Rich Dad's Cashflow Quadrant

The cashflow quadrant is a model designed by Robert Kiyosaki, which shows the four ways in which people acquire most of their income. On the left are the E and S quadrants, which refer to employees or white-collar workers (E) and self-employed or small business owners (S) respectively. The right-hand quadrants include large business owners (B) and investors (I). An employee works for someone else’s system; a small business owner creates their own system; a large business owner creates, owns, and controls a system; and an investor invests money in the system.

We can all make money from one, two, or all four quadrants. Let us consider a doctor, for example, who earns their living as an employee of a hospital, of an insurance company, or by working in the army with a 9 to 5 job. A doctor may also choose to be self-employed and set up a private practice, hiring employees and creating a client base. They will have to work hard, but they have control over their workload. The doctor could also become a large business owner, open their own clinic, and hire other doctors. In this case, they would usually have to delegate the management of the organisation to other people, and so they would be the owner of the clinic, but would not actually work there. The same doctor could also continue to work as a professional in their field, but at the same time start a new business unrelated to medicine. What’s more, their income as a doctor is likely to be investible, so they could also become an investor – in shares or real estate, for example – while continuing to practice medicine, run a clinic, or run their own business.

So, it is clear that each of the four quadrants requires a different set of personal characteristics and skills: there is no right or wrong choice, and everyone should choose the category in which they feel most comfortable. However, if we really want to become rich and achieve financial freedom, we have to get to the fourth quadrant, which is the investor quadrant.