The letters in each quadrant represent the Employee, Self-Employed, Business Owner, and Investor. Discover how to move from the left side to the B and I Quadrants, where you work less, earn more, pay less taxes and have more free time to spend with your loved ones!
“The benefit of living in a free society is that we all have the choice to be rich, poor, or middle class. The decision is up to you.”
How did this author go from homeless to being financially free in a few short years?
you must be true to yourself and what you want to achieve.
Sit down and map out your financial plan.
Control your spending habits.
Minimize your debt and liabilities.
Live within your means and
find ways to increase your means.
Develop a long-term plan.
Keep in mind your most valuable asset is Time.
Keep things simple.
You will later learn all about the different quadrants and be able to plot your own unique path to financial success by having more than one source of income, real assets, and investments. Put something away.
Pay yourself first.
Mind your own business.
Invest in assets that put money in your pocket.
Build an efficient and profitable business system that earns and works hard for you while you are out playing golf.
It isn’t about how much money you make, it’s really about how much money you keep, how fast it grows and works for you, and for how many generations it will last.
What do you want to be when you grow up?
We have all been conditioned all our lives to go to school, get good grades, and then get a safe, secure job. This is Industrial Age thinking.
In today’s Information Age, this advice is obsolete. We are not taught how to become business owners and investors. Gone are the days when the company or government can guarantee a pension for your old age. Today and in the future, more and more people will see that they can only rely on themselves and their financial knowledge if they want real security.
It would be wiser to condition ourselves, and our children into thinking: Go to school, get good grades, build businesses, and become a successful investor. Risk? What risk?
In reality, there is a greater risk in sticking to a job than in minding your own business or putting money in investments. A job can easily be taken away from you anytime.
On the other side of the quadrant, you can sell your business off for a good sum, and relax while the investments you made years earlier provide you with the cash flow for the comfortable worry- free lifestyle you and your family have always dreamed of.
Chapter One: Why don’t you get a job?
Yes, you can always get a job. But you can’t always find financial freedom. The difference between Rich Dad and Poor Dad was that as Rich Dad became more successful, he had more free time to spend with the people he loved. As Poor Dad became more successful in the field of education as a state employee, he had less and less free time because of meetings and work.
Financial freedom means having the cash flow and the free time. A job and a boss won’t give you that kind of freedom. It doesn’t take a formal education to become rich.
Bill Gates, Michael Dell, Ted Turner, Thomas Edison, Henry Ford, Steve Jobs, Ralph Lauren. These people dropped out of school and built successful businesses. It doesn’t take money to make money. The author of this book and his wife started out with absolutely no money. Today they have a real estate company, two educational companies, a mining company, and an oil company.
You can earn income in all four quadrants, regardless of what you “do” professionally. A doctor can be employed by a hospital (E), have his own private practice (S), own a laboratory or clinic (B), and invest in the stock market, bond market, and real estate (I).
“You only have so many hours in a day and you can only work so hard. So why work hard for money? Learn to have money and people work hard for you, and you can be free to do the things that are important.”
Time to raise children
Have money to donate to charities and
projects Bring jobs to the community
Time and money to care for your health
Time and money to travel the world Money supports life.
Don’t spend your entire life working so hard for it.
Chapter Two: Different quadrants Different people
“If you want to be a leader of people, you need to be a master of words.”
You can tell the difference between an employee-type, a self-employed person, a business owner, and an investor, by the kind of words they use.
Employees use words like “benefits, security”. What drives them is Fear.
Self-employed people use words like “Do it yourself” Be your own boss. For them money is not important but “independence, freedom” are. They are considered experts in their fields and like to do things their way. Quality of work is much more important than money.
Business owners like to hire E’s and S’s so they can keep their minds busy with the occupation of thinking. What do they like to think up? New business plans, of course.
A real business owner can leave his business for a year, and return to find it more profitable. She builds a system that is capable of running on its own, with capable managers.
It’s not about the burger.
McDonald’s is the perfect example of the business system. Everywhere in the world, all McDonald’s stores operate the same way, millions of teen-agers greet you in a uniform manner, and food is prepared the same way. Anyone can make a better hamburger than McDonald’s, but not everyone can build an efficient operating business system like McDonald’s.
Investors make money with money. They don’t have to work because their money is working for them. This is where great wealth is made. The rich may be Employees, but only in their own corporations. If wealth is the number of days you can survive without physically working and still maintain your standard of living, then investors can simply do nothing and their grandchildren will still be provided for.
To be an investor, you need to understand….
Risk is something you can manage, control, minimize, or even eliminate.
Portfolio concentration or focusing on a few investments, rather than diversifying, is a better strategy. (Warren Buffet)
You have to first mind your own business. A successful investor gets his training from running his own business. This teaches him how to assess potential investments later on.
Freedom comes at a price. You will learn by making mistakes, sometimes costing you millions. You need to be prepared for disappointments, closing down of your companies, or sudden changes in the financial climate.
Chapter Three: Why people choose security over freedom
Those who live on the E and S side of the Cashflow Quadrant are motivated by security.
Those on the B and I side are motivated by Freedom.
When you stay on the E and S side, your taxes on income and interest on debt only increase over time. The rich take full advantages of tax shelters and tax laws. Most people focus on income, the rich focus their sights on investments.
The average American millionaire is self-employed, lives frugally, and invests for the long-term. It is always better to have a foot in each quadrant than in just one. You could be a firefighter (E) and enjoy your work, working only two days a week, receive great benefits, and on the remaining three days of the week, be a professional (I) investor -buying, fixing up and renting out houses.
Financial freedom happens when you have people working for you (B) and your money is working for you (I).
“The only difference between a rich person and a poor person is what they do in their spare time.”
How do you get to be an I? First, get your experience and education as a B or Business owner. Then if you have a business that is up and running, you should have the free time and the cash flow to join the I quadrant.
Chapter Four: The 3 kinds of business systems
There are 3 main types of business systems commonly in use today:
Traditional C-type corporations –where you develop your own system.
Franchises –where you buy an existing system.
Network Marketing –where you buy into and become part of an existing system
Remember, you may lose two or three companies before you build a successful business.
How to become a B:
Find a mentor, someone who is already at the peak you want to achieve.
Buy a franchise.
Join a network marketing company.
To be a successful Business owner, you need to overcome your fear of rejection when trying to make a sales pitch. You need to learn to lead different types of people.
Join organizations with proven track records and distribution systems.
Have a business opportunity you can share confidently with others.
Have ongoing long-term educational programs to develop you as a human being.
Have a strong mentor program. Learn from leaders, not advisers.
Have people you respect and enjoy being with.
A system is your bridge to financial Freedom.
If you are able to run a successful business system, you are on your way to the big I quadrant.
Chapter Five: The 7 Levels of Investors
Level 0: Those with nothing to invest. They spend more than they earn.
Level 1: Those who borrow and consume, shop, and go into deep debt.
Level 2: Savers put away a small amount in low-risk, low-return vehicles. They waste Time waiting for their savings to grow.
Level 3: Smart investors 3-A’s invest in retirement plans, and hand over their money to a financial planner. Level 3-B’s are the cynics who are often late in the game and think they know about the stock market when in reality they know very little. 3-C’s are gamblers. They do not study investments, and are lazy to really know their trading rules.
Level 4: Long-term investors have clearly laid-out long-term plans. Simply reducing your consumer debt and putting a little away in a mutual fund can give you a financial head start.
Level 5: Sophisticated investors seek aggressive strategies and know how to play the game of investing. They have sound financial base, good money habits, and investment savvy. Nothing is in their names for tax purposes, and they control corporations. They control the legal entities that own their assets. They are what we term “stewards of money”.
Level 6: Capitalists category is where we find the Kennedys, Rockefellers, Fords, J. Paul Gettys and Ross Perots. They create investments, jobs, businesses, and goods that make a country prosper. Level 6 investors create investments other people buy.
Chapter Six: You cannot see money with your eyes
Money is an idea. It is something you see with your mind. When you understand how to see if an investment is good or bad through its numbers, when you understand financial statements, annual reports, and market trends, this is when you will be able to see money.
How do you train your brain to see money?
With a trillion dollars electronically orbiting the planet, money changes hands and everyone is free to get some of it. Those few who know how to make it work are the ones who move the millions and billions from continent to continent.
First, understand the words and numbers in the language of money.
Second, recognize what real risk is. Bad financial advice is a risk. It is up to you to train yourself about strategies and investments.
Your home is not an asset. It is to the bank you pay the monthly mortgage to, but not to you. An asset puts money in your pocket. A liability takes money out.
Your savings are an asset but they get taxed, and interest is low.
The more people you are indebted to, the poorer you are.
The more people indebted to you, the richer you are.
Do not make your financial decisions based on other’s opinions. You need to review the facts.
Chapter Seven: Becoming who you are
Have represents the goals we want to accomplish. In order to reach these, we need to start Being or Becoming the person we want to be. We have to think the way rich people think about money. We need to Be before we start doing.
PASSION BUILDS BUSINESSES; NOT FEAR.
Build a system around your passion. You can be anything you want.
The irony of the Cashflow Quadrant is, it is more secure on the B and I or right side of the quadrant because if your system produces more and more money, you will never need a job.
The faster you want to get rich, the faster you need to master numbers and learn to be more accurate.
Chapter Eight: How do I get rich?
The basic formula this author followed was “buy four green houses, then sell them and get one red hotel.” By age 47, Robert Kiyosaki and his wife Kim were living off the passive income from their apartment houses, hotel, and mini-storages.
If you are buying cars and homes just to keep up with the Joneses, you’ll easily see why the Joneses are always so exhausted and in debt. To become rich, Rich Dad lived a modest lifestyle for many years, drove a modest pick-up, and quietly bought up most of the real estate in Hawaii.
He finally moved into a large beautiful home only after he paid for it in Cash.
Learn to control your emotions.
You need to learn to control the fear of losing money, taking a risk and quitting your safe, secure job.
Moving from quadrants on the left (E and S) to quadrants on the right is more emotional than technical. If people cannot control their emotions and thoughts, they will not be able to shift quadrants.
In your struggle, you may experience being homeless, broke, and alone, while everyone else nags you to get a safe, secure job with benefits.
Stick to your guns and focus on your dream of building businesses, investing, and by the end of a few years of hard work and determination, you will be able to silence your critics by offering Them safe, secure jobs in Your company.
Chapter Nine: Be the Bank not the Banker
For people who want to operate on the B and I side, read The Worldly Philosophers by Robert Heilbroner. It traces the greatest economists of our time, from Adam Smith to the great capitalists. History repeats itself, so by studying the economic history of capitalism, you can learn a lot.
Why invest in real estate?
Pricing. In the days the author acquired his, prices were so low it was like going to a fifty per cent off sale at a department store.
Financing. Banks offer loans on real estate. With $10,000 in cash and a 90 percent loan, the author bought a $100,000 property.
Tax benefits. In real estate the $1 million could be rolled tax-free into another real estate transaction.
Cash flow. High rent prices paid for the mortgage, maintenance, and bought the author time to wait until real estate prices went up again.
Real estate allows you to become a bank. You sell the house for a low down payment, and collect the monthly payments at an interest.
Everyone’s financial situation is different.
Seek out the best professional and financial advice you can find.
Seek advice from people who are already in the place where you want to be.
There are different advisors for the rich, poor, and middle class.
Never do business or invest for tax reasons. A tax break is an extra bonus for doing things the way government wants. It should be a bonus, not the reason.
Our laws may be different, but the principles of seeking competent advice remain the same. People on the right side of the quadrant operate similarly throughout the world.
Chapter Ten: Take baby steps
A study once found that people who became wealthy regardless of which country they lived, possessed the same qualities:
They maintained long-term visions and plans
They believed in delayed gratification.
They used the power of compounding in their favor.
How do you start thinking like a rich person?
We recommend you play the game CASHFLOW. You cannot change poor and middle class thinking overnight, but with this specially designed board game, you will be able to gradually see the difference in thought processes.
Seven Steps to finding your financial fast track
1. Mind your own business.
This means fill out your own financial statement, set financial goals, and 5-year plan.
2. Take control of your cash flow.
Determine which quadrant you receive your income from today. Then determine which quadrant you want to receive the bulk of your income from in five years.
Pay yourself first. Put aside a percentage from each paycheck or payment. Deposit that money into an investment savings account. Do not take it out until you are ready to invest it.
Reduce your personal debt by cutting up credit cards, coming up with an extra hundred dollars a month, and putting that to your monthly payment of one of your credit cards. When you are completely debt-free, take the hundred dollars and put it in your investment savings account.
3. Know the difference between risk and risky.
Define risk in your own words. Ask yourself is relying on a paycheck risky to you? Is having debt every month risky to you? Is owning an asset that generates cash flow into your pocket each month risky to you? Is spending time learning about financial education risky to you? Is spending time learning about different types of investments risky to you?
Commit 5 hours each week to do one or more of:
Read the business page of your newspaper and the Wall Street Journal.
Listen to the financial news on TV or radio.
Listen to educational cassettes on investing and financial education.
Read financial magazines and newsletters.• Play the board game CASHFLOW.
4. Decide what kind of investor you want to be.
Type C investors do not know very much about investing. They can only get rich if they marry a rich person, or win the lottery.
Type B investors ask, “What do you recommend I invest in? Do you think I should buy real estate? What mutual funds are good for me?”
Type A investors look for problems and solve them expecting to make returns of 25 percent to infinity.
5. Seek mentors and role models.
Who you spend your time with determines your future.
6. Make disappointment your strength.
In other words, in business you must expect to be disappointed. Be kind to yourself. Make mistakes so you will learn from them.
Sometimes, the simplest ideas can jar your thinking and cause you to see your situation in a completely different way. The key is for you to always be open to the possibility that whatever you are doing, you could be completely wrong. There could be a completely different and better way to do almost anything, and there usually is.
There are seven tools you can use to increase your flexibility and your mental agility.
This requires that you stop the clock, take a time-out, and stand back to look at your situation objectively. Ask yourself three questions:
What am I trying to do?
How am I trying to do it?
Could there be a better way?
Whenever you experience frustration or resistance of any kind in your attempt to achieve your goals, step back and ask yourself these three questions.
Very often you will find that what you are trying to do is not the correct thing to do, or it is not as important as it used to be. You may find that the way you are trying to do it is not working. And by asking if there could be a better way, you open your mind to an infinite number of possibilities, because there is almost always a better way.
Practice zero-based thinking, and consider the possibilities of doing things completely differently.
Whenever you are not happy with an ongoing situation, ask yourself, “If I were not now in this situation, knowing what I now know, would I get into it again today?”
If the answer is no, how do you get out of it, and how fast?
Look for ways to increase the efficiency and effectiveness of your operations by moving people and resources around and by deploying them in different ways.
What are your most important goals in your work and business right now? Have they changed?
Who are your most important, valuable, and productive people?
How can you reorganize your work so that your best and most productive people are focused on your most important goals and greatest opportunities?
This involves moving your people and resources into the 20 percent of activities that can account for 80 percent of your results.
What are the 20 percent of results that account for 80 percent of the income and profits of your business?
What are the top 20 percent of your activities that account for 80 percent of your total results?
Who are the top 20 percent of your staff who produce 80 percent of the total results?
In business, your primary concern should be revenue generation. Move your very best people into those areas where they can have the greatest positive effect on generating more revenue for your company.
Continually seek ways to simplify your work and life by delegating, outsourcing, downsizing, or eliminating certain activities.
What activities or processes can you simplify and streamline so they can be done faster and with less time and money?
What activities can you delegate to others or outsource to specialist companies?
What activities could you eliminate altogether with no real loss of productivity, sales, or profitability?
Each time you ask one of these questions, you will stimulate your creativity and get answers that you can apply to streamline your business and get more and better results, faster and cheaper.
Continually imagine what you would do differently if you were starting over again today.
Imagine starting your business or department over again today.What would you do differently?
What would you do more of?
What would you do less of?
What would you start doing that you are not doing right now?
What would you stop doing altogether?
These questions will give you ideas and insights every time you ask them. What should you do more of, less of, start, or stop?
7. Regaining control
This requires that you take specific action in your work and business based on your answers to the prior six R’s.
What one action are you going to take immediately regarding your own personal work and activities?
What one action are you going to take immediately regarding your staff?
What one action are you going to take immediately regarding the business itself?
In each case, imagine that you have no limits. Imagine that you have all the time and money, all the talents and abilities, all the friends and contacts, and all the resources you need to be, do, or have anything in your business or personal life.
There is a powerful formula for setting and achieving goals that you can use for the rest of your life. It consists of seven simple steps. Any one of these steps can double and triple your productivity if you are not currently using it. Many of my graduates have increased their incomes dramatically in a matter of a few years, or even a few months, with this simple, seven-part method.
Step one: Decide exactly what you want.
Either decide for yourself or sit down with your boss and discuss your goals and objectives until you are crystal clear about what is expected of you and in what order of priority. It is amazing how many people are working away, day after day, on low-value tasks because they have not had this critical discussion with their managers. One of the very worst uses of time is to do something very well that need not be done at all.
Stephen Covey says, “If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster.”
Step two: Write it down. Think on paper.
When you write down a goal, you crystallize it and give it tangible form. You create something that you can touch and see. On the other hand, a goal or objective that is not in writing is merely a wish or a fantasy. It has no energy behind it. Unwritten goals lead to confusion, vagueness, misdirection, and numerous mistakes.
Step three: Set a deadline on your goal; set subdeadlines if necessary.
A goal or decision without a deadline has no urgency. It has no real beginning or end. Without a definite deadline accompanied by the assignment or acceptance of specific responsibilities for completion, you will naturally procrastinate and get very little done.
Step four: Make a list of everything you can think of that you are going to have to do to achieve your goal.
As you think of new activities, add them to your list. Keep building your list until it is complete. A list gives you a visual picture of the larger task or objective. It gives you a track to run on. It dramatically increases the likelihood that you will achieve your goal as you have defined it and on schedule.
Step five: Organize the list into a plan.
Organize your list by priority and sequence. List all tasks in the order they need to be done. Take a few minutes to decide what you need to do first and what you can do later. Decide what has to be done before something else and what needs to be done afterward. Even better, lay out your plan visually in the form of a series of boxes and circles on a sheet of paper, with lines and arrows showing the relationship of each task to every other task. You’ll be amazed at how much easier it is to achieve your goal when you break it down into individual tasks. With a written goal and an organized plan of action, you will be far more productive and efficient than people who are carrying their goals around in their minds.
Step six: Take action on your plan immediately.
Do something. Do anything. An average plan vigorously executed is far better than a brilliant plan on which nothing is done. For you to achieve any kind of success, execution is everything.
Step seven: Resolve to do something every single day that moves you toward your major goal.
Build this activity into your daily schedule. You may decide to read a specific number of pages on a key subject. You may call on a specific number of prospects or customers. You may engage in a specific period of physical exercise. You may learn a certain number of new words in a foreign language. Whatever it is, you must never miss a day.
Keep pushing forward. Once you start moving, keep moving. Don’t stop. This decision, this discipline alone, can dramatically increase your speed of goal accomplishment and boost your personal productivity.
Many years ago three soldiers, hungry and weary of battle, came upon a small village. The villagers, suffering a meager harvest and the many years of war, quickly hid what little they had to eat and met the three at the village square, wringing their hands and bemoaning the lack of anything to eat.
The soldiers spoke quietly among themselves and the first soldier then turned to the village elders. ‘Your tired fields have left you nothing to share, so we will share what little we have – the secret of how to make soup from stones.’
Naturally the villagers were intrigued and soon a fire was put to the town’s greatest kettle as the soldiers dropped in three smooth stones. ‘Now this will be a fine soup’, said the second soldier; ‘but a pinch of salt and some parsley would make it wonderful!’ Up jumped a villager, crying ‘What luck! I’ve just remembered where some has been left!’ Then off she ran, returning with an apron full of parsley and a turnip.
As the kettle boiled on, the memory of the village improved: soon barley, carrots, beef and cream had found their way into the great pot, and a cask of wine was rolled into the square as all sat down to feast.
They ate and danced and sang well into the night, refreshed by the feast and their new-found friends.
In the morning the three soldiers awoke to find the entire village standing before them. At their feet lay a satchel of the village’s best breads and cheese. ‘You have given us the greatest of gifts – the secret of how to make soup from stones’, said an elder, ‘and we shall never forget.’ The third soldier turned to the crowd, and said: ‘There is no secret, but this is certain, it is only by sharing that we may make a feast’, then off the soldiers wandered, down the road.
Treasures in Clay Vessels-A Story About Face Value!
A man was exploring caves by the seashore. In one of the caves he found a canvas bag with a bunch of hardened clay vessels. It was like someone had rolled balls of clay and left them out in the sun to bake. They didn’t look like much, but they intrigued the man, so he took the bag out of the cave with him.
As he strolled along the beach, he would throw the clay balls one at a time out into the ocean as far as he could. He thought little about it, until he dropped one of the clay balls and it cracked open on a rock.
Inside was a beautiful, precious stone! Excited, the man started breaking open the remaining clay vessels. Each contained a similar treasure. He found thousands of dollars’ worth of jewels in the 20 or so clay balls he had left. Then it struck him.
He had been on the beach a long time. He had thrown maybe 50 or 60 of the clay balls with their hidden treasure into the ocean waves.
Instead of thousands of dollars in treasure, he could have taken home tens of thousands, but he had just thrown it away!
It’s like that with people. We look at someone, maybe even ourselves, and we see the external clay vessel. It doesn’t look like much from the outside. It isn’t always beautiful or sparkling, so we discount it. There is a treasure in each one of us. If we take the time to get to know that person, then the clay begins to peel away and the brilliant gem begins to shine forth.
May we not come to the end of our lives and find out that we have thrown away a fortune in friendships because the gems were hidden in bits of clay.
The Richest Man In The Valley: A Story About Wealth!
A rich landowner named Carl often rode around his vast estate so he could congratulate himself on his great wealth. One day while riding around his estate on his favorite horse, he saw Hans, an old tenant farmer.
Hans was sitting under a tree when Carl rode by. Hans said, ‘I was just thanking God for my food.’ Carl protested, ‘If that is all I had to eat, I wouldn’t feel like giving thanks.’ Hans replied, ‘God has given me everything I need, and I am thankful for it.’ The old farmer added, ‘It is strange you should come by today because I had a dream last night.
In my dream a voice told me, ‘The richest man in the valley will die tonight.’ I don’t know what it means, but I thought I ought to tell you.’ Carl snorted, ‘Dreams are nonsense,’ and galloped away, but he could not forget Hans’ words: ‘The richest man in the valley will die tonight.’
He was obviously the richest man in the valley, so he invited his doctor to his house that evening. Carl told the doctor what Hans had said. After a thorough examination, the doctor told the wealthy landowner, ‘Carl, you are as strong and healthy as a horse. There is no way you are going to die tonight.’
Nevertheless, for assurance, the doctor stayed with Carl, and they played cards through the night. The doctor left the next morning and Carl apologized for becoming so upset over the old man’s dream.
At about nine o’clock, a messenger arrived at Carl’s door. ‘What is it?’ Carl demanded. The messenger explained, ‘It’s about old Hans. He died last night in his sleep.