Breaking Down Each Quadrant

Dear Reader,

For years, I’ve taught on the CASHFLOW® Quadrant. For some of you, this will be a review. My hope is that for others, it will be the beginning of changing your mindset about money.

Cash Flow Quadrants

The CASHFLOW Quadrant is divided into four types of people, two in each category.

Each of us resides in at least one of the four sections (quadrants) of the CASHFLOW Quadrant. Where we are is determined by where our cash comes from. Many of us are employees who rely on paychecks, while others are self-employed. Employees and self-employed individuals reside on the left side of the CASHFLOW Quadrant. The right side is for individuals who receive their cash from businesses they own or investments they own.

The CASHFLOW Quadrant is an easy way to categorize people based on where their money comes from. Each quadrant within the CASHFLOW Quadrant is unique, and the people within each one share common characteristics. The quadrants will show you where you are today and will help you chart a course for where you want to be in the future as you choose your own path to becoming fina‌ncial fr‌ee.

While fina‌ncial fre‌edom can be found in all four of the quadrants, the skills of a B or I will help you reach your financial goals more quickly. Successful E’s need to become successful I’s to ensure their finan‌cial secu‌rity during retirement.

The Left Side Of The CASHFLOW Quadrant

On the left side of the quadrant are Es and Ss. They pay the most in taxes and trade their time for money.

Each has a different mindset.

E Is For Employee

At the end of the day, the most important thing for employees is security. My poor dad was an employee his entire life and he craved nothing more than security. That is why he could not understand why I would want to be a business owner and investor. To him, there was nothing riskier than that.

Because employees shy away from risk, they don’t see the need to learn about money or how it works. For them, education is about learning the skills needed to get a steady, high-paying job with great benefits. Thus, why my poor dad loved working for the State of Hawaii.

When employees need more money, they look for a higher-paying job.

S Is For Self-Employed

People in the self-employed quadrant are not good employees and often have the attitude that no one can do it better than them. While they still like the idea of security, they have a larger tolerance for risk, and thus don’t mind working for themselves. In fact, they like it that way because they feel in control of their future.

People in the S quadrant are doctors, lawyers, dentists, accountants, and other service-based businesses and consultants. They have very high standards for their work and because of this, they have a hard time delegating to others. Again, they don’t like to hire employees because nobody does it better than them. As a result, they only make money when they are working. This means they don’t own a business, they own a job.

When self-employed people need more money, they look for more hours they can bill.

The Right Side of the CASHFLOW Quadrant

On the right side of the quadrant are Bs and Is. They pay the least in taxes and create or invest in assets that produce cash flow for them even when they’re sleeping.

B Stands for Business Owner

Unlike those in the S Quadrant, business owners don’t own a job. They own a system or a product that makes money even when they aren’t working. Because they know they can’t be successful on their own, business owners look to hire people who specialize in the skills needed for the business and hire those who have more talent and skill than them. They look to delegate as much as possible, not keep all the work for themselves. The best business owners know they could leave their company for a year and come back to find it still profitable and running better than they left it.

Business owners are often seen as risk-takers, but from the perspective of a business owner, being an employee is riskiest because employees have no control. A business owner can make the decision to do layoffs or fire an employee, but no one can take the business away from the business owner. And when the economy takes a downturn, the business owner has the most control to make the business work and survive.

When business owners need more money, they create a new product or create or acquire a new system that produces money.

I Stands for Investor

Investors have the highest financial education of anyone in the CASHFLOW Quadrant. They are adept at finding assets that provide a steady income in the form of cash flow and they often use other people’s money (OPM) to attain those assets. They then use the income from those assets to acquire even more assets, growing their wealth through this velocity of money. They enjoy the most in tax breaks, don’t have to work at all if they desire, and don’t have to deal with managing employees. The richest people in the world are investors, and as a general principle, 70% of their income comes from investments with the other 30% made up of wages.

When investors need more money, they look for an opportunity to acquire an asset that produces more passive income.

Moving From the Left Quadrant to the Right Quadrant

If you want to move out of the right side of the CASHFLOW Quadrant, I encourage you to begin changing your mindset.

The path from one quadrant to the next is an internal journey. It is a journey from one set of core beliefs and technical skills to a new set of core beliefs and skills. The process is much like learning to ride a bicycle. At first, you fall down a lot. Often times it is frustrating and embarrassing, especially if your friends are watching. But after a while, the falling stops and riding become automatic. If you fall down again, it’s not that big of a deal because you now know that you can get up and ride again. The process is the same when going from an emotional mindset of job security to the emotional mindset of fina‌ncial fre‌edom.

A while back a study was conducted that showed the mindset of those who moved from poverty into wealth. Three things were seen to be a determining factor:

  1. They maintained a long-term vision and plan
  2. They believed in delayed gratification
  3. They used the power of compounding in their favor

They also looked at those who were wealthy that became poor. These were the three factors that came into play:

Very simply, the path to the right side of the quadrant starts with thinking in terms of acquiring assets that produce passive income rather than living in a pattern of paycheck to paycheck. Start small, have patience, and watch as your wealth grows over time.

  1. They had a short-term vision
  2. They had a desire for instant gratification
  3. They abused the power of compounding

Very simply, the path to the right side of the quadrant starts with thinking in terms of acquiring assets that produce passive income rather than living in a pattern of paycheck to paycheck. Start small, have patience, and watch as your wealth grows over time.

Regards,

Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

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n order to learn, you need to fail. In order to be successful, you need to fail. Thomas Edison failed over 1000 times trying to create the lightbulb. How many times are you willing to fail in order to be successful?

Robert Kiyosaki

Robert Kiyosaki, author of bestseller Rich Dad Poor Dad as well as 25 others financial guide books, has spent his career working as a financial educator, entrepreneur, successful investor, real estate mogul, and motivational speaker, all while running the Rich Dad Company.

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