As we grow in life, we should ‘work to learn, not to earn’ as we progress through the Cash-Flow quadrants to ultimately become an InvestorCaptain FI
Cashflow Quadrant | Robert Kiyosaki
Cashflow quadrant is a great financial education book and the follow up to Kiyosakis best seller Rich Dad Poor Dad. Cashflow Quadrant focuses on educating the reader on the four types of earners, and encourages you to analyse where you fit into the quadrant
Quadrant One: Employee
Most everyone will always begin their working lives as an employee; that is to say, someone who actively sells (trades) their time for money, whilst working for a business or other entity. This isn’t necessarily a bad thing, as long as you realise why you are doing it – many entrepreneurs spend time as employees as they ‘work to learn, not to earn’ and then transition those skills into another quadrant. Employees are at significant risk should their employer terminate their job, or if the company went under. They also are subject to high levels of income tax and don’t really get tax breaks.
Quadrant Two: Self-Employed
The self employed is a variant on the employee; someone who is working for themselves. The Self Employed can be thought of as the freelancers or consultants of the working industry. They still sell their time for money, however they may move freely between projects and contracts as they please. Being Self Employed can be brutal in a recession as it can be very difficult to secure contracts, and you are still subject to the whim of your employers. Those who are Self Employed are still subject to high income taxes, but have more scope for tax breaks as they can offset their working costs against their income. Small buisness owners are placed in this category when they dont employ anyone else.
Quadrant Three: Business Owner
The business owner is most always someone who has progressed from being Self-employed to employing others; by definition a business will have employees. Someone who has taken the skills that they ‘worked to learn’ and used them to create a business will most certainly always experience significant advantages over workers from the first two quadrants. Business owners will usually earn more, have more control over the direction of the company and implementing changing practices, and can find creative ways to avoid taxes such as through government incentives and asset write offs. Business owners often work very long hours initially to create a successful business, and then only start to reap the lifestyle rewards and benefits by outsourcing and hiring their employees – even then, it is far from passive.
Quadrant Four: Investor
Investors form the final quadrant, and consists of those who are typically investing in profitable assets such as business (private or publicly listed shares) and property. Investors receive an income purely by virtue of their investments; their money is put to work and makes more money! Investors are needed to stimulate growth in the economy and provide businesses with access to capital when they need it; in return they are often paid a dividend or rewarded with share growth over time. The goal is to become an investor, and reap the benefit of the passive income it produces.