What does Cashflow Quadrant represents?

The Cashflow Quadrants was created by Robert Kiyosaki in “Rich Dad, Poor Dad” book, and later lead to the book called “Cashflow Quadrants”.

Kiyosaki created the Cashflow Quadrant to help in figuring out where you are.  For if you do not know why you are, you will not know where you should be heading to.

Cashflow Quadrant Diagram

 The quadrants are represented by : 

  • Employee
  • Self-employed worker
  • Business Owner
  • Investor

Where you belong in the quadrants is dependent on how your main source of income is being generated.

Employee earn income by working for other people.  You get paid for your time and effort.
Self-employed worker earn income by working for themselves.  They own the job.
Business Owner earn income from the businesses they owned.
Investor earn income from their investments. They place their money in business opportunity to earn more money.

In general sense, those people in the B and I quadrants achieve their financial success much faster than those peopel in the E and S quadrants.  Business Owner and Investor are more likely to be richer than Employee and Self-employed Worker.

The E (Employee)
People in the E quadrant is wary and fearful of economic uncertainty as their income is dependent on their job and their job is interrelated to the economy.  They therefore have a strong need for job security.
Employees can be CEOs of companies or delivery boy.  It is not what they do or how much they earn that make them Es.  Rather it is a fact that they are working for others, and earning salaries and benefits.

The S (self-employed)
S types are their own bosses.  Robert Kiyosaki referred them as “do-it-yourselfers”.  When it comes to money, they are fiercely indepent souls.  They don’t like to have their income depend on other people.  They expected to be paid well if they worked hard.  They also understand that if they don’t work, they won’t get paid.
This group includes professional such as doctors, lawyers and architects, who spend years in school.  It also includes small business owners.  For example, restaurant owners, travel agents, car mechanics, plumber, hairstylists as well as direct commission salesperson such as real estate agents.

Robert Kiyosaki described these above 2 groups as people who are trading their time for money.  How much they earn is limited by the amount of time they have.

The B (Business Owner)
The difference between S and B is that B can leave their businesses for a year and return to find it still profitable as before.  That is not the usual case with someone in the S quadrant.  When an S leaves his or her business for a year, chances are there is no business to return to.
The motto of a B is – Why do it myself when I can hire someone better to do it for me?
A successful B requires technical business skills.  To succeed, B’s need to know more than just how to build superior products or services.  They need to know how to build solid network of business systems.  They have to be skilled in the art of leadership.  Successful B’s bring out the best in their people so that their people will carefully tend the network of business systems.
Perhaps the greatest knowledge that B’s have is the understand of the concept of leverage.  Robert Kiyosaki said that successful business owner learn how to leverage on other people’s money (OPM) and other people’s time (OPT).

The I (Investor)
Regardless of which quadrant people make their money in, if they hope someday to be truely rich, they must utlimately move into the I quadrant.  For it is here that money becomes converted to wealth.
What is wealth?  Robert Kiyosaki said wealth is not measured in money.  It is measured in time.  It is the number of days you can survive without physically working and still maintian your standard of living.  I types don’t have to work because their money is working for them.
Robert Kisoaki described the I quadrant as the playground of the rich.  That does not mean that everyone in the I quadrant will achieve financial success.  You can be in the I quadrant and still be poor. In fact, you can still be poor in the E, the S and the B.  You can be get bankrupt.  Your investments can go wrong.      

So you want to your financial success, you got to shift yourself to the right side.  Shift to the B or even the I quadrant.  Moving from one quadrant to another is a matter of choice.  Shifting quadrant means altering how you think and how you look at the world.  This might be easy for other while difficult for others.  If you are receptive to change, it would be easy.  If you resist change, it would be difficult.  It all depends on you.