Robert Kiyosaki has been one of the greatest influences in my life when it comes to the mindset behind wealth-building and more generally, financial literacy. Even more, the way I personally define wealth has been greatly impacted by his content ranging from books, podcasts, seminars and videos. In my eyes, he is simply one of the greatest and most experienced business owners and investors out there who is willing to help others reach their financial freedom as well. In this article, I will talk about the core aspect of his writings and his ideology. The mindset. More specifically, I will look into the concept he came up with, called the Cashflow Quadrant, and how that explains the way you can identify where your mindset puts you in terms of the societal structure and wealth building. Understanding this will help you gain a thorough understanding of how you can shift and build a greater amount of wealth for yourself and for the generations to come, which will allow you do all the things you want to do in your life.
The Cashflow Quadrant
As you can see in the figure above, there are 4 legal ways of generating income in society. You can be an employee, a self-employed person (a small business owner), a (big) business owner and an investor. You can look at these 4 parts as separate quadrants, or you can look at the figure from a more broader perspective as two halves. These two halves represent two kinds of income, active income (where you actively participate in creating the income – trading time for money) and passive income (where you leverage either an entity – asset or people that you have built, or where you simply multiply your capital through investing it). In the second half, you first put a lot of time in to create the asset and then you can sit back ant the entity works on its own. This is the half where we should all be striving to live in, according to Robert Kiyosaki. Why? Because the way he defines wealth assumes that time is the most valuable commodity we have in our lives. I completely agree with this assumption and that’s why I strongly value this concept. Try comparing time with money. Can you invest it? Can you save it? Can you multiply it? Answer these questions and see whether you feel like time is more valuable or not.
The E Quadrant
As an employee, you simply have a job where you trade your time for money. Depending on your own values, you will either feel like this makes sense or like this is an unfair exchange. If you feel like this makes sense, this is probably where you fit in the most (with your current mindset). As an employee, you work on someone else’s asset in which you have very little interest. For employees, security and stability is the whole deal. But are jobs in the present really secure??
The S Quadrant
As a small business owner, you create a job for yourself and maybe for a couple of other people who work in that small business with you. Don’t misunderstand though, if you have a small business, you probably need to invest even more time than as an employee. Why? Because the business is directly dependent on your activity in it. If you own a dental clinique and you’re the only dentist there, what happens if you don’t come to work? Nothing, nothing happens and that is the problem. Since nothing happens, no money comes in. There are two major reasons why you might want to be a self-employed person. Either you really value independence or you want to scale your business later so that you can shift to the B quadrant. Examples of small businesses include a corner shop, a small dental clinique or a small local restaurant (not a chain restaurant).
The B Quadrant
As a big business owner, you own an asset. An entity that is capable of running on its own, thus generating passive income for you. This means that if you don’t actively participate in its daily running, the money will still be coming in. What you did is you started depending on your leadership skills less than your professionalism in a specific area. You brought more skilful people together and you were able to give them vision and purpose to stay together and build the business. As you moved from the left side to the right side, you have started accumulating residual (passive) income, which is the goal if you want to have more time to do whatever you want in your life.
The I Quadrant
As an investor, you keep the mindset of a business owner. You value leadership and freedom. Now, since you have generated some capital through your business, you can use other businesses and financial tools to multiply it. Real estate, IPO investment, stocks, funds and other tools are included in here.
As you can see in the second figure, the only (proper) way for you to safely move to the I quadrant is to go through the whole journey. The mistake most people make is that they try to jump from E to I and most often fail terribly. Understand that it is not only about the money, it is also the mindset that limits you from making such a huge jump effectively.
If you enjoyed this post, subscribe to blog in the menu on the right side. This way, you will get a notification every time we post something amazing!!
We give your feedback a very high value! We also love discussion!! So don’t be afraid and share your opinions with us through the comment option below, or on our social media!!