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The Cashflow Quadrant

“The Cashflow Quadrant” is a theory proposed by Robert Kiyosaki that seeks to explain why the rich get richer and the poor get poorer. According to Kiyosaki’s theory, there are 2 categories of people: those who see the world through the left side of the Quadrant, and those who see it through the right.

The Cashflow Quadrant is divided into 4 types of people; with 2 in each category.

On the left is E and S.

E is for employee

According to Kiyosaki, the most important thing for an employee is security. For most, there is nothing riskier than becoming a business owner or an investor. Employees often shy away from risk. They don’t see the need to learn about money or how it works. Education is needed to learn the skills necessary for a high-paying job.

S is for self-employed

Those in this category are often not good employees and believe that they can do it better themselves. So they only make money when they are working- they own a job, not a business. They still like the idea of security, but have a higher tolerance for risk.

On the right side are B and I.

B stands for business owner

Business owners don’t own a job. They own a system or product that generates money, even if they aren’t working; they hire people with specialised skills that they need for their business, and they look to delegate rather than keep the work for themselves. The best business owners could leave their company for a long period of time and find it profitable when they return.

I stands for investor

Investors have the highest level of financial education of anyone in the quadrant. They find assets that generate steady forms of income. They then use that income to acquire more assets, growing their wealth further.

Those on the right earn a ‘passive income’, pay the least in taxes, utilize debt to make money, and hedge against inflation. They know how to keep more money. Those on the left work for ‘earned income’ or the highest-taxed income.

A study was conducted to show the mindset of those that moved from poverty into wealth. 3 things were seen as a determining factor:

1. They held a long-term plan and vision

2. They believed in delayed gratification

3. They used the power of compounding

For Kiyosaki, to move to the right side of the quadrant, one needs to think in terms of acquiring assets that generate a passive income, rather than living from paycheck to paycheck.

Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make and only you are accountable for the results.

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