The CashFlow Quadrant by Robert Kiyosaki

Golden Option Blog

The CashFlow Quadrant by Robert Kiyosaki is the most important topic you need to know about Finance. I feel like every person in the world should know about it. You need to master it in order to become a successful self employed person or a successful business owner. Because everybody is gonna be working for money or paycheck in their life, it's important to know about money and finance. And the CashFlow Quadrant is the basic fundamental of it.

If you don't know Robert Kiyosaki, he is known for his famous book “Rich Dad Poor Dad”. Rich Dad Poor Dad is the No.1 Personal Finance Book of All-Time. In this book the writer advocates the importance of financial literacy, financial independence and building wealth through investing in assets, real estate investing, starting and owning businesses, as well as increasing one's financial intelligence. He also has a book called The CashFlow Quadrant.

A lot of people are always asking me all the time, how to become an investor, how to invest $1000 or $10k, what stocks do they need to buy, where to invest their money. And I have always told them like if you don't have a $100k minimum, you are not ready to invest and you are not an investor. If you want to know why, I have already explained it in-dept in my Trading vs Investor blog. It's a big topic and I recommend you to check it out.

The CashFlow Quadrant will reveal why some people work less, earn more, pay less in taxes, and feel more financially secure than others. It is simply a matter of knowing which quadrant to work from and when. I think you have already wondered in your childhood, “What is the difference between an employee and a business owner?”. You’re gonna see the major differences between the two if you understand the CashFlow Quadrant. This is gonna be an eye opener for many of you guys.

So now let's dive into what's the CashFlow Quadrant.

CashFlow Quadrant

There are four places where you can be in a CashFlow Quadrant. As you might have already guessed by the word “quadrant”, which means any of the four parts into which something is divided by two imaginary or real lines that intersect each other at right angles.

The E Quadrant

The E stands for employee. Everyone starts as an employee at one point, right! Unless you have a billionaire parent and start as an investor or a businessman, most people start from this quadrant. The game is about which quadrant you need to move to make the most money and achieve financial independence.

Another fact is that 95% of the population are on the left side of the quadrant. So 95% of the population are poor and they are on the E and S Quadrant. The rich which constitute about 5% of the population are on the right side of the Quadrant. So if you want to be rich and your aim is to go to the right side of the Quadrant, you need to do what most people don't in order to get the result that most people can't get. And also you need to know if you're on the right side of the quadrant, most people will be against you. They will not agree with you, they will think you're crazy and all that stuff.

The image above is the CashFlow Quadrant by Robert Kiyosaki.

The S Quadrant

The S Quadrant stands for Self-employed. Most people want to go to the self-employed Quadrant from the E Quadrant. That's fine, that's cool! But how do you become self employed? So like for example, if you're a real estate agent you work for yourself. If you're a salesman you work for yourself. If you have any online business or if you're a freelancer, you're self employed. Even if you have a small business and employ 2, 3 people you still belong to the self employed quadrant.

But at one point you will realize that being self-employed is tiring, having to take care of everything almost yourself, having to take care of the support, having to take care of advertisement, content, emailing and the list goes on and on. You're gonna burn out doing all those things. So it's like becoming your own slave. And you'll realize that you need to scale up to become a real business owner.

Now that's fine because in that one or two year of self employment, you're learning new skills, the skills that become a business owner, the skills to be in the B quadrant. And also second thing is that you are advancing in the CashFlow Quadrant and in your income. Most of the time a self employed person will make more money than an employee, but they also pay the most taxes. So this is like a trap that most people stay in. They think they are business owners but they are not.

So now if you gotta make the transition that's awesome. For me it took about 3 to 4 years to become a business owner. I did it in the beginning of this year, 2020. And now I am also making Investments so that I can stay in both the B and the I quadrant.

The B Quadrant

The B stands for Business Owner. Now 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 skills needed for the business and hire those who have more talent and skill than them. 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. Because they have a system that keeps on running itself.

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. Now I can say that I live a 4 hour work week, but I don't promote that. But literally in my business that makes $60k to $80k per month, even a little more sometimes, all I do is work 4 hour a week. If I don't create promotions and networks and stuff, I look at my Instagram and facebook ads for 15 minutes twice a week. And every single day, I talk with my team and tell them what to do and make sure everything is correct. I look at my bank account, my paypal account, see the stats and stuff like that. And this is called working on your business, not in your business.

The I Quadrant

The I stands for Investor. Investors have the highest financial education of anyone in the Cashflow Quadrant. They are highly skilled at finding assets that provide steady income in the form of cash flow and they often use other people’s money to attain those assets. They then use 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. Transitioning to this quadrant takes the most time and knowledge. It takes mostly about 10 to 20 years to become a full time investor, if you're really good at it. So once you save up a lot of money like a minimum of $100k. You will think of investing. For investing, getting a return of 5%, 10% a year is considered good. But that's like only $10k a year, that's like $800 per month.

Not much right! So if you think you can live being an investor, you'll need like a Million Dollar minimum. So don't think about being an investor until you have a lot of money that you don't know what to do with. Most people misunderstand investing with buying and selling the markets without having a proper knowledge. I have explained this in-dept in my “trading vs Investing” blog. I recommend you to check out the blog because first you need to have the right, proper knowledge first of what is investing.

So that's it for the cashflow quadrant. It is one of the most important topics of money I have ever had in my life. I hope you get some value from this blog and put it into action.

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