In his famous book, "Rich dada poor dad", author Robert Kiyosaki has formulated very simple but insightful Cash Flow Quadrant. It helps to know the ways how different income can be generated. Some earn from a single quadrant while those who are capable can earn from all the quadrants. It helps to aware of your financial position and boundary.
In the left quadrants, you work for certain hours and get paid. Your income is directly proportional to working time. You can see poor and middle-class people in this quadrants.
In contrast to the left quadrants, right quadrants are not proportional to the working time. You can see rich and financial freedom people in this quadrants.
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| Cash flow quadrant. |
E – Employee
An employee is bounded in this quadrants. You have a job and accumulate a salary or wage. All people want to have a particular job, so the majority of people are in this quadrant. Money is proportional to their working time. The main disadvantage to be in this quadrant is that when you stop working, you stop to welcome money. Our education prioritizes good grade which is for a good job. Since the job lies in this quadrant, our income is very limited. Human gets old, they cannot active physically as compared with young. If you are in this quadrant, you can earn money only at your young age.
S – Self Employed
Self-employed is a little bit better than employed. If you are in this quadrant, you can earn more than being in the first quadrant. Fundamentally, this quadrant is also same as first; income is proportional to time. When you stop working, you become passive and stop earning.
B – Business Owner
In this quadrant, you are a business owner. You own a system. When you run this system, you begin to earn. But your earning is not proportional to time as in first and second quadrant. You have a system in which people work for you, generate money. Therefore, your working time does not determine your income. Money comes around you even if you stop working.
I- Investor
In this quadrant, you are an investor. Your money works for you. You can earn even you are sleeping. Time is independent for your income. Money is active for you even if you are passive. You can be rich and financially freedom being in this quadrant.