Make it Plain for Me! What is The Cash Flow Quadrant?

What is The Cash Flow Quadrant_

By now you’ve heard the adage,

“The rich get richer, and the poor get poorer.”

This…umm, isn’t exactly true. This idea typically comes into play if the “poor” chooses to remain complacent. You see, it’s not that the rich just get richer; they become wiser. They were the ones who asked the question decades ago, “What is the Cash Flow Quadrant?” They then applied the answers to their lives. Having this wisdom can affect future generations; this is no overstatement. Here you will discover what it is, why it’s vital, and some examples that should assist in opening one’s eyes.

 

What is The Cash Flow Quadrant?

The Cash Flow Quadrant is a concept that was introduced to the world by Robert Kiyosaki. This idea is the main focal point of his Rich Dad, Poor Dad series. Released in 2000, this educational library enlightened millions to the Prussian System. In fact, many would argue that this very system is to blame for the matrix the average American is stuck in. Kiyosaki’s series has spawned books, seminars, board games, and even podcasts. They are all geared towards educating people on the labyrinth we call American economy.

The Cash Flow Quadrant is best illustrated by the following four corners (or realms). The term, realm, is used flippantly because many treat each corner as their comfort zones.

 

What is The Cash Flow Quadrant

A relatively bland illustration, right? But for an image so unassuming, believe that you (the reader) call one of these quadrants home. Hold your head up; it’s not your fault. From birth we are under the spell of the Prussian system.

It’s all we know, and our parents were most likely victims of the system. Aside from that, as you grow older this concept is rarely explained.

 

 

What is The Cash Flow Quadrant: E

This corner is for the employee mentality. Many individuals are born into this quadrant and are taught (very early) to aspire to “set up shop” here.

From June 2017 to June 2018 there was estimated to be 129.94 million employees in the USA.
source: statista.com 

This included those that were at least 16 years of age. It also included those that worked a minimum of 35 hours per week. On the surface that large number may look nice. One may exclaim…

“Oh my…all those jobs. What a healthy economy!!”

Certainly, one ingredient of establishing a healthy economy is having large force of employees. The problem with camping out in this quadrant is that employees do not own their time. When they need to generate income the employee must trade their time for a salary. This idea seems normal on paper until you grasp this truth – time is your most valuable asset.

Not money.

So, the prime objective for over the course of a worker’s life is to chase money. And the only way a resident of the “E” quadrant knows how is to barter their time. This is a dangerous block to raise a family on.

 

What is The Cash Flow Quadrant: S

This corner is where the self-employed reside. These are the individuals that enroll in vocational programs to become electricians, plumbers, or HVAC technicians. This one can even include landscapers, mobile auto detailers, or even dog walkers. The fine folk here have a taste of independence. There is no boss to report to at this level, plus no vacation time you have to apply for. If you need to take time off to attend your child’s first basketball game, you can do so – and freely.

 

Self Employed Trend Infographic

While the self-employed enjoy bite-sized samples of liberation, they ultimately realize one thing; they’re not totally free! After all, the only thing they did was create a job. Unlike those in the previous quadrant, you didn’t have to look for one. Much like the E quadrant, if you happen to need time off to recover from an illness it will involve some degree of politics:

  • You may upset clients by cancelling appointments.
  • A promotion could be jeopardized.
  • Suzy Supervisor now has a motive to fire you.
  • It will most certainly cost you income.

 

So, even though the self-employed isn’t tethered to corporate politics, they still are working for money. If you don’t trade your time (or vocation) you don’t get paid. This block is much better to raise a family on.

It’s an upgrade, but don’t expect to be able to attend all of those basketball practices.

 

What is The Cash Flow Quadrant: B

This community is where all the business owners rub elbows. These individuals are cut from a different cloth in that they view failure differently. They are usually tenacious, enterprising, and full of faith. Most importantly, these people have been enlightened:

“Ah hah! I need to make money work for ME!”

Those in this quadrant are embracing the idea of ownership. They are realizing that in order to make more money they must own more of their time. These people come and go as they please. In fact, they have the ability to hire employees to run their business. This then frees up even more time for the business owner. Once you achieve this level of the Cash Flow Quadrant you will more than likely have assets that could be passed down to future generations.

This group is significantly smaller than the first.

According to 2014 US What is The Cash Flow QuadrantCensus Bureau data, there was 5.83 million employer firms in America.

89.4 percent of that figure consisted of business owners with less than 20 employees. A whopping 99.7 percent of that number were business owners that had less than 500 employees.

Small business in America truly is…small business.

As you can see there were far more job creators than job seekers. It appears that the majority prefers the comforts of a steady paycheck. As long as they show up and barter their time, the money is there. The business owner mentality fully understands and embraces adversity. Above all, he or she is willing to endure it for the sake of financial freedom.

 

What is The Cash Flow Quadrant: I

Of the four neighborhoods, the I quadrant has the smallest percentage of residents. In terms of knowledge, this is the elite. This isn’t necessarily academic knowledge, either! The investor usually has graduated to the ownership of multiple businesses. They have failed and conquered, and failed again. They have experienced it so many times that they become desensitized. Along the journey they have also developed wisdom; typically via a mentor.

The investor is now channelling capital into other business ventures. This could be as simple as purchasing a second car wash (starting a chain), or as in depth as trading for crypto-currency. Generous investors even help back the dreams of others. **see Shark Tank**

 

Business Owner Infographic

 

The common denominator for those in the I quadrant is their feverish desire to diversify their portfolio. This yearning never stops! An investor may pursue e-commerce, real estate, government bonds, hospitality (restaurants/hotels), the stock market, mutual funds, and even international markets. The prime objective for the investor is to make money grow – consistently. They also understand that to make it grow, they must create the time find new investments.

Employees don’t have the time to do this. Oh, that’s right…their company’s agenda is far more important.

Hopefully you now have clear insight in what the Cash Flow Quadrant is. You may not have ever heard of it, but it definitely exists. Don’t fool yourself. It’s tragic that the Rich Dad, Poor Dad series isn’t a part of the curriculum at every school in America. Of course, not everyone is quadrant I or B material. But do realize that this neglect plays a large part in economic health.

Like always, feel free to comment and express your unadulterated opinions.

Helpful Links:

The Prussian System
Self-Employment in The USA – BLS

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge