If you’re a professional, it’s easy to get so caught up in all the daily activities that you lose track of your long-term goals. But if you really want to know where you’re going in your career, you should look at Robert Kiyosaki’s Cashflow Quadrant. It’s one of the best ways to evaluate your professional life and to reposition it in a way that will allow you to reach your long-term financial goals.
The concept of the “cashflow quadrant” (which came from the book with the same name) has maintained its relevance over the years. It’s a simple concept with incredible importance for the success of any professional career.
Here is a look at the basic principles of the cashflow quadrant and how it can help you reach your professional goals.
What is the Cashflow Quadrant?
By using the cashflow quadrant, Kiyosaki was able to draw a distinction between different career types and how their tax structures factor into each one. He also talks about the mindsets of people in each of these quadrants and how that influences their career path to achieving financial freedom.
No matter what your goals are or how far you want to go in your career, the cashflow quadrant will help you think about the big picture so you can put it into perspective. It makes you look at your current quadrant and to figure out if you’re satisfied with it.
Here is a closer look at each of the cashflow quadrants and what they mean.
E Quadrant – Employee
The E quadrant is where most working people are. It’s where employees earn a paycheck and benefits in exchange for their time, knowledge, and performance of their job. The amount of money they make is directly tied to the amount of their traded time and their ability to do the job efficiently and effectively.
If you’re in the E quadrant, the only way to make more money is to put in more hours or move to a higher-paying company. There’s no such thing as “passive income” in this quadrant, because you won’t make money if you don’t work. People in this quadrant also pay the most in taxes. And as you may have guessed, most highly paid professionals in the United States are only in this quadrant.
S Quadrant – Self-Employed
People in the S quadrant are their own bosses. While employees have to work under a management structure, self-employed people own their own businesses and manage their daily activities without having to answer to a superior or senior partner. While self-employed people think they’re superior to the people in the E quadrant, both of them are exchanging their time for money and pay high taxes.
Kiyosaki describes people in the S quadrant as being “owned by their businesses.” If you’re a self-employed person, you have more control over your time (unlike employees). But if you don’t do the work, you won’t get paid. You may have your own business, but you still have to take on new projects, make appearances, draft documents, and bill your time if you want to make money.
B Quadrant – Business Owner
Unlike the E and S quadrants, people in the B quadrant don’t just own their jobs. They also own a system. Business owners will often outsource tasks to experts instead of taking it on by themselves. If you’re a business owner, you most likely have a system that generates income, which isn’t equal to the amount of time you put in.
You can stay out of your office for months or travel the world, and it won’t affect your business. Your income isn’t directly linked to your time. But because it’s so difficult to get into this quadrant, only a few professionals end up here and ultimately achieve financial freedom.
I Quadrant – Investor
According to Robert Kiyosaki, people in the I quadrant are at “the peak of all quadrants, and only a few get to attain it.” While self-employed people own businesses and business owners own systems, investors own assets that can make money even while they sleep. The federal government rewards people in this quadrant with tax breaks, incentives, and loopholes.
Investors are people who may have made money from one or more of the other quadrants and have learned how to put it to work for them. They often invest in real estate, stocks, royalties, and portions of certain businesses which most importantly pays them PASSIVELY!
If you’re a professional who wants to achieve financial freedom, the I quadrant is where you need to be. Once you’re there, your job feels more like a hobby than actual work. You can work when you want to – not because you have to.
The Differences Between Active and Passive Income
Kiyosaki divided the four quadrants into two parts, which consisted of a right and left side. By dividing it this way, he was able to analyze each quadrant according to their varying levels of effort needed to make money. The two quadrants on the left (the E and S quadrants) are considered types of active income, because you’re exchanging your time for money. The more hours you work, the more you will make.
The two quadrants on the right side (the B and I quadrants) are considered forms of passive income. If you’re in these two quadrants, your income isn’t affected by the amount of time you put in because you’re making money even when you’re not working.
How You Can Change Quadrants
You might be wondering how you can go from being a business professional who trades time for money to being financially free. You might also be wondering how you can go from being an employed or self-employed person to someone with multiple streams of passive income. The simple answer to these questions is education. Learn how to take advantage of passive income opportunities and take appropriate action.
Having passive income doesn’t mean you have to abandon your career. You may have worked hard for a long time, so you value your job. You may even be well paid for your work and are good at what you do. Moving to the other side of the quadrant won’t mean the end of your career. It just means that you have taken your active income and have diversified the money you earned into several smart passive investments, and it’s a lot easier than you might think.