Rich Dad’s Cashflow Quadrant

Let’s imagine you drew a simple ‘plus’ sign on a piece of paper. What do you see? Two lines – one horizontal and one vertical, right? These lines divide four white spaces. And those four spaces are called quadrants.

The key message here is: The different ways in which we earn money can be divided into four quadrants.

So what are these four quadrants? They're each labeled with a letter: E, S, B and I. On the left-hand side of the plus sign are the E and S quadrants. The E stands for “employee” and the S for “small business or self-employed.” And on the right-hand side, we have the B and I quadrants. The B stands for “big business owner” and the I for “investor.”

Now, depending on how you make your living, you belong to one of these four quadrants.

Over your lifetime, you might earn money from just one, a couple, or all of these quadrants. Take the example of a medical doctor, working in the United States today. She could decide to earn a living as an E (an employee). She can do that by joining the staff of a large hospital or insurance company, working for the government in public health, or becoming a military doctor. In other words, by taking a nine-to-five job.

That same doctor could also choose to be an S (self-employed) and start a private practice. She would set up an office, hire staff, and build a private list of patients. It’s still hard work, but she’d have more control.

As a third option, this doctor could decide to become a B (big business owner). She could own her own clinic and hire other doctors. In that case, she’d probably employ someone else – a business manager – to run the organization. So, she’d own the clinic but not have to work in it herself. On the other hand, she could continue as a working medical professional and own a business that’s unrelated to medicine.

As a high-earning doctor, she’d probably have investable income, too. So, while practicing medicine, running her clinic, or overseeing her business, she could also become an I (investor). She could do that by investing in shares or property.

So far, so simple, right? This is the basic structure of our society. All of these quadrants require different capabilities and personal characteristics. Some people find their place in life and are happy in whichever quadrant they end up in – there is no “right” or “wrong” choice.

But what if you want to be financially free? What if you want to escape the world of work and drudgery? Then you’ll need to move from the E and S quadrants into the B and I quadrants. In short, from working to owning. We’ll see why in the next blink.