Rich Dad, Poor Dad, The Quadrant of CashFlow

Did you ever hear this growing up?

“Just go to school! Get good grades so you can have a secure and well-paid job”! I bet 95% of you were raised to believe this is THE way to financial success. I know why I was brought up that way. And this path may be right for some people, but definitely not for everyone. In Rich Dad's Cash Flow Quadrant, Robert Kiyosaki explains that there are 4 different paths to becoming rich, but some of them are more efficient than others…

Key point number 1: The cash flow quadrant

The cash flow quadrant is a simple model that explains that wealth can come from 4 different sources. Which quadrant you belong to depends on where most of your income comes from. The 4 different quadrants are:

• E - the employee works for someone else and exchanges their time for money
• S - The small business owner or self-employed person, who also needs to exchange their hours for money
• B - Owner of a company or large business or system that does not need him to be present to generate money
• I – the investor.
  

The employee strives for safety. He achieves financial success climbing the company ladder, and you might find him saying something like: "I'm looking for a secure job with friendly colleagues and great benefits." The small business owner or self-employed person, on the other hand, strives for control. He achieves financial success by becoming highly specialized in a demanding field, and you might find him saying something like: "I'm looking for a job where I can be well compensated for my skills and the time I'm in charge." The great businessman strives for freedom. Achieve financial success by creating a profitable business. And you might hear him say something like, "I'm looking for people who are smarter than me to run my business for me." The investor also strives for freedom, but he does so by allocating money where he can get the highest expected return. You might hear him say something like, "I'm looking for a place where my money can work for me as profitably as possible."

Key point number 2: TOP and DOP

The number one difference between the left side of the cash flow quadrant and the right side is the TOP and DOP TOP means other people's time, and DOP means other people's money. A person from quadrant D uses time and money when designing a business system where he can hire people from quadrants E and A, while using money from quadrants I. Normally, he also invests a lot of his own time to kick-start the business, but in the long run this is not essential, and becoming an owner with a more passive role in the business is possible. A person in Quadrant I uses other people's Time to generate income only with their money, for example invested in shares of a certain company. And if you're skillful enough, you can typically use other people's money, as well as your own money, to increase the returns on your investment. Here lies the big difference. People in the E and S quadrants never get to use other people's time or money. So the more successful they are in their quadrants, the more money they make, but at the same time their workload increases.

Key point number 3: The pros and cons of the quadrants.

E- the employee Pros: Reduced financial uncertainty, paid vacations, health insurance (and other benefits), co-workers they can socialize with. Cons: Success means more work and less free time. Your performance is often higher than your salary (if you're not lazy). Some of the colleagues are also bosses or bosses! S – Self-employed small business owner or self-employed person. Pros: It's your own boss. It is paid according to your performance. Cons: Success means more work and less free time. financial uncertainty, you can lose money on it.

B- Owner of a large business or company. Pros:

Use other people's time and money. Financial freedom can be achieved very quickly. And more of your profits go to you (in other words, you pay less tax). Cons: Financial uncertainty, can lose money. It requires a different set of skills than what the school teaches. You will have to manage and deal with many people. I- investor. Pros:

You also have the ability to use other people's time and money. Financial freedom can be achieved quickly. A larger part of your profits goes to you (in other words, less tax). And it can be passive. Cons:

Financial uncertainty and you can lose money.

Key point number 4: Break the addiction move to the right side.

So there are pros and cons in all quadrants, but the right side is where financial freedom can be achieved most quickly and that is the right side. Therefore, we can ask ourselves: "How can we move to this side?" Money has an addictive power, very similar to sex or drugs. So when you make money through a specific quadrant, you get addicted to that quadrant. If you earn money as an employee of a large company, for example, your brain will associate that type of work with a cash reward. Changing from one quadrant to another becomes more difficult because of this. Also, if you were raised in a family where degrees, job security, paid vacations and government pensions have been highly valued, it can be a difficult transition to make.

Here are some potential mental obstacles that can arise:

“I'm taking too many risks”! "It might fail!" "Money can't buy happiness anyway!" As if this weren't enough, our education system is built to reward those who make the fewest mistakes, and punish those who risk the most. In quadrants D and I, it must act completely opposite to that of the conventional system. The people who take action will also make the biggest mistakes, but in the long run, these people will learn more and achieve more as business owners and/or investors. Thomas Edison was criticized for failing 1014 times before creating the light bulb. In response, he said: I have not failed 1014 times! I've successfully discovered what didn't work 1014 times. The transition won't be easy, but a great starting tip is to surround yourself with people who have taken the journey before, and learn from those who are already successful in the D and I quadrants.

Key point number 5: The five levels of investors.

According to Robert Kiyosaki, there are 5 different levels of investors. Starting with the base, we have:

1. Level zero of financial intelligence.

At this level, we have people who have nothing to invest. Each month, their expenses are higher than their income, often because they forget to pay themselves first, which is the fundamental wealth-building strategy taught in the classic The Richest Man in Babylon.

2. The level of those who save but remain losers.

Putting hard-earned money under a mattress or in a low-interest bank account will put you ahead of 50% of people financially, as most spend more than they earn. But that doesn't mean it's a solid personal financial plan. Why? Because of inflation. The value of the dollar or the real, for example, has been decreasing drastically.

3. The “I'm working” level.

Many people are simply too busy with their careers, family, friends and vacations to spend time investing. Therefore, they hand over their money to someone else to do so. The problem with this approach is that such a person will never learn to invest.

4. The professional level.

This is the do-it-yourself investor.

He uses his own money and makes his own decisions. He is educating himself on the subject, but he has not yet evolved to the last level. As you're watching this channel, I hope you're already at this level (or higher!) or that your intentions are to reach this level, as we have several investment videos to help you educate yourself.

5. The capitalist level.

This is an investor who comes from the D quadrant and who has learned to use the concepts from there for his investments. For example, he is not investing alone. He has advisers who help him gather information about the markets. Also, it uses other people's time (TOP) as well as your own money. He also learned to use company formation to reduce the levels of taxation on his capital gains. The Level 5 investor is the person who will achieve financial freedom first among all investors.

Well what is your investor level let me know in the comments below?

Here is the brief recap: There are four different paths to financial success. You can be successful as an employee, self-employed, being an entrepreneur and/or investor. Those on the right side of the cash flow quadrant use other people's time as well as other people's money. There are pros and cons with each of the quadrants, and depending on your personality and goals in life, one may be more suitable than the others. If you want to move to Quadrants D and I, you must learn to accept risks, make mistakes, and surround yourself with others who have achieved what you want to achieve. There are five levels of investors, and the biggest profits go to the level 5 investor who has learned to implement business concepts in their investment approach. Hope you enjoyed this post a big hug guys.