Robert Kiyosaki and The Cashflow Quadrant

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If you have ever been to a Barnes and Noble and browsed the ‘Investing’ section, you may have noticed the trademark books shimmering with purple and black. These are all either written or inspired by Robert Kiyosaki.

Robert grew up in Hawaii and had two influences in his life that he often refers to as his ‘Rich Dad’ and his ‘Poor Dad’. His rich dad was his friend’s father that grew his wealth through business and real estate, while his poor dad (his biological father) was a respected man within the educational system. Both individuals instilled their financial view of the world on Robert, but in the end, he decided that his rich dad had the life that he wished to have for himself. Through his experiences in his business ventures, he made a wonderful discovery regarding the different ways money is earned. This led him to write one of most influential books of the series, titled, “Cashflow Quadrant”.

Personally, I love the book and I am glad that I picked it up. Robert explains that there are mainly four types of ways that people earn money. The Cashflow Quadrant.

1. Employee – We all know what this is. Most of us are currently employees right now. We work for a company and perform certain tasks every week in order to receive that wonderful paycheck. It’s a simple tradeoff, time for money. We give the boss our time in order to provide the labor or service necessary, and our boss pays us for the amount of time we put in.

2. Self-Employed – We are also aware of this avenue of creating income. Many of us know a few individuals who have left a corporation and have ‘gone out on their own’. Most of them have less than 10 employees and run a very small operation. They still work very hard (sometimes even harder than when they were an employee) and might make a little more money, but they still have a time for money trade-off. If they do not show up for work for a couple of weeks, it’s very likely that their business will begin to crumble. They are the magic of the business, and in order for the business to stay “magical” and profitable, they need to be there.

3. “B-Type” Business Owner – This is a new term for most people and it was for me too. How is this different than the businesses that the self-employed create? This “B” type business is not run by an individual; it is run by utilizing a system. Take for instance, McDonalds. Ray Kroc did not run around to every one of his franchises in order to show the owner how to cook the burgers and fries. No, he created a system that each one of his franchisees utilized in order to make a profit under the McDonald’s name. Ray Kroc provided the system and then he sat back and watched the profits roll in.

4. Investor – “I am an investor,” you might say. “I have a 401(k) through my work.” I’m sorry to burst your bubble, but Robert’s use of the term ‘investor’ basically means that the individual can solely live off from their investments and has a disposable income of over $250,000. I don’t know about you, but I am currently nowhere near this category.

So what can we take away from this quick lesson? If you want to gain true wealth, you are going to have to find a way to create a “B” business. But, in order to dig into this, it’s going to take a few more posts. Don’t worry, it will come soon.

Also, I feel that I should throw a disclaimer in here. Even though many of Mr. Kiyosaki’s ideas are very helpful in our quest to obtain wealth, I do not agree with one area of his teaching. He often proposes that we should always use OPM (Other People’s Money), or in other words, go into debt and use the bank’s money in order to gain wealth. This method seemed to work out for him, but it is very risky. If you follow this plan and your investment does not have the return that you initially planned on, you could lose all of your possessions and even have to file for bankruptcy if you can’t pay your debts. Paying with cash eliminates much of the risk for any business deal; it may not allow you to start a business right at this moment, but the elimination of risk makes it worth the wait.

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Money

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

1 Comment

  1. I am glad that you included your concluding comments against borrowing for risky new business adventures;


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