Learning From Literature

Cashflow Quadrant by Robert Kiyosaki

Cover of Cashflow Quadrant by Robert Kiyosaki

Rich Dad’s Cashflow Quadrant: Guide To Financial Freedom by Robert Kiyosaki is a personal finance book originally published in 1998.

Sadly, hard work is usually not correlated with making more money; most individuals trade their time and skills for a fixed income – the more you work, the more you earn. However, the key to reaching financial freedom faster is transitioning from a linear income to earning passive income, which means making money even when you’re not actively working.

In Cashflow Quadrant, Kiyosaki categorizes people based on where their money comes from: Employee, Self-Employed, Business Owner, or Investor. Kiyosaki then details how to break free from the limitations of trading time for money and move to the upper quadrants of Business Owner and Investor where you can have greater control over your time and financial future.

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Enjoy!

Table of Contents

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Quadrant Overview
  • There are 4 “quadrants” of income-earners that everyone fits into
    • Employee
    • Self-Employed
    • Business Owner
    • Investor
  • You might be multiple but will have a primary quadrant (where the majority of your income is from)
Cashflow Quadrant Diagram
  • Employee (E)
    • You have a job (work in the system)
    • Time = Money → the more you work, the more money you get
    • Deceptively unsecure – Layoffs during recessions & sellouts
  • Self-Employed / Small Business (S)
    • You own a job (IS the system)
    • Time = Money → the more you work, the more money you get (more success = more work)
    • More control than E + higher earning potential
  • Big Business Owner (B)
    • You own a system & people work for you
    • People = Money → scaleable, the more people that work for you & follow the system, the more money you get
    • Ability to lead people & manage
  • Investor (I)
    • Money works for you
    • Money = Money → your money earns more money for you with minimal effort
    • Minimal comparative risk if done right
    • Invests into B-type systems only
  • Are you Self-Employed or Business Owner?
    • Would your business be running at full capacity or even better if you left for a year?
    • No → S (integral part of system)
    • Yes → B (builds independent system)
Cashflow Quadrant Diagram
Cashflow Quadrant Diagram
Progression To Upper Quadrants
  • Optimal Progression = E / S → B / I
    • When you reach upper quadrants (B / I), your earnings become leveraged and/or passive
    • Scaleable with no extra effort → Uses other people’s time (OPT) & other people’s money (OPM)
    • B / I are taxed-advantaged (one of largest household expenses)
  • Each quadrant requires different skills, mindsets, and more
    • Owning a business (B) & understanding the company’s work (E / S) are separate things
    • Therefore, to be in a different quadrant you have to change yourself
    • Ex → B requires financial literacy + ability to lead & delegate while E / S requires ability to do the technical work
  • Hardest part when switching quadrants is the attachment to how you make money
    • Ex → an S is used to making money by doing the technical work; it will be very hard & uncomfortable to delegate & trust someone else to do the work, but it’s necessary to scale the business
    • The E-Myth Revisited describes how to turn your business into a system (essentially switching from an S to a B)
Kiyosaki’s Cashflow Diagrams – Fake vs Real Assets
Cashflow Diagram
  • Middle Class
    • Buys “fake assets”
    • Fake Assets – decreases net worth through expenses / depreciation
    • Cars, clothes, etc
    • 30-year mortgage makes you a 30-year employee, working to make someone else rich
  • Rich
    • Buys “real assets”
    • Real Assets – generates income or increases net worth
    • Investment rental properties, stocks, etc
  • First To A Million defines good debt vs bad debt
    • Bad Debt – used to acquire fake assets (creating “middle class” expenses through repayments)
    • Good Debt – used to acquire real assets
Financial Freedom
  • When have you reached financial freedom?
    • Passive Income from “Real Assets” > Expenses = FREE
    • Retire Before Mom & Dad explains how to measure / earn the amount you need for retirement
  • Wealth = measured in time, not dollars
    • How long can you go without working? → How wealthy you are
    • Goal = Indefinitely

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