Getting Triumphant with the Cashflow Quadrant

If you have read the bestselling book Rich Dad Poor Dad, then you have undoubtedly heard about the Cashflow Quadrant by Robert Kiyosaki. In fact, if you had been a fan of personal development books, you might have seen him referenced many times through other books and quotes. But what is the Cashflow Quadrant?

Cashflow Quadrant is a concept created by Robert Kiyosaki, best-selling author and founder of Rich Dad. In his book, Robert divides the population into four categories: E, S, I and B. To put it simply E stands for employee, S stands for self-employed/entrepreneur, I stands for investor and B stands for business owner/business magnate. The objective of the Cashflow Quadrant is to transform our lives from being an E (being stuck in the middle) to being a B (highest income potential).

In his book, you'll learn how the rich think and act differently than the poor, the self-employed, and the employees. You'll learn about the importance of assets and liabilities, as well as how to use them to your advantage.

The quadrant shows that most people work on the left side of the quadrant, but those who are financially independent or wealthy work on the right side of the quadrant.

Left Side

On the left side of the quadrant, there are two types of people: employees and self-employed. The left side of the quadrant will not give you financial freedom, nor will it make you wealthy.

Employees make their money by working for someone else, and getting paid based on their time. This is the most stable income, as long as you have a job. But it's also one of the hardest ways to get rich, because you're trading your time for money. And no matter how much money you make an hour, there's a limit to how much time you can spend at your job.

Self-employed make their money through trading time for money - they just happen to be working for themselves instead of someone else. As a self-employed person, your income is limited by how much time you have to work—because if you don't work, then you don't get paid. But unlike employees, your income isn't capped by someone else. So if you can learn to delegate or automate some of your tasks, it can be more profitable than working for an employer.

Right Side

On the right side of the quadrant, there are also two types of people: business owners and investors. This is where you want to be. This is where the power is. If you are serious about wealth creation, this is where you need to be.

Business owners make money when they aren’t at work; they get paid based on how well they have built their company and what kind of value it generates.  You work hard and put in the hours, but you call all the shots. You're in control of what you earn.

Investors, similarly, make money when they aren’t at work; they get paid based on how well they have invested their capital, and what kind of value it generates. The Investor Quadrant is where you'll use your money to make more money. This side of the quadrant can really help you increase your wealth, especially if you're working on your passive income streams.

Why does this matter?

Because it tells you where you should spend your energy if you want to build wealth. If you want to become wealthy, you need to stop trading time for money. There's no doubt that having a job is important—but if you're looking for long-term financial stability and wealth, it's important to focus on your investments as well. Even if you aren't able to do this full-time now, you can start making small steps to shift from focusing on being an employee to focusing on being an investor (or better yet—an entrepreneur).

It's true. You can be successful with the Cashflow Quadrant. But it takes work, and dedication, and a lot of patience. The Cashflow Quadrant is NOT a get-rich-quick scheme. It's not a magic formula that you can use once and watch your money pour in, never having to do anything ever again. No! The Cashflow Quadrant is a guide for how you can live your life—every day—to ensure that your finances are always secure.

Lead image from Gbonjubola Sanni

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