Most people assume that their financial standing is defined by how much they earn, how much they’re worth, or some combination of both. And there’s no doubt that this has some bearing. Forbes magazine defines “rich” as a person who earns in excess of $1 million per year (about $83,333 per month, or just under $20,000 a week), and “poor” as someone who earns less than $25,000 a year.
But even more important than the quantity of money you make is the quality of money you make. In other words, not just how much you make, but how you make it—where it comes from. There are actually four distinct sources of cashflow. Each is quite different from the other, and each defines and determines a very different lifestyle, regardless of the amount of cash you earn.
After publishing Rich Dad Poor Dad, I wrote a book to explain these four different income worlds. Many people have said that this book, Cashflow Quadrant, is the most important writing I’ve done because it goes right to the heart of the crucial issues involved for people who are ready to make true changes in their lives
The cashflow quadrant represents the different methods by which a cash income is generated. For example, an employee earns money by holding a job and working for someone else or a company. The self-employed are people who earn money working for themselves, either as solo operators or through their own small business. A business owner owns a large business (typically defined as 500 employees or more) that generates money. Investors earn money from their various investments—in other words, money generating more money.
E = Employee
S = Self-employed or Small-business owner
B = Business owner
I = Investor
Which quadrant do you live in? In other words, from which quadrant do you receive the majority of the income on which you live?
The E Quadrant
The overwhelming majority of us learn, live, love, and leave this life entirely within the E quadrant. Our educational system and culture train us, from the cradle to the grave, in how to live in the world of the E quadrant.
The operating philosophy for this world is what my poor dad—my real father— taught me, and what you probably learned, too, when you were growing up: Go to school, study hard and get good grades, and get a good job with benefits at a great company.
The S Quadrant
Driven by the urge for more freedom and self-determination, a lot of people migrate from the E quadrant to the S quadrant. This is the place where people go to “strike out on their own” and pursue the American Dream. The S quadrant includes a huge range of earning power, all the way from the teenage freelance baby sitter or landscaper just starting out in life to the highly paid private-practice lawyer, consultant, or public speaker. But whether you’re earning $8 an hour or $80,000 a year, the S quadrant is typically a trap. You may have thought you were “firing your boss,” but what really happened is that you just changed bosses. You are still an employee. The only difference is that when you want to blame your boss for your problems, that boss is you. The S quadrant can be a thankless and difficult place to live. Everyone picks on you here. The government picks on you—you spend one full day a week just in tax compliance. Your employees pick on you, your customers pick on you, and your family picks on you because you never take any time off. How can you? If you do, you lose ground. You have no free time because if you take time off, the business doesn’t earn money. In a very real way, the S stands for slavery: You don’t really own your business; your business owns you.
The B Quadrant
The B quadrant is where people go to create big businesses. The difference between an S business and a B business is that you work for your S business, but your B business works for you. I have many B businesses, including my manufacturing business, my real estate business, mining companies, and others. Those who live and work in the B quadrant make themselves recession-proof, because they control the source of their own income.
The I Quadrant
This is not rocket science. My rich dad taught me to live in the I quadrant by playing Monopoly, and we all know how that works: four green houses, one red hotel; four green houses, one red hotel
- Robert T. Kiyosaki ( the busine[truncated by WhatsApp]
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