In his book “Cashflow Quadrant”, renowned financial guru Robert Kiyosaki has identified four distinct types of people based on how they generate cash and earn money. He called this the cashflow quadrant. Briefly, let’s take a look at the characteristics of each of the four quadrants:
E – Employed
This is the quadrant applicable to most people on the planet. The employed works for someone else’s business and in exchange, earns a fixed amount usually given on a monthly or bi-monthly basis. Being employed means actively engaging yourself and devoting your time and effort on a daily basis to earn money. The entire labor force belongs to this category, from traffic officers working out there on the streets to the executive vice president of a top multinational company.
S – Self-employed
You are self-employed when you own your own job or become a small business owner. Doing freelancing jobs such as online writing or blogging also fall under this category. You might be wondering why a small business owner is considered as self-employed when ut should have been under the “B” quadrant. It’s because small business owners usually need to devote their own time and energy in running their business and ensuring smooth daily operations.
I – Investor
An investor is someone who uses a significant amount of his/her own money and puts it in several investment instruments such as paper assets, real estate, and commodities. The most common examples of these paper assets are stocks, bonds, fixed-income notes, and mutual funds. The more aggressive investors put their money on volatile, high-risk instruments such as forex, gold, and other commodities. Whatever instrument they use, the objective is the same – to gain a steady source of passive income from these.
B- Business Owner
Unlike the small business owner belonging under the self-employed category who needs to devote his/her full time, energy, and attention to keep the business running, the business owner in this quadrant is someone who owns an enterprise that does not need his/her physical presence to keep it running. People who belong in this quadrant can travel around the world without worrying about business operations as he/she has managed to employ several personnel to manage the business.
Among the four quadrants, Kiyosaki encourages his readers to be passionate and creative, to make the leap from being in the rat race (represented by the E and S quadrant) to having financial independence (as demonstrated by people in the I and B quadrant). Without even looking at official statistics, it can be concluded that majority of the population belong to the “Employed” quadrant. Most of these people are tied to the secutiry of their day jobs and are afraid of stepping out of their comfort zones to come up with other means of generating income.
Well, the good thing about this is that they don’t have to make an aggressive leap from E toing in B or I quadrant. They can probably start by having a small part-time business, investing in mutual funds, or opening a stocks account. From there, they can slowly gain knowledge and experience to help them slowly cross the border.
How about you, which cashflow quadrant are you currently in? How do you plan to jump from the left to the right side of the quadrant?
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