The Cashflow Quadrant
Updated: Jan 20, 2022
Let us introduce you to a very famous concept called the Cashflow Quadrant from Robert Kiyosaki, famous entrepreneur and author of Rich Dad Poor Dad.
It’s the main idea of Robert Kiyosaki’s book the Cashflow Quadrant and is a powerful concept that has guided many on their entrepreneurial path to seeking financial freedom.
Each of the cashflow quadrants represent a different way to generate income:
E = Employee
S = Self employed
B = Business
I = Investing
Some people earn money in only one quadrant, while others earn money in all four. There are advantages and disadvantages to each.
But the two quadrants on the right side (B & I) are the primary paths to financial freedom. The majority of Kiyosaki’s book teaches the unique skills and mindsets required to succeed on this path. Let’s take a deep dive into each of the four quadrants
E is for EMPLOYEE
An employee has a job. This is where most people earn their income. The job itself is owned by a business, which could be a single person or a large corporation. The employee gives his or her time, energy, and skills to an employer in exchange for a pay check and benefits. Employees can make a little or a lot of money. But when an employee stops working (or when the business stops), their income stops too.
S is for SELF EMPLOYED
Many employees get tired of their lack of control and choose to work for themselves. The self-employed still work, but they own their job. The S quadrant includes dentists, insurance agents, restaurant owners, realtors, handymen, and many other trade workers. Many self-employed people earn very large incomes, but like the employee, when they stop working so does their income.
B is for Business Owner
Those in the B quadrant own a system called a business and lead people to produce products or services for customers who pay them money. The systems and people who work for the business can run successfully without the business owner’s constant involvement.
The same types of businesses could be run by S owners and B owners. For example, a plumber could own and work in his own plumbing business, or a business owner could create a plumbing business and hire quality plumbers, administrators, and a manager to run the business.
I is for Investors.
Investors own assets that produce income. This is the quadrant for truly passive income. Investors in this quadrant have usually accumulated money earned in one or more of the other three quadrants, and they let the money go to work and produce even more money for themselves.
You also can earn money from all 4 quadrants and some people do. Many also journey through each of the quadrants at some point in their life.
So which Quadrant should you be in to become wealthy according to Robert Kiyosaki’s Rich Dad?
If you want to become wealthy then the goal then should be to get in the I & S quadrants as much as possible.
It is just the way the system is set up in most countries. Regardless which political party and system you believe in, it's just the way the world works. The tax code is designed to favour investing and large businesses and the governments support people that want to create jobs and provide what a country needs rather than get jobs, so that’s why the money laws generally favour the B & I sectors. Therefore, if you want to get wealthy and have the wave on your side, this is where
you should spend your time.
If you want to learn more about this in detail we highly recommend reading Rich Dad /Poor Dad and Cashflow Quadrant. Both classic books in personal wealth building.
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