Cashflow Quadrant

Main Takeaway

The different ways to earn money can be represented in quadrants; picture a 2×2 matrix. The two options on the left are low-leverage (e.g. employee, self-employed) and the two on the left are high-leverage (e.g. business and investing).

Transitioning to the right side can lead to greater financial freedom and independence and that should be your goal.

Favorite Quote

My rich dad taught me to focus on passive income and spend my time acquiring assets that provide passive or long-term residual income.

Rich Dad's CASHFLOW Quadrant
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08/30/2023 11:36 pm GMT

My Review

When you look around, who’s got it good or who has it figured out?

Very few, based on what I see.

Have you had this Neo-like feeling for a while and you just can’t figure out what’s wrong? I think this book is a bit of a red pill of truth and clarity in the way we all should approach earning money.

Per the book’s title, there four quadrants that describe how people make money. They are:

  1. Employee: This is the quadrant where most people start. Employees trade their time for money, working for someone else in exchange for a salary or hourly wage.
  2. Self-employed: Self-employed individuals are also trading time for money, but they work for themselves instead of someone else. Examples include freelancers, consultants, and small business owners.
  3. Business owner: Business owners are individuals who have built systems and processes that generate income without their direct involvement. They have built a team and created a business that can operate independently of them.
  4. Investor: Investors earn money by using their money to make more money. They are not involved in the day-to-day operations of a business but instead invest in assets such as stocks, real estate, and other investments.

You’ll see it drawn like this:

Credit: Rich Dad’s The Cashflow Quadrant Blog

The book’s whole purpose is to get you to move from the left quadrants to the right quadrants; illuminating the weaknesses and consequences of the left side (employee or self-employed) and extolling the virtues and benefits of the ride side (business owner or investor).

If Family, Inc. teaches you your two business-like focuses of temporary labor and asset management, Cashflow Quadrant gives you additional granularity on how earned income becomes passive income streams.

We all have our own path to find or create for changing your mindset about life and money. Some take the same path as most people around them, others take a more informed path and enjoy better results.

Read this book and see if you’re on the right path or if you should make some changes.

I referenced this book in the Starting You, Inc. newsletter.

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