Some years ago, during a long wait in an airport, my sister handed me this book – “Here, entertain yourself”. The title immediately caught me. After the first chapter, I was in love with the book. That day, the hours passed fast while I learned about financial freedom with “Rich Dad, Poor Dad” by Robert T. Kiyosaki.
Chances are that you’ve read this book or you’ve heard about it. It helps you understand the four basic ways to make money in this crazy world. It explains the money patterns in a simple, yet powerful way that everybody can understand. The message in the book is simple: the way we are taught to manage money makes us financially poor. There are other ways, rich people know them and use them to achieve financial freedom.
“Rich Dad, Poor Dad” (1997) presented the concept and it opened our eyes. It was the first of many further books in a series that is still growing today. The second book, “The Cashflow Quadrant” (1998), is even better, because this one brought us a refined framework off the whole concept. This framework makes for a perfect tool to guide us to financial freedom.
In this post, I want to share some thoughts on the practical use of Rich Dad’s lessons and The Cashflow Quadrant in our journey to financial freedom.
- WE ARE NOT TAUGHT HOW TO BE RICH
- WHY DO YOU WANT FINANCIAL FREEDOM?
- A strong enough why is vital to set your goals and commit to them.
- HOW YOU MAKE YOUR MONEY. THE CASHFLOW QUADRANT.
- THE STEPS TO FINANCIAL FREEDOM
- WORK YOUR MINDSET. THINK LIKE THE RICH.
- Poor mindset: security over freedom
- Rich mindset: freedom over security
- FOCUS ON BUILDING ASSETS
- CONSIDER ASSETS OFF THE DIGITAL ERA: ONLINE BUSINESSES.
- THE CASHFLOW QUADRANT: A LIFETIME GIFT.
- BOTTOM LINE
WE ARE NOT TAUGHT HOW TO BE RICH
“Go to school, get good grades, and find a safe secure job”
When I read “Rich Dad, Poor Dad” and “The Cashflow Quadrant”, I had just graduated and I was starting my first job. I was a young, brand-new employee full of energy and desire to progress, but since my beginnings, I felt there was something totally wrong with that model of life.
I couldn’t define what it was. I just knew that I didn’t want to spend 40 years of my life trapped in a building for 8 hours a day, let alone asking for permission for whatever I want to do in my hours of life. I’m just incompatible with this.
Coming from a family of hardworking professionals, having a job was the only path I knew to make money. At home, I never heard about business, investments or passive income. But then, as a young adult, after only 6 months in a job, there I was feeling trapped. Everybody needs money, but I also need freedom – more than money. Something was missing in the relation between the two.
Kiyosaki’s Cashflow Quadrant talks on how to put money to serve your freedom, and not the other way around. Everything in these books resonated with me so deeply, that I decided to build this new mindset from scratch. I learned a new way to see life from a financial perspective.
WHY DO YOU WANT FINANCIAL FREEDOM?
The idea of having your family’s expenses covered without the obligation to work, is appealing for everybody. However, we need a deep understanding of what we’re really looking for to stay strong in this purpose. Why do you want financial freedom?
A strong enough why is vital to set your goals and commit to them.
If you don’t have a Life Manifesto, a clear declaration of what you want in life, please take the time to work on it. You need a strong foundation, a vital life plan. Building wealth is a journey where you’ll have to do some sacrifices. You’ll need to act different from what you were programmed to do. You’ll feel like quitting many times. In those moments, you’ll need to repeat your why to yourself, again and again. These WHYs should be clear in your Life Manifesto.
For me, financial freedom is about owning my time and having money to enjoy it. One of the concepts of the Cashflow Quadrant that I’ve never forgotten, talks about how wealth is measured in time:
“Wealth is the number of days you can survive without physically working and still maintain your standard of living.”
Making a fortune each year by working a lot of hours a day is not the goal. Financial freedom is about having both money and time.
I deeply desire to own my time to:
- Be with my family.
- Contemplate this beautiful world not only on weekends.
- Develop and live my passions.
- Do whatever I want in my days, without asking for authorization.
For each of these WHYs, I can easily visualize and feel the discomfort of not having FREEDOM, which is my main goal in my Life Manifesto. This is powerful enough to keep me on track.
What is your strong why that will keep you on track?
HOW YOU MAKE YOUR MONEY. THE CASHFLOW QUADRANT.
Ok, you deeply want financial freedom. Now you need to understand your relationship with money.
Kiyosaki’s Cashflow Quadrant gives us the four ways in which people make money. This simple, graphical chart allows you to understand immediately where you are, and where you need to move to for financial freedom.
“An E works for the system. An S is the system. A B creates and owns the system. An I invests money into the system.”
This simple diagram summarizes four relationships with money. Each quadrant describes a type of cashflow and, most importantly, a type of person:
- Employees (E): You have a job. You work for an employer, who pays you a fixed amount of money in exchange for hours of work. This is the default quadrant most people spend their life in. An Employee’s time is dedicated to work for another person for a fixed salary.
- Self-Employed (S): You work for yourself. You’re your own boss – and your own employee. You still have a fixed value per hour and your income depends directly on the hours you work. This is still a job that takes your time, only that with no boss. Example: independent accountant, independent lawyer, freelance web developer.
- Business Owners (B): You own a system and you have employees that work in it. Once the system is set up, your income doesn’t have to depend on your physical work. You can scale by scaling the system. B’s are not attached to hours of work to make money. Example: the owners of the company you work for.
- Investors (I): You invest in other’s businesses or in some open market. Your money returns increased in time. Money works for you. Typically, Investors are evolved Business Owners. Investors are not attached to hours of work to make money. They scale their income by scaling their investments. Example: real estate investors, lender, angel investor.
Each quadrant is a different world. Each quadrant requires different skills and mindset. In the left side, E and S work for money. In the right side, money work for B and I.
“Financial freedom is in the right side of the Quadrant.”
In the right side, money is not attached to hours of work. Business Owners and Investors have systems that produce passive income for them. They are detached from working 9-5, they’re not employees. They can scale their income by scaling their systems, not by working more.
Wealthy people consciously focus on building and investing in systems, the rest of the planet subconsciously focus on working inside systems.
THE STEPS TO FINANCIAL FREEDOM
You have your WHY, you know the Quadrants. What now?
Well, you achieve financial freedom when you generate enough passive income to cover your family’s expenses. Passive income comes from systems you create or you invest in. To create and invest, you need to move to the right side of the Quadrant.
“You need to become Business Owner and Investor.”
In steps, the journey looks like this:
- Change your mindset and educate yourself. Think like B, I.
- Set your passive income goal. Define how much money you want for living.
- Build assets that generate passive income. Live on your means while you’re doing this. Don’t spend on liabilities.
- Scale your passive income until you reach your goal.
- You did it! Enjoy your financial freedom!
- Build more wealth if you want. Diversify and scale further.
Kiyosaki recommends entering the right side as a B, then become I. Business owners will do a smoother transition to Investors than Employees will do, because B already have education and skills on systems.
Sounds simple, beautiful and easy, right? Then why is 90% of the world in the left side of the Quadrant, attached to a job? The answer lies in the very first point of the steps: mindset and education. The average person doesn’t have the proper mindset, nor the proper skills to build their own financial freedom. We are predetermined to be in the left side and it’s very difficult to change who we are. So even when we know what it takes to be financially free, most of us will never be who we need to be to achieve it.
WORK YOUR MINDSET. THINK LIKE THE RICH.
“Changing quadrants is often a change at the core of who you are”
Everything you want to accomplish starts in your mind, including wealth. There is a process to follow for whatever results you want: Be, Do, Have. You first need to think properly (BE). Then act (DO). Then you get results (HAVE).
To achieve financial freedom, the first and most difficult step is to rewire our brain to think like the rich. This means breaking with many patterns that are so hard-wired in us, that we don’t even see them.
The Cashflow Quadrant provides a precise picture of the four different mindsets: E, S, B, I. This is where this book shines, the real meat. No other book speaks so clearly about the role of emotions for financial freedom.
“People in each side of the quadrant have different core priorities in life. These priorities determine their financial situation.”
The left side of the Quadrant is motivated by security. The right side is motivated by freedom.
Poor mindset: security over freedom
In the left side of the Quadrant, short-term security comes first:
- They don’t take risks, they want security: a company to look after them, steady paychecks, benefits.
- After security, they look for comfort, spending their money on liabilities: vacations, bigger house, bigger car, bigger TV. This way, the need for a job and short-term security increases.
- To scale their income, they work harder.
- They educate themselves to be better professionals, improving their skills to increase their hourly rate.
- They live in the so-called rat race. Life here is a wheel, always spinning for the next paycheck. Each paycheck fires the same short cycle: paycheck – bills & comfort – work – paycheck….
Rich mindset: freedom over security
In the right side, it’s different. Freedom is the goal. Having this as priority makes you act in a complete separate way.
- You’re focused on the long-term freedom. You know that short-term security and comfort must be sacrificed and risks must be taken.
- You invest your time and your money in building your assets.
- You focus on educating yourself on business and investment. You must be a system creator and not a system’s component.
- You see life as a straight line where you have a goal and you’re working for it. Instead of repetitive short cycles, here you think in one big cycle: work – build assets – freedom – comfort.
It’s crucial to develop the rich’s mindset. That means to replace the person you are for another one better suited for your goal of financial freedom. It’s a change as profound as the age-old story of the caterpillar becoming a butterfly. Not so many people choose to make this change.
FOCUS ON BUILDING ASSETS
“Instead of working hard to pay bills, work hard to build assets”
Prioritizing Freedom means prioritizing the building of your assets. Business Owners and Investors create and grow assets.
We don’t have to be financial genius to understand what an asset is:
An asset is any system that puts money in your pocket without your physical work involved.
Anything that meet this condition is an asset:
- A book that gives you royalties.
- A loan that pays you interest.
- A real state property giving you a rent.
- An app in the App Store.
- An online business (monetized online blog, eCommerce store, digital products).
- Any property or business that generates money for you without working in it.
The main principle of an asset is that you do the work once, and then you receive money recurrently. A system keeps working when you get your hands off it.
Assets are either bought with money (e.g. rental property) or built with sweat (e.g. book). Typically, you’ll build your first assets by yourself and maybe later you go ahead and you buy more assets from other people.
On the other hand, liabilities take money out of your pocket. People in the left side of the Quadrant have many of these… and they pay for all with arduous work:
- Big house
- Big car
- Big cable plan
- VIP Subscriptions
- Expensive Toys
If you spend your money on liabilities before having a solid asset foundation, you’re operating with poor mindset, you’re sabotaging your wealth, you’re depending on hours of physical work. To transition to the right side, your hard-earned money should build your assets first. Then, assets should pay for your toys.
CONSIDER ASSETS OFF THE DIGITAL ERA: ONLINE BUSINESSES.
If you want to become financially free, the long, hard fought path to achieve it is NO longer a necessary journey. In today’s Information Age, there’s more opportunity and more access to the resources you need than ever before.
The Internet and the Digital Economy have created new, profitable business models.
Think about it:
- You can create an online system in two days for whatever business model you choose. The tools are out there.
- You have access to a huge amount of knowledge on how to do it. There are many trainings available for any type of online business.
- You don’t need hundreds of thousands of dollars to start an online business. You can get up and running with as little as a few hundred dollars, or even free.
- You don’t need employees. Your online business works 24/7 in auto-pilot. Software tools do most of the work.
- You can reach millions of people.
- You can scale and turn it into a 6 figure, time-freedom producing passive income online, after just months of focused work.
Building online businesses is a smart transition to the right side of the Cashflow Quadrant. This is an opportunity that Kiyosaki now recommends as a great path in this digital era.
I’ve decided to take the leap as a digital entrepreneur. I’m starting out with the Affiliate Marketing business model, which is only one of the many things you can do online.
THE CASHFLOW QUADRANT: A LIFETIME GIFT.
I wholeheartedly believe that the “Cashflow Quadrant” is a life-changing book that everybody should read, especially young people, as soon as they come out from school. Those who understand the Quadrants, have an unfair advantage. Those who don’t, might be walking blindly, particularly if they have a nagging feeling that 9-5 life isn’t for them.
I’ve recommended Kiyosaki’s books to many family and friends. I don’t have kids yet, but I already have my present for them on theirs 20th: brand-new copies of “Rich Dad, Poor Dad” and “The Cashflow Quadrant”. I want my sons to see in all directions, so they can choose the life they really want.
As for you, dear friend, in case you haven’t read these golden books yet, I urge you to do it. If you made it to this point of the post, you’re hungry for freedom. Read them. Also, share the knowledge with the ones you love that might benefit too.
Many people talk about Financial Freedom without having clarity on what it takes. There is a strong connection between our emotions and our financial future. The most difficult part in the path to wealth, is the inner change we must go through.
Even though I was born and raised Employee, thanks to Kiyosaki’s Cashflow Quadrant I’ve could clearly understand all the possibilities we have, and rewire myself to build my “rich” mindset. These books accelerate the “awakening” process and provides a solid foundation for everyone seeking financial freedom.
Are you aware of The Cashflow Quadrant or any other good financial framework? How is your journey to wealth going? I really want to know, so feel free to drop a comment below.