Cashflow Quadrants

Robert Kiyosaki is one of the world's most respected experts in Business, Personal Finance and Investing. As a follow up to his book Rich Dad Poor Dad, Robert writes the book CASHFLOW Quadrant as a powerful guide to anyone seeking financial freedom. This article will discuss what the CASHFLOW Quadrant is and how to change Quadrants.

The CASHFLOW Quadrant references four different types of people who make up the world of business. Each of us resides in at least one of the four Quadrants of the CASHFLOW Quadrant. We are all located in different Quadrants based on where our cash comes from.



E: Employee, You Have a Job
S: Self-Employed, You Own a Job
B: Business Owner, You Own a System & People Work for You
I: Investor, Money Works for You

The letter in each Quadrant represents the Employee, Self-Employed, Business Owner, and Investor. The CASHFLOW Quadrant represents the different methods by which income or money is generated. Many people rely on paychecks and are therefore employees, while others are self-employed. Employees and self-employed individuals reside on the left side of the CASHFLOW Quadrant. The right side of the CASHFLOW Quadrant is for individuals who receive their cash from businesses or investments they own.

In order, to generate income from different Quadrants it requires different skills and different personalities, even if the person found in each Quadrant is the same. Going from Quadrant to Quadrant is like cutting your grass one day and attending the symphony the next day.

No matter what you do professionally, you can still work in all four Quadrants. For example, a cosmetologist may work in a salon or barbershop, work for a spa, or work for a hotel in the hospitality industry, or join the staff of a resort needing a cosmetologist on it staff. This same cosmetologist could choose to generate an income as an "S", a self-employed person, and start a salon, setting up a location, hiring a staff and building a private list of clients.

As another choice, the cosmetologist could decide to become a "B" and own a franchise or string of salons and have other cosmetologists on staff. Probably this cosmetologist would hire a business manager to run the organization. In this case, the cosmetologist would own the business but not have to work it.

Also, the cosmetologist could decide to own a business that has nothing to do with the personal appearance field, while still being a cosmetologist somewhere else. In this case, the cosmetologist would earn income as both an "E" and as a "B." As an "I", the cosmetologist could generate income from being an investor in someone else's business or in vehicles like the stock market, bond market and real estate.

The Quadrant we choose to earn our primary income from is not so much what we learned in school; it is more about who we are at our core values, strengths, weaknesses and interests. It is these core differences that attract us to or repel us from the four Quadrants.

Which Quadrant are you in? Is it the right one for you? Are you ready to change Quadrants? This article is especially for individuals who are currently in the "E" and "S" categories and are contemplating becoming "B's" and "I's." It is for people who are ready to move beyond job security and begin to achieve financial security. Creating your lane to the right side of the Quadrant is not always easy but the reward at the end of the trip is worth all the effort you can muster. Essentially, it is the lane to your financial freedom.

So what does it take? It takes a vision, a lot of resolve, an eagerness to learn without delay and the ability to use your God given talents appropriately and to recognize which part of the CASHFLOW Quadrant to generate your income from. To find success in the "B" or "I" Quadrant involves more than simply educational or practical knowledge. It often requires a change in our core - emotions, thinking, feelings, beliefs and attitude. Creating your own lane to the right side of the Quadrant takes positive human zeal, zeal in trust, faith, courage and an association with like minded people. You may have to take risk. This risk will lead you to mistakes and these mistakes will lead you to wisdom and knowledge. The disappointment would be to let fear win, so you have to be willing to move forward with little in guarantees. See failure is a part of the process of success.

Creating your own lane from one Quadrant to the next is an internal voyage. It is a voyage from one set of core beliefs and practical skills to a new set of core beliefs and a new set of practical skills. To a great extent, the process is like riding a bicycle. At first you fall down frequently and normally it's discouraging and embarrassing, especially if your friends are watching. But after a while, the falling stops and the riding becomes habitual. If you fall down again, it's not that big of a deal because, internally, you now know that you can get up and ride again. The process is the same when going from an emotional mind-set of job security to the emotional mind-set of financial freedom.

The main reasons so many people struggle to create their own lane to financial freedom are not because of the lack of good education, or not working hard enough. It's because they are afraid of losing. If the fear of losing stops you, then you have already lost.

Decide to win. Decide to chart your voyage today; thereby, "Creating Your Own Lane" in business success.

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How to Apply the Cashflow Quadrant Concept

All of us in one way or another desire financial security and many of us dream of attaining financial freedom. Robert Kiyosaki’s Rich Dad, Poor Dad’s Cash-flow Quadrant book and board game teach the principals of income, assets and cash flow. Understanding the different methods by which income or money is generated and how it is utilized is essentially what Cash-flow Quadrant is about.

Steps

1. Learn about the concept of the 4 individuals. The basic premise of the Rich Dad, Poor Dad series of books is that the business world is made up of largely 4 types of individuals:

   Employee (E) – has a job.

   Self-Employed (S) – owns a job.

   Business Owner (B) – owns a business system.

   Investor (I) – makes money work for them.

2.  Identify where you are now. Identifying where you are in this Cash-flow Quadrant can be done by looking at where most of your income comes from. What affects which quadrant we decide to generate our income from is due to internal differences in our core values, interests, outlook, life stage etc.Decide where you want to be. Traditional schooling teaches us largely to focus on become an Employee (E) or a high-paid Self-Employed(S) individual such as a doctor, lawyer or accountant. Whilst there is nothing wrong with this idea, it becomes a problem if your primary goal is to attain financial freedom. Financial freedom is seldom to be found in these quadrants.
3. Decide if financial freedom is for you. The words ‘financial’ and ‘freedom’ go hand-in-hand. You can never really be truly “free” in the modern world we live in unless you are financially free. The whole purpose of life is to generate and experience more life. Money allows you to “live” more life. Financial freedom is when you have enough wealth (assets and cash-flow) to allow you live more life on a sustainable basis.

   Changing quadrants is a life-changing experience and often requires a fundamental shift in ones core values in order to come about. 

   This requires massive action and massive personal transformation. You will be required to step outside your comfort zone. Once you have crossed the proverbial Rubicon, or "crossed from the left side of the quadrant into right side", there is generally no turning back.

4. 
   
5. Gain financial intelligence. The attainment of financial freedom requires a high level of financial intelligence. You need to be ready to move beyond job security (in the ‘E’ quadrant) in order to begin your journey towards financial freedom. Be under no illusions though; it is a bumpy, windy road laden with risks that need to be constantly managed. It is NOT for you if you want a secure, normal life. However, if you are prepared to make the leap, the prize at the end of this particular journey is financial freedom.
6. Become aware of the risks included. It is important to note that success is not guaranteed. For example, 80% of businesses start-ups never get to celebrate their 5th birthday. And of those that have become a successful, many successful “B’s” have lost their money through over-confidential forays in the “I” quadrant. The road to financial freedom is littered with casualties and people who turn back on their goals out of fear.
7. Get the skills needed. Many of the skills required to be successful as a Business Owner (B) or Investor (I) are not taught in school. In fact it’s remarkable just how many successful businessmen left school early but got their real education in the cut and thrust of the business world. Most successful business owners are innately curious, knowledge-thirsty and uncompromising in the pursuit of their goals. They chose to learn through Mentors; they read voraciously, and attend training courses and educational seminars converting this knowledge into action.

• The rules of the game are totally different in each quadrant. They are completely different worlds and require different mindsets, tools, skills and behavior. Continuous learning and education will be your constant bedfellows in order to help you on this journey through each quadrant.