The Cashflow Quadrant

cashflow quadrant Photo courtesy of Belinda78

The Cashflow Quadrant, by Robert Kiyosaki, reveals something critical that you cannot learn anywhere else: How you earn your money can determine your chances of achieving financial freedom.

Everyone in the world of business or money belongs to one or more quadrants. Not surprisingly, each quadrant represents your core values and upbringing. Which quadrant, or quadrants, do you belong to?

Here's how the author or Rich Dad Poor Dad breaks it down.

4 Quadrant Breakdown: ESBI

E - Employee - You have a job.

If you are in this quadrant, you have a job. Like Robert, my wife and I were always taught to go to school and get a good "job" with benefits. Most people fall into this quadrant.

The problem with this quadrant is that there is little freedom. Security is key, not freedom. Taxes suck most of your earnings in this quadrant as well.

S - Self-Employed, Specialist - You own a job.

This quadrant is for the individuals who "own a job". These are the self-employed, the specialists, like doctors and lawyers, and small business owners.

I know that doctors and lawyers are revered as high earning individuals, but it still comes at a price. Most of the time, these people work long hours, incur a lot of college loan debt, and still pay hefty taxes like the occupants of the E quadrant.

Is there anything wrong with being on the left side of the quadrant? Not at all. But if your goal is financial freedom, you'll seldom find it on the left side. Kiyosaki reveals that the wealthy play on the right side of the quadrant.

B - Business Owner - You own a business or a system with employees.

Business owners value freedom over security. They have employees (people in the E quadrant) under them to perform tasks rather than them. They are often seen as the innovators...the Bill Gates, the Steve Jobs, and the Google guys.

People in the Cashflow Quadrant B experience greater tax benefits than their neighbors on the other side of the quadrant. And why not? They are providing jobs for the E and S quadrants.

I - Investor - Money works for you.

If you are in this quadrant, your money is working for you. Imagine sleeping at night and your bank account is increasing as if multiples of you are out there working for it.

To be in this quadrant, you have to learn to invest...learn how money works. Financial intelligence is imperative.

Transitioning

Transitioning from the left side to the right side can be tough. It was for us...and still can be. It's like training for a marathon. When we first began training, we started off sluggish, heavy stepping, and not knowing what the hell we were doing.

In time, we became efficient and quick on our feet. Switching over takes time. It takes absorbing new knowledge and strategies. In time, you start to lose the "extra weight" of all the incorrect information you've been taught by your parents, school, and the media.

Each quadrant has totally different rules. It's like changing sports...in different countries. They require different mindsets, tools, skills and behavior. Trust me, change can be tough especially when you're met with resistance from the people around you.

Where are you?

We belong to each quadrant. I'm a software developer, we run a couple of websites, we have an LLC that owns our businesses, and we use our life insurance policies to generate wealth.

Where are you? Remember, it's not a "bad" thing to be on the left side...but it does come with its limitations. The right side is where you can create wealth.

I urge you to read The Cashflow Quadrant and explore your internal values of each quadrant. How do you feel about each one and what is preventing you from making the transition to the right side?

Robert Kiyosaki answers the questions: "What is cashflow and why is it so important?" The Cashflow Quadrant tells you where you are, reveals to you where you can go, and provides you a path of how to get there.

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