Cashflow Quadrant – Understanding & Interpreting Rich Dad, Poor Dad’s Guide to Financial Freedom

From the desk of: Keelan Cunningham
Date: February 07, 2012
Re: Cashflow Quadrant...

All of us in one way or another desire financial security and many of us dream of attaining financial freedom.

TRobert Kiyosaki’s Rich Dad, Poor Dad’s Cashflow Quadrant book and board game teach the principals of income, assets and cashflow. Understanding the different methods by which income or money is generated and how it is utilised in essentially what Cashflow Quadrant is about. Read on to discover more about the Cashflow Quadrant.

The basic premise of the Rich Dad, Poor Dad series of books is that the business world is made up of largely 4 types of individuals:

1. Employee (E) – has a job.

2. Self-Employed (S) – owns a job.

3. Business Owner (B) – owns a business system.

4. Investor (I) – makes money work for them.

Identifying where you are in this Cash-flow Quadrant can largely be determined by where most of your income comes from. What affects which quadrant we decide to generate our income from is a due to internal differences in our core values, interests, outlook, life stage etc.

We can actually earn income from each of these 4 quadrants simultaneously if we so choose but most of your income will likely come from one quadrant. Whilst financial security can be found in each of the 4 quadrants, the skills and tools required and attained in ‘B’ or ‘I’ quadrants will help you achieve financial freedom more rapidly.

Traditional schooling teaches us largely to focus on become an Employee (E) or a high-paid Self-Employed(S) individual such as a doctor, lawyer or accountant. Whilst there is nothing wrong per se in this idea, it becomes a problem if your primary goal is to attain financial freedom. Financial freedom is seldom to be found in the Employee (E) or Self-Employed (S) quadrants.

The attainment of financial freedom requires a high level of financial intelligence. You need to be ready to move beyond job security (in the ‘E’ quadrant) in order to begin your journey towards financial freedom. Be under no illusions though, it is a bumpy, windy road laden with risks that need to be constantly managed; it is NOT for you if you want a secure, normal life. However, if you are prepared to make the leap, the prize at the end of this particular journey is financial freedom.

In my view, the words ‘financial’ and ‘freedom’ go hand-in-hand. You can never really be truly “free” in the modern world we live in unless you are financially free. The whole purpose of life is to generate and experience more life. Money allows you to “live” more life. Financial freedom is when you have enough wealth (assets and cash-flow) to allow you live more life on a sustainable basis.

Changing quadrants is a life-changing experience and often requires a fundamental shift in ones core values in order to come about. It requires massive action and massive personal transformation. You will be required to step outside your comfort zone. Once you have crossed the proverbial Rubicon, or as Kiyosaki puts it in Rich Dad, Poor Dad, ‘crossed from the left side of the quadrant into right side’, there is generally no turning back. However, it is important to note that success is not guaranteed. For example, 80% of businesses start-ups never get to celebrate their 5th birthday. And of those that have become a successful, many successful “B’s” have lost their money through over-confidential forays in the “I” quadrant. The road to financial freedom is littered with casualties and people who turn back on their goals out of fear.

In summary, the rules of the game are totally different in each quadrant. They are completely different worlds and require different mindsets, tools, skills and behaviour. Continuous learning and education will be your constant bedfellows in order to help you on this journey through each quadrant.

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