Apply the Cashflow Quadrant Concept
All of us in one way or another desire financial security and many of us dream of attaining financial freedom. Robert Kiyosaki’s Rich Dad, Poor Dad’s Cash-flow Quadrant book and board game teach the principals of income, assets and cash flow. Understanding the different methods by which income or money is generated and how it is utilized is essentially what Cash-flow Quadrant is about.
Contents
Steps
- Learn about the concept of the 4 individuals. 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:
- Employee (E) – has a job.
- Self-Employed (S) – owns a job.
- Business Owner (B) – owns a business system.
- Investor (I) – makes money work for them.
- Identify where you are now. Identifying where you are in this Cash-flow Quadrant can be done by looking at where most of your income comes from. What affects which quadrant we decide to generate our income from is due to internal differences in our core values, interests, outlook, life stage etc.
- Decide where you want to be. 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. While there is nothing wrong with this idea, it becomes a problem if your primary goal is to attain financial freedom. Financial freedom is seldom to be found in these quadrants.
- Decide if financial freedom is for you. 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.
- This 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 "crossed from the left side of the quadrant into right side", there is generally no turning back.
- Gain financial intelligence. 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.
- Become aware of the risks included. 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.
- Get the skills needed. Many of the skills required to be successful as a Business Owner (B) or Investor (I) are not taught in school. In fact it’s remarkable just how many successful businessmen left school early but got their real education in the cut and thrust of the business world. Most successful business owners are innately curious, knowledge-thirsty and uncompromising in the pursuit of their goals. They chose to learn through Mentors; they read voraciously, and attend training courses and educational seminars converting this knowledge into action.
- The rules of the game are totally different in each quadrant. They are completely different worlds and require different mindsets, tools, skills and behavior. Continuous learning and education will be your constant bedfellows in order to help you on this journey through each quadrant.
Tips
- You can actually earn income from each of these 4 quadrants simultaneously if you 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.
- Earning income in the E quadrant while investing in the I quadrant can be achieved through hard work and getting out of your comfort zone. What this allows is to make sound decisions since money is flowing steadily until you can let go of the E quadrant (your job).
Warnings
- Success is never guaranteed.
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