreciate people who also believe it and share it with others.
We can adopt several ideas/niches which gives optimum passive income revenue opportunities based on our skills and things that we love to do – bottomline is, passive income is passion and will only be successful when you start helping others.
.-= bloggista´s last blog ..Ceblogger: From Cebu to the World with Love =-.
Hello Roel, you’re welcome bro! What do you mean you’re not as gifted a writer as I am?! You’re just being humble. The way I see it, I’m more of a technical writer. 🙂
I have always looked up to you and your blog, from the very start I can sense your sincerity and passion in helping people by sharing ways on earning passive income just like Tyrone, Fitz, James, etc. I’m really very thankful bro, this has been in my mind for quite a while since I started writing my 1st anniversary post, although the anniversary of this blog was actually last October 31, 2009 pa. Nakalimutan ko tapusin sa sobrang busy ko lately… hehe.
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