What is the Cashflow Quadrant?
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What is the Cashflow Quadrant?
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A lot of us entrepreneurs learned from a guy named Robert Kiyosaki. Robert created the Cashflow Quadrant to easily break down the different types of careers out there and help to understand why some are more attractive than others. In this post I will break down the cashflow quadrant based on my experiences and it might help you to understand how to talk to people that might not understand why starting your own leveraged business is so important.
What Does the Cashflow Quadrant Teach?
If you click the image to the right, it will open up larger in a new window allowing you to easily see what it teaches. The cashflow quadrant has four sections and teaches you the difference between all of them.
This post is NOT to bash any section over the other, it just enlightens you to the differences. Let’s break down each section…
E = Employee
I was last an employee back in 2004. Employees, typically at least, perform certain functions and get paid either an hourly wage or a salary. Their income is derived from 100% of their activity, meaning, they can only increase one factor and that is their wage. This is not a leveraged way to make a living. Even if someone absolutely loves their job, it still might make sense to at least part time look into one of the other sections as bosses, positions, wages and demands of a job change which can make a desirable job, not so desirable. Also know that someone ONLY in this section pays the most taxes as they have no write-offs. If you are in this section you might find this post useful: Can you be an entrepreneur?
S = Self Employed
Ah, so surely the self employed or small business owners are better off right? Well, not always. Many times when I am doing a presentation and ask “How many have owned a business before?” and then ask “How many realize their business owns them?”, almost always the same hands go up. Why? Most self-employed people quit their 9-5 to work 9-9 (or worse) and they lack a system of how they could ever get leverage out of their business. This is not true of all of course but for the vast majority, their small business does not work and they find themselves back as an employee, working less hours but with the full realization that they might never achieve their dreams with a job.
B = Business Owner
Here’s where the fun begins. Being a business owner is different than just being self-employed at least in how Kiyosaki defines the cashflow quadrant. A “business owner” is defined as someone who earns leveraged income. The income does NOT come from the sole efforts of the owner but from people associated with the business center or unit. This is most easily seen in network marketing but in certain cases can also be accomplished in an insurance agency or even some real estate brokerages allow you to earn off the efforts of others. This is where you can develop “cashflow” or passive income that is NOT tied to your individual daily efforts but from yours and the efforts of others. People with passive income have options in how they spend their life. Probably the coolest experience from this for me was going away to Fiji for ten days on our honeymoon just to come back realizing my passive income was greater during that trip than the actual cost of the trip.
I=Investor
This is where you no longer have to rely on your efforts of even the efforts of others, your money is working for you and you are just living off the interest or payouts. Most people cannot start in this quadrant but can work their way into it. Word to the wise, understand that banks rely on insurance and I fully believe that investing in insurance makes way more sense than an IRA or 401k where you have more risk and are penalized for early withdrawal. I recently started putting a lot of money into insurance and very glad my friend taught me about this (shoot me an email, rayhigdon@rayhigdon.com, if you want to know more as I KNOW more people need to know about this type of investing).
Discussion about the Cashflow Quadrant
Are you in the right quadrant? Why do you feel it is right for you? Have you any experiences like mine in the different quadrants? Be sure to share this on Facebook and post your comments below.
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Ray Higdon
Skype: ray.higdon
Email: RayHigdon@RayHigdon.com
Work With Me – Numis Network
Image(s): FreeDigitalPhotos.net
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The Future Is Now
Although I appreciate the E’s and S’s…I choose to be an I and B!
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Ray Higdon Reply:
July 31st, 2012 at 4:03 pm
You choose wisely!
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Thanks for the refresher Ray. The “E” quadrant is where most people are told to go. Our school system was designed that way. If people were to pick up Robert’s latest book “Conspiracy of the Rich” they would get an eye opening education on US education system.
It’s difficule to make “the shift” in to an entrepreneur but it can be done. It’s a process loaded with fall backs, pitfalls and obstacles. Only the determined should ever attempt. But it’s WORTH IT! I know you’re looking to help as many as you can. So am I.
Rik
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Ray Higdon Reply:
July 31st, 2012 at 4:03 pm
You got it Rik
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Nice info once again Ray.
Being an investor and business owner seems to make the most sense.
At the moment people are looking for safety and they “think” that just having a job is good enough.
Those days are gone.
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Ray Higdon Reply:
July 31st, 2012 at 4:04 pm
Safety seeking can be dangerous
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Agreed Jeremy, I'm in all four at the moment, working on making that shift! We all have to start somewhere.
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Ray Higdon Reply:
July 31st, 2012 at 4:04 pm
Def have to start somewhere
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A self employed person can duplicate their business as well and transition into a business owner, especially if they follow the advice of books such as E-Myth by Michael Gerber. It takes definitive planning and vision! I am currently a small business owner with a plan to completely shift into the business owner and investor in the next 6 months to a year.
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Ray Higdon Reply:
July 31st, 2012 at 4:05 pm
Good for you my friend!
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I have been in all quadrants except the business. You have to be in charge of over 500 employees to be consider a business owner. That is according to Mr. Kiyosaki. So that is the one I would like to spend most of my time in soon. That is what I am headed for now. That is why being a Network Marketer is so awesome.
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Ray Higdon Reply:
July 31st, 2012 at 4:05 pm
Yeah, once you have a team of over 500, you are official =)
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I enjoyed this post Ray, and Kiyosaki is information that people should implement too. To this day though, people are verbally saying to their children, study hard, get good grades so you will be able to get a good job. I’ve seen too many that work over 30 years at the same job, only to be let go before retirement. Then they are 30 years older looking for another job.
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Ray Higdon Reply:
July 31st, 2012 at 4:06 pm
True, need more education out there
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Hi Ray, Great insights! The part about MOST business owners is true! Personally, I know business owners who are sick and tired of the many tasks that they have to juggle! Some smarter ones outsource the tasks that can be outsourced. Yet many are caught in the 9-9 pm working mode as you mentioned! Some need to work on Saturdays and/or Sundays too! Having said that, I do agree with Steven Young that small businesses can also be duplicated. A friend of mine is considering franchising or lincensing her buisness model.
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Hi Ray,
Thank you for highlighting the dangers of being owned by one’s own business! Many of my friends started their own business out of passion, only to find that they have to juggle million tasks to get the business going.
Like Jeremy, I appreciate people in the E and S quadrants. As Robert Kiyosaki mentioned, for someone who value ‘seceurity’, they may wish to stay in the E quadrant. Given that jobs are no longer secure, when I talk to prospects, I bring up the idea of having a Plan B. For people who has not been getting any pay rise in the past two years, I talk about having a pay rise WITHOUT asking the boss for one! For stay-at-home-mums, I bring up the idea of having more than one source of income.
What I do helps other to shift from E and S (or no paid job) into the B quadrant through Network Marketing using part time effort. This is a path that people can ultimately abandon their E and S lifestyle IF THEY CHOOSE TO DO SO. Some do. Some don’t. They have a choice!
Viola Tam
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Ray Higdon Reply:
July 31st, 2012 at 4:06 pm
That is true, make that choice
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I have read most of the Rich Dad, Poor Dad series. Excellent books to be sure. I would highly recommend reading as many of you can. I have found that an “S” is about the same as an “E,” they are just a little higher in the food chain. But at least they are working for themselves, even if it is 9am-9pm. I agree that somewhere along the line you need to figure out a way to move into the “B” category. Until you figure that part out, you are giving up a 40 hour week to get a 60 hour week. Your business needs to be able to function and grow without you being involved. Once that happens you will have enough money to be an “I.”
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Ray Higdon Reply:
July 31st, 2012 at 4:07 pm
There you go, many paths
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Great blog post, Ray. I’m currently reading the book “Rich Dad Poor Dad” for the first time. My goal is to be in the B and eventually the I quadrants.
Thanks for sharing and taking the time to remind us of the importance of choosing what quadrant we want to end up eventually.
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Ray Higdon Reply:
July 31st, 2012 at 4:07 pm
Wow, first time reader? Awesome, great book, my kids both read it
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Hi Ray,
Leverage to the hilt. Duplicate to set up a fairly passive income stream. Invest to set up an entirely passive income stream. Money needs to work for you, or else you work for money. Awesome breakdown here.
Robert K helps you see that money is your servant. Generate creative ideas to make money work for you. Stop trading time for money. Put in effort to build your MLM or gifting team but please, please keep your big picture in mind. Focus on growing a team of people who become successful in their own right, and of course, your efforts will result in a nice passive cash flow.
Thanks Ray!
Ryan
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Ray Higdon Reply:
July 31st, 2012 at 4:07 pm
You got it brother
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I was fortunate enough to have worked with Robert at most of his events in Australia and also one in Phoenix. Robert is certainly a great teacher making things simple to understand. You might well ask what my role was, it was to give a brief explanation of opportunities available by investing in Commercial property.
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Ray Higdon Reply:
July 31st, 2012 at 4:07 pm
That is awesome Ivan
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Excellent post once again Ray.
Robert Kiyosaki’s book is a fantastic read.
I am in the B quadrant, working my way into the I quadrant.
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Ray Higdon Reply:
July 31st, 2012 at 4:08 pm
There you go George
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This book, "The Quadrant of Cashflow" as litteraly changed my life and brought me on the path of network marketing…the most beautiful profession on planet earth.
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Ray Higdon Reply:
July 31st, 2012 at 4:08 pm
Agreed Renaud!
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Great post Ray!
I am a big time student of the Rich Dad education. The cashflow quadrant, when understood, really gets inside you as an entrepreneur and you cannot rest until you are implementing the wisdom of it. Network Marketing is a perfect cashflow generator.
In the past, I have known more about Network Marketing than I was able to implement. But now, when I will focus on it know what has to be done and why. It produces cashflow we can use to enter the arena of the I quadrant where our money can continue to work for us. I am super surprised at how many entrepreneurs still do not understand this.
The C.Q. also represents people’s emotional states and mindsets. So much one can teach from this!
great share Ray!
P.S. emailed you on what you spoke above.
Best,
Joe
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Ray Higdon Reply:
July 31st, 2012 at 4:08 pm
Sounds good bro
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Hey Ray,
I read a couple of his books, and it really open the door to me when it comes to business and finance. Robert Kiyosaki books makes it easier for people to understand the fundamentals of making money. Thanks for the share!
Sherman
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Ray Higdon Reply:
July 31st, 2012 at 4:08 pm
He has helped many of us
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This is such an important concept! Much of what ails the U.S. economically & socially correlates directly to the paradigm of the E/S quadrant which has been so deeply rooted in our culture since the Industrial Revolution. And much of the solution to that sickness is our ability to make the transition from E/S to B/I and to mentor others to do the same. Thanks for sharing, Ray.
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Ray Higdon Reply:
July 31st, 2012 at 4:08 pm
Very true Dale
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This is such an important concept! Much of what ails the U.S. economically & socially correlates directly to the paradigm of the E/S quadrant which has been so deeply rooted in our culture since the Industrial Revolution. And much of the solution to that sickness is our ability to make the transition from E/S to B/I and to mentor others to do the same. Thanks for sharing, Ray.
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Hello Ray
Thanks for share your thoughts about CF Cuadrant. Educated as Chemist I was an employ until read about Robert Kiyosaki books. now I am developing a network of nutrition clubs with Herbalife at Venezuela with awesome results. At the age of 52, I am happier than before by so far. Regards
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Ray Higdon Reply:
July 31st, 2012 at 4:08 pm
Way to go!
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Ray I keep reading this book over and over just to keep my focus this and many others such as The Science of getting Rich
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Hi, thanks for explaining the cashflow quadrant. I started reading Robert Kyosaki’s book two years ago and I am a terrible slow reader. I am now reading the last parts of the book and I have already forgotten what’s first half of the book. It is surprisingly difficult to go back and try to find the pages where he explained what E, S, B and I stand for. Anyways, thanks again. I will read on.
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