Rich Dad’s Cashflow Quadrant Summary: ‘RICH’ always fascinates the people. The fact that the 5% of the population holds the 95% of the total wealth is really captivating. What engages the people more is why only a certain group of people are able to become rich?
There are a certain group of people who achieve financial freedom in their 30s. On the other hand, there are many people who never enjoy the rich life no matter how much hard work they do. Why does this happen?
The answer is amazingly described in Robert Kiyosaki’s book- ‘ Rich Dad’s Cashflow quadrant ’ which I’m going to discuss in this post.
The Cashflow Quadrant
Our working society is broadly divided into 4 kinds of people depending upon the work they perform. They are:
- Employee – They have a job i.e. they work for someone
- Self-employed- They own the job
- Business owners- They own a system/process
- Investors- They make their money work for them
Each quadrant has their own advantages and disadvantages. Moreover, our society needs all kind of these people to work efficiently.
Let’s discuss few of the characteristics of each cashflow quadrant to understand them better.
Tagline: “I need a safe and secure job with benefits.”
Majority of people work in this quadrant. This is the default way of living and probably the most difficult quadrant to get rich.
The reason why most people work in employee quadrant is that they are programmed to do so from the childhood. Most of the people get the same suggestion from their Mom/Dad while growing up- “ Study hard, find a high paying job and have a secured life. ”
There is very few proportions of children who get advice to open their own business or to start investing, from their parents.
Moreover, our school, colleges, and university are also designed to create employees, who need security, live from pay-check to pay-check and want allowances.
For this group of people, job security is more important than the financial freedom.
Although you can become RICH working in this quadrant also, however it’s quite tough compared to the other cashflow quadrants.
Tagline: “If you want to do it right, you’ve to do it by yourself.”
They are sometimes also referred to ‘Solo-People’. They own their job and many a time do all their work as they believe is ‘perfectionism’ and do not trust anyone else with the job.
Few examples of self-employed are doctors, lawyers, retail shop owners, small company owners etc.
They trade their time for money.
As compared to employees, who enjoy the benefits of medical allowances and paid leaves, the earnings of a self-employed are affected in case he fell sick. The self-employed people have to devote more time if they want to earn more. Their income is directly dependent on how much work they can do.
Their time is money.
In addition, for the self-employed people, their freedom is more important than the financial success.
Also read: 3 Amazing Books to Read for a Successful Investing Mindset.
Tagline: “I’m looking for the smartest people in my company”.
Core-value: Make people work for them
This is one of the best quadrants to get RICH. This group of people owns the system or process, where people work for them.
According to Forbes, big companies are the ones with over 500 employees. However, it the recent time, this rule is not completely valid. There are a number of big companies now, which do not require 500 employees to work. For example, WhatsApp is a multi-billion company with even less than 50 employees working there.
As compared to self-employed, who can’t stop working if he wants a regular income, the business owners do not need to trade his time with money as he owns the system. Even in their absence, their employee will work for them.
Tagline: “I’m looking for a good investment.”
Core-value: Makes their money work
Investors are the forth and the highest level of the cashflow quadrant. You cannot jump into this quadrant without being successful in one of the three quadrants discussed above.
The investors are one of the most financially free group and they make their money work for them. They invest in businesses, stocks, real estates etc.
Most of the time, the investors do not need to get directly involved in the working of the business or assets where they invest, and hence they get plenty of time and freedom.
Which side of Cashflow Quadrant should you be?
Now that you have understood the core values of people from each of the quadrants, here is a quick difference between the people on the right side and the left side of the quadrant.
|Left side of quadrant||Right side of Quadrant|
|Employees (E), Self-employed (S)||Business owners (B), Investors (I)|
|Difficult to get rich||Easy to get rich|
|Their core value is Security.||Their core value is FREEDOM.|
|This side consists of 95% of the population with less than 5% of total wealth.||This side consists of 5% of the population with more than 95% of total wealth.|
|They trade time with money.||Their money is not dependent on time. They make their money work.|
Here is the conclusion for the working class distribution in different quadrants:
- If you have a job, then you are an Employee (E).
- If you own a job, then you’re Self-Employed (S).
- If you own a system/process where others work for you, then you’re a Business owner (B).
- If your money works for you, then you’re an Investor (I).
It’s possible to become rich on all four quadrants or remain poor in any.
However, it’s comparatively easy and fast to become rich when you’re working on the right-hand side of the quadrant i.e. business owner and investor side.
Nevertheless, you do not need to shift to another quadrant entirely at once. You can keep your feet to two or more quadrants.
For example, if you are an employee, you can still jump to the right side by starting to invest. You can be
- Employee + Investor
- Employee + Business owner
- Self-Employed + Investor
However, the best way to get rich is when you’re entirely on the right side of the cashflow quadrant i.e. you are a “BUSINESS OWNER + INVESTOR”.
In addition, when you try to jump quadrants, make sure to learn the new skills and mentality as every quadrant requires a specific skill. Depending on how long you’re in the last quadrant, it can be pretty tough to jump to next one.
Nevertheless, you can always acquire the new skill required to jump to the right side.
If you want to join the new rich and ready to start your learn to invest from scratch, feel free to check out my online course- INVESTING IN STOCKS: THE COMPLETE COURSE FOR BEGINNERS . I’m confident that it will kick-start your share market journey.
That’s all. We hope this post is useful to you.
Do comment below which quadrant you’re currently in and to which quadrant you want to see yourself in future.
Kritesh ( Tweet here ) is the Founder & CEO of Trade Brains & FinGrad . He is an NSE Certified Equity Fundamental Analyst with +7 Years of Experience in Share Market Investing. Kritesh frequently writes about Share Market Investing and IPOs and publishes his personal insights on the market.
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Your article is great but I have a question.
What is about Network Marketing ? Is it Self employee or Businessman ?
If its not an registered business/firm and you don’t have people under you, who are working for you/on behalf of you means the work in which you are involved is self-employment.