The cash flow quadrants of wealth

Robert Kyosaki’s Cash Flow Quadrants depicts the different methods of generating money. This is an excellent tool that allows you to evaluate your financial situation. You can operate in a single quadrant or in all four quadrants. The two left quadrants typically generate active income whilst the two right quadrants generate passive income. If you are seeking financial freedom you would ideally function in the right quadrants.

EMPLOYEE

In the first quadrant you are an employee earning a salary. The amount you earn is limited and you get paid for your time, skills and effort. This is active income- if you do not work you will not get paid. You have job security and a stable income. This quadrant is not one hundred percent stable since the business you work for can experience financial challenges and retrench you. As an employee you will not get much flexibility. Profits and losses of the company may not affect your income.

SELF EMPLOYED

In this situation the owner is typically the only employee and “owns a job”. Your clients become your bosses. The money you make is variable, the more you work, the more money  you can make. You earn income actively and get paid for the hours you work, so you are still trading your time for money.

BUSINESS OWNER

As a business owner you hire employees and you own a system. You also get paid for being an employee as well as an investor. You earn passive income, therefore if you are absent from work, you still get paid. In this scenario the business has the potential to grow more than that of the self-employed. It is more easily scalable since the owner can hire more staff which can mean higher revenue.

INVESTOR

As an investor money works for you. You earn passive income whereby you get paid for the labours of others. Investors often purchase assets like company shares and real estate, and they generally use other people’s money to buy these assets. In this quadrant income is not dependent on active work. According to Robert Kyosaki the richest people in the world are investors, and as a general principle 70% of their income comes from investments with the other 30% made up of wages. The investor has the highest financial education in the quadrant.

These quadrants show that Investors and business owners enjoy greater wealth, flexibility and have more control over their finances than the employees and the self employed. Furthermore, they have a higher potential to make even more money. So, why not register a company now, so that you can move out of the employed quadrant and into the business owner or investor quadrant?