Cashflow Quadrant 101

Let’s face it. Being an internet/network marketing is a great way to potentially break free from the monotonous, often times stressful 9 to 5 j.o.b. (just over broke) that most of us must endure to eat, keep the lights on, and keep a roof over our head. That’s the great thing about living in this great country called the United States. This country thrives off free enterprise allowing individuals to achieve their financial dreams and aspirations through any means or opportunity. I stumbleupon an interesting ideology in one of Robert Kiyosaki’s books called Rich Dad, Poor Dad that explains how the cashflow quadrant plays an important role in gaining financial freedom from corporate America.

What Exactly Is The Cashflow Quadrant?

The cashflow quadrant is a concept by Robert Kiyosaki which bases your current financial positioning and determines your overall ability and likelihood of ever achieving financial freedom. In the book, Robert goes on to explain that there are basically four different titles that one falls under within the cashflow quadrant. Here I will give a quick overview of the cashflow quadrant and why it’s important to evaluate your current financial situation and determine the best way to migrate to one of the more financially independent quadrants.

Employee (E) – Unfortunately, many of us are stuck in this cashflow quadrant, being someone’s employee is a must for some to survive in life. Ironically, that’s the problem with being an employee. You’re working to make someone else rich. Many of us work long 10-12 hour days, overworked and underpaid, only to work 35-40 years for an employer only to retire off a fraction of the pay that we were barely living off during our working years. My teeth often grind when I hear people say internet marketing is a pyramid scheme. Ask yourself, Aren’t most people in the Employee cashflow quadrant in a pyramid scheme?

Self Employed (S) – This cashflow quadrant is a slight promotion from employee, but still has its drawback. Unlike an employee, being self-employed allows you to set your own hours and make financial decisions dealing with your business opportunity. But this quadrant often has people working long hours as well. Self employment requires trading large amounts of time for money. This is not a great way to build wealth and establish financial freedom. Not to mention the overhead you have to deal with, employees, benefits, and insurance.

Investor (I) – Of the four cashflow quadrants, being an investor is one of the best ways to achieve fiancial freedom. Real estate is a popular way for individuals to invest and create a substantial amount of residual income. Investing, if done properly, can give you the type of financial freedom one needs to break free from your employer and make money almost on auto-pilot.

Big Business (B) – this cashflow quadrant is where most internet and network marketers are aspiring to achieve. Having the ability to build a business, or multiple businesses is the cash cow of reaching financial independence. Robert Kiyosaki actually recommends people to work toward this quadrant because it offers a diverse stream of multiple passive residual income. Although starting a business requires some trade off of time for money, it’s generally the best way to build residual income and allows you to make money even while your sleeping. Having my own business would be the perfect solution to wealth building as it can be very profitable in the long run.

As you can see, Robert’s cashflow quadrant follows the basic principles of building wealth based on where you are and where you would like to be in terms of building your own business or becoming an investor. Many people today, especially with the current state of the economy are struggling as an employee or being self-employed.

With the rising cost of living and taxes, it’s becoming harder for people in those cashflow quadrants to survive on a day to day basis. And for those who are doing well in those quadrants should focus on how to make their way to either the B or I quadrant to sustain their financial independence in the future. Robert’s cashflow quadrant concept makes sense and I recommend people pick up his book, “Rich Dad, Poor Dad” as it’s a really great read.

Below is a diagram showing each of the four cashflow quadrants and shows the percentage of likelihood for building wealth in that specific quadrant. Please feel free to leave a comment here on the blog on how you plan on getting on the RIGHT side of the quadrant to achieve financial freedom. What’s your plan of action? Hope you find this information helpful!