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Learn the key ideas of the book by Robert T. Kiyosaki

Rich Dad's Cashflow Quadrant

How to create a system and achieve financial freedom

The cashflow quadrant is a model designed by Robert Kiyosaki to show the four ways in which people acquire their income. Each quadrant requires a different set of personal characteristics and skills: there is no right or wrong way to live, each of us can choose whichever job we like, but to become truly wealthy, we have to make it to the fourth quadrant, the investor quadrant. Rich Dad’s Cashflow Quadrant illustrates why some people are able to work less, earn more, and feel more financially secure than others, and how to upgrade from the employee to the investor quadrant, in order to achieve financial freedom.

Rich Dad's Cashflow Quadrant
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The cashflow quadrant is a model that shows the source of a person’s income, whether they are an employee, self-employed, a large business owner, or an investor

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.

  

The key ideas of "Rich Dad's Cashflow Quadrant "

01.
The cashflow quadrant is a model that shows the source of a person’s income, whether they are an employee, self-employed, a large business owner, or an investor
02.
Employees work for other people and receive a salary in return for their hours of work, they are usually risk-averse, and seek financial security through a long-term contract
03.
Self-employed people are their own boss, they are highly specialised, able to control the system they have created for themselves, and earn according to how much work they are able to do
04.
Large business owners achieve financial success by creating a profitable and effective system, which works independently of their presence
05.
Investors use their money to create more money, by taking calculated risks; they do not have to work as their money works for them, so they are able to achieve financial freedom
06.
There are five steps to transform ourselves from people with no financial intelligence, to financially free investors
07.
In order to move on to the next quadrant and become financially free, we have to start thinking and acting differently
08.
In order to become financially free, we have to overcome the irrational feelings that money causes, maintain a long-term perspective, and use compound interest to our advantage
09.
Quotes
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Take-home message
 
 
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