Money is an expansive subject. As I sat down to consider what topic to cover first on this blog, I came to the conclusion that Robert Kiyosaki’s cashflow quadrant is really foundational to understanding the different ways of making money.
Don’t worry; it’s nothing too complicated. The cashflow quadrant is split into four sections, and effectively two sides.
The Cashflow Quadrant
The letters represent the four different ways people make money. Generally, there is an upper limit to the amount of money you can make on the left side (E and S). Even if you do make lots of money from activities on the left side, you likely don’t have a lot of spare time. Being time-broke is quite possibly worse than being money-broke, because even though you can always make money back, making time back is impossible.
There is no upper limit to the amount of money you can make on the right side of the quadrant (B and I). If you want to make more money and have more time, it’s definitely the better side to be on.
So, let’s examine what these different letters mean.
E stands for employee. Though working for others is quite possibly the quickest and most efficient way of making money in the short term, it is easily the worst way to make money over the long term.
A job will do little more than pay your bills, ever. The sooner you can accept that reality, the sooner you can change your mindset to amass wealth. In a job, you are always building someone else’s dream. The object of amassing wealth is having the freedom to build your own dream.
S stands for self-employed, small business owner, specialist, or even solopreneur. There are definitely more opportunities for making money in this quadrant than the E quadrant, but most people that start a small business become slaves to their work, and never have much time for anything else.
S quadrant people are often characterized by stubbornness and an unwillingness to change. They aren’t very good at delegating or working in a team, so they do everything themselves, and they don’t believe anybody can do it better.
If you are currently in the S quadrant, but you’re still teachable and willing to accept change, then don’t worry. Many entrepreneurs start here. Just realize that true wealth will come from building a team and helping others.
B stands for business owner or big business. Business owners have a vision for their companies and business ideas and they focus on solving problems and adding value to people.
Business owners are interested in finding effective systems and building networks. Most people find that their world begins to shrink as they become an adult, get married and start a family. B quadrant people focus on expansion, work to develop many meaningful relationships, and ultimately help others succeed. If you desire to be successful, you need to help others first.
I stands for investor. It’s very difficult to invest, play the market and profit from it without substantial capital. Most people who want to make the most of their investments will find that they first need to accumulate wealth in the B quadrant.
Intelligent investing usually requires specialized knowledge. Unless you know what you’re doing, investing haphazardly can be costly. Again, you also need capital if you want investments to pay dividends.