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What is the Cashflow Quadrant?
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.
Here’s the Cashflow Quadrant Summary
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.
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, email@example.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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