Rich Dad's Cashflow Quadrant

Categories : Finance Business

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🎯 The Book in 3 Sentences

💡 Key Takeaways

Being rich or poor is possible in all four quadrants, but working in the B and I quadrants offers tax advantages and faster acquisition of money.
Employees work for others and prefer job security with benefits, while self-employed individuals are their own bosses and highly value freedom and respect in their field.
Business owners own a system and are skilled in leadership, while investors make money with money.
To become a successful B and I, take baby steps, mind your own business, take control of cash flow, know the difference between risk and risky, decide what kind of investor you want to be, seek mentors, make disappointment your strength, and have faith.

✏ Top Quotes

Changing quadrants is often a change at the core of who you are.

Your goal is to own a system and have people work that system for you

If you do what everyone else does, you’ll wind up having what everyone else has.

📝 Summary + Notes

Part One - The Cashflow Quadrant

The CASHFLOW Quadrant is a way to categorize people based on where their money comes from.
Employees (E) and self-employed (S) individuals reside on the left side of the CASHFLOW Quadrant.
The right side is for individuals who receive their cash from businesses (B) they own or investments (I) they own.
You can be rich or poor in all four quadrants.
Working in the B, and I quadrants comes with tax advantages, and money can be acquired faster.
Employee (E): Work for others and want a “secure” job out of the fear of economic uncertainty with “benefits”.

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Self-employed (S): Be their own boss. They have to work hard to be paid well. More important than money is the freedom to do things their way, and be respected in their field. They don’t hire other people.
Business owner (B): They own a system. They surround themselves with people from all quadrants. They hire professionals to do the job. They are skilled in leadership.
Investor (I): They make money with money.
E and S don’t have tax advantages, while B and I do.
The pattern for financial security for an E or S is to invest (I).
True investors make more money in bad markets.
The path the author recommends is to go from E or S to B and then both B and I.
- If you first develop a solid business sense, you can become a better investor.
- If you have a business that is up and running, you then should have the free time and the cash flow to support the ups and downs of the I quadrant.
You may lose two or three companies before you build a successful one that lasts.
There are three ways you can make it to the B side quickly:
- Find a mentor. Someone who has already done what you want to do and is successful at doing it.
- Buy a franchise. Instead of trying to create your own system (which is already there for you), you can focus on developing your people.
- Get involved in network marketing.
Learn to handle rejection, not be affected by what other people think of you, and lead people.

Part Two - Bringing Out the Best in You

The author recommends reading the book Think and Grow Rich.
Moving from the left side of the CASHFLOW Quadrant to the right side is not so much about doing, but about being.
The greatest cause of human financial struggle is the fear of losing money. The author recommends the book Emotional Intelligence.
Financial IQ is 90 percent emotional IQ and only 10 percent technical information about finance or money.
Moving from quadrants on the left to quadrants on the right is more emotional than technical.

Part Three - How To Become a Successful B and I

Take baby steps.
One of the primary reasons E’s and S’s have difficulty moving to the B and I side is because they are too afraid of making mistakes.
The seven steps to finding your financial track:
1. It’s time to mind your own business: We are programmed to make our bosses, banks, and governments rich.
  1. Fill out your own personal financial statement.
  2. Set 1-year and 5-year financial goals.
2. Take control of your cash flow. For each of your liabilities or debts, you are someone else’s asset.
  1. Review your financial statements from Step 1.
  2. Determine which quadrant of the CASHFLOW Quadrant you receive your income from today.
  3. Determine which quadrant you want to receive the bulk of your income from in five years.
  4. Begin your Cash-Flow Management Plan:
    1. Pay yourself first.
    2. Focus on reducing your personal consumer debt.
3. Know the difference between risk and risky.
  1. Define risk in your own words.
  2. Commit five hours of your time each week to financial education.
4. Decide what kind of investor you want to be.
  1. Get educated in investing and business.
5. Seek mentors.
  1. Who you spend your time with is your future. Write down the six people you spend the most time with.
  2. In your list of six people, after each person’s name, list the quadrant they operate from.
6. Make disappointment your strength.
  1. Make mistakes.
  2. Start small.
  3. The key is to TAKE ACTION!
7. The power of faith.
  1. Believe in yourself, and start today!