9 Lessons On Money Management From Rich Dad’s CASHFLOW Quadrant   Oct 06, 2018

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“The Journey of a lifetime starts with the turning of a Page.” – Rachel Anders

If you haven’t started due to other commitments, its better late than never.

Because, “ I do believe something very magical can happen when you read a good book.”—J.K. Rowling

Infact it did, if you remember reading my previous article, 8 Key Lessons On Financial Freedom, it encouraged me to read further.

So I finished reading this other book and today I’m sharing a very important concept. And you know what, I have even added it to the list of books that give me the ‘WOW’ feeling.

Now, this book is my reference guide to becoming a better investor and achieving financial freedom.

‘CASHFLOW Quadrant’, a sequel to Rich Dad, Poor Dad, by Robert Kiyosaki.

The author continues to highlight the teachings of his rich father that encouraged him to attain financial freedom. Through a diagram he illustrates the difference in approach towards the source of income of individuals and classifies them in each quadrant.

Plot Summary:

Robert Kiyosaki explains that depending on our individualistic core psychology, we seek the source of income and methods on how we build wealth. Each one of us form a part of CASHFLOW Quadrant, distributed into four windows ‘E’, ‘S’, ‘B’, and ‘I’.

E - Employee

B - Big business owner

S - Small business or self-employed

I - Investor

E and S fall on the left side of the quadrant. B and I are on the right side.

In the book, Robert explains that E quadrant person seeks security and is afraid to take risks. He is always looking out for safety and solely relies on his employer for income.

The author refers to the S quadrant person as, “do-it-yourself”, the one who prefers freedom and works hard alone to make money. In a true sense, he is equivalent to an employee, because if he doesn’t work for a few days, his income decreases.

The author highlighted that both E and S quadrant people don’t know how to take advantage of taxes and other benefits enjoyed by large businesses.

B quadrant classifies are big business owners, who use people from E and S quadrant to grow their wealth. They enjoy their freedom and are open to taking risks.

I quadrant people know how to grow wealth by leveraging on and investing in other’s businesses.

People from B and I quadrants are the ones that truly succeed in life as they learn from mistakes.

The book also outlines how an employee or a self-employed can manoeuvre himself to be a part of the right-hand side, especially an Investor.

Once you finish reading the book it induces a few vital questions in your mind about your true identity:

What part of CASHFLOW Quadrant do I fall in?’

‘Are my expenses more than my income?’

‘Am I afraid to take risks?’

‘Do I invest still like in the Industrial Age?’

‘Am I a Capitalist or Do-it-yourself?

Well, here are some key lessons to attain financial freedom from Robert Kiyosaki’s ‘CASHFLOW Quadrant’, which I think we can practice.

  1. Seek Financial Intelligence Over Job Security:

    From our early days, we are taught to seek job security but not financial freedom. Practically, we don’t learn about money management or wealth creation at home or school. So, we choose the idea we have been conditioned with, which is job security.

    The book states that 90% of the population on the left side of the quadrant is stuck in a financial trap of expenses, bills payments, and debt burden. That’s why they cling tightly to a job and professional security.

    The author explains that the right side of the quadrants B and I have “financial intelligence”, i.e. the ability to understand the difference between an asset and a liability – like the home you stay in is a liability, while the one you could rent out is an asset.

  2. Know the Difference Between Financial Security and Financial Freedom:

    Robert mentions that many who don’t invest because for them the basic idea of financial security is interlinked to job security. He points out that, in reality, real financial security is having a secure footing on both sides of the CASHFLOW Quadrant. Financial freedom is the end goal that you attain after years of financial security.

    If you are an employee or self-employed, you can earn active income through a job and invest wisely to generate passive income to be in the investor quadrant simultaneously. By investing, one allows their money to work for more money. This, in turn, leads them to the world of financial freedom.

  3. Develop Business Acumen:

    A successful I quadrant person requires a lot of time, money and many failures, that neither of us has. To become a successful B quadrant person, learn to identify other good businesses. A true investor invests in successful B’s with stable business systems. Staying in the B quadrant requires knowledge of both systems and people. Build a full proof system and hire the best people to run that system.  Anyone from the left quadrant can make a transition to the B side in these three ways:

    • Get a mentor, not an advisor

    • Buy a franchise to operate the system the way it is

    • Get involved in network marketing (also called multi-level marketing or direct distribution systems)

    Thanks to technology, the systems are in place now. So, to become financially successful in the B quadrant is easy. Besides that, the most important part is to develop yourself to lead people, gain self-confidence, and invest in lifelong education.

    Think of business systems as bridges that provide a path for you to cross safely from the left side to the right side of the CASHFLOW Quadrant.” (Robert Kiyosaki)

  4. Learn to Invest and Manage Risk:

    As per the book, many people especially employees or self-employed have overlooked the risk while trying to transition into the I quadrant. They invest in markets looking for returns from securities, the stock market responds in kind.

    Just like a business owner or an investor who invest for high returns with low risk, even you can do -- by learning how it’s done. It is easier than you think.

    In fact, it’s simple if you move with the right skills and determination.

    Investing sets you free from the struggle of earning a living and worrying about money. If you invest prudently, you could build a pipeline of cash flow for life – that increases automatically with inflation.

  5. Try to Be a Capitalist:

    Robert explains out of five levels of investors, level 4 and 5 are crucial for financial freedom. No matter what quadrant any individual is, he can be a level 4 investor. A level 4 investor is a Professional who takes time to educate himself and invests in stable business, real estate, paper, and commodities to earn a return on investment (ROI). This ROI helps you to build wealth over the long-term and beat inflation.

    A level 4 investor can further become a Capitalist (level 5) if he considers Return-On-Information (ROI) - the more information you have, your returns would be higher and risk lower. Simply because, a capitalist invests other people’s money (OTM) to create wealth; he knows how to make money from nothing. He shares information with others to make investments with others money to gain huge profits which he shares with others and keeps a small portion for himself.

  6. Learn the Money Game (“Who Is Indebted to Whom?”):

    Robert learned from his rich dad the difference between an asset and liability and that the entire economy works on debt. One man’s debt is another man’s gain. Robert’s Rich dad said, “If you take on debt personally, make sure it’s small. If you take on large debt, make sure someone else is paying for it.

    Remember to distinguish between opinions and facts by conducting due diligence. As quoted in the book,” Too much due diligence is also called ‘analysis paralysis.’ The point is that you must know how to sift through facts and opinions, and then make your decision. “ .

    This will shed light on what are your true assets and liabilities, how much you could gain, and if you are a debtor.

  7. Change Your Core:

    The reason many people do not achieve financial freedom is because they do not change their internal core.  Fear of losing, failing, loss of security, sadness, anger, love, hate, disappointment, joy, happiness, and other emotions trap us. What separates the left side from the right is how they handle those emotions.

    As an adult, if you contemplate moving along the right-hand side, you should be aware and vigilant of your internal dialogue. Change from an emotion-driven thinking to a logical process. Making prudent decisions based on logic paves a path for your financial freedom.

  8. Seek the Best Professionals for Financial Advice:

    While investing, remember to seek advice from the best and most experienced professionals. Remember there are different advisors for rich, middle, and poor income groups. Be mindful of who you seek the advice from, because plenty of advisors may not be biased. Seek advice from someone who keeps your interest at the core.

    [Read: Why Good Advice Matters In The Journey Of Wealth Creation]

    In the book, Robert reveals the rich, especially corporations, use tax as per their advantage. They simply earn, spend, and then pay taxes. Hence, invest to build your wealth and not only for tax reasons.

  9. Think Like an Underachiever:

    An underachiever takes small baby steps to reach where he wants to go. He sets goals, plans, and acts accordingly. A person who has become wealthy over time possess these three qualities:

    • Has a financial plan in place

    • Believes in delayed gratification

    • Understands the impact of the power of compounding

According to Robert, with these seven steps you can fast track your way to financial freedom:

  1. Mind your own business – Set your own financial goals and act on it to generate passive income.

  2. Control your own cashflow – Work on your goals by curbing your expenses, clearing your debts and continue investing.

  3. Understand the difference Between Risk and Risky – Become financially literate and intelligent.

  4. Decide the kind of Investor you want to be – Be a problem-solving investor because he looks through tiny details to find opportunities to earn big.

  5. Seek advice from mentors – Surround yourself with people having a similar mindset and take advice from the experts.

  6. Acceptance of disappointment – Every disappointment teaches a lesson in disguise

  7. Believe in the Power of Faith – Cultivate positive thoughts to fuel your growth.


As the book inspires us to seek the right path towards our journey of financial freedom, I hope even you can develop emotional and mental strength to build wealth for a blissful life.

[Also read: 8 Key Lessons On Financial Freedom From ‘Rich Dad, Poor Dad’]

Happy Investing!

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Financial Term. Simplified.

Cash flow: A cash flow describes a real or virtual movement of money:

A cash flow in its narrow sense is a payment (in a currency), especially from one central bank account to another; the term 'cash flow' is mostly used to describe payments that are expected to happen in the future, are thus uncertain and therefore need to be forecasted with cash flows;

Cash flows are narrowly interconnected with the concepts of value, interest rate and liquidity.

(Source: Investopedia)

Quote:"Happiness is a positive cash flow.” ‒Fred Adler