Where to Get Your Cash Flow
Most people assume that their financial standing is defined by how much they earn, how much they’re worth, or some combination of both. And there’s no doubt that this has some bearing. Forbes magazine defines “rich” as a person who earns in excess of $1 million per year (about $83,333 per month, or just under $20,000 a week), and “poor” as someone who earns less than $25,000 a year.
But even more important than the quantity of money you make is the quality of money you make. In other words, not just how much you make, but how you make it—where it comes from. There are actually four distinct sources of cash flow. Each is quite different from the other, and each defines and determines a very different lifestyle, regardless of the amount of cash you earn.
After publishing Rich Dad Poor Dad, I wrote a book to explain these four different income worlds. Many people have said that this book, Cashflow Quadrant, is the most important writing I’ve done because it goes right to the heart of the crucial issues involved for people who are ready to make true changes in their lives. And if you’re someone who wants to learn how to create cash flow in the best possible way, you should check out this page. In it, I’ll tell you how real investors set up weekly streams of cash flow, for returns of up to $10,600, every week. It really isn’t hard to make high quantity and high quality income.
The cashflow quadrant represents the different ways cash income is generated.
E Quadrant: The overwhelming majority of people learn, live, love, and leave this life entirely within the E quadrant. Our educational system and culture train us, from the cradle to the grave, in how to live in the world of the E quadrant.
S Quadrant: Driven by the urge for more freedom and self-determination, a lot of people migrate from the E quadrant to the S quadrant. This is the place where people go to “strike out on their own” and pursue the American Dream.
The S quadrant includes a huge range of earning power, all the way from the teenage freelance babysitter or landscaper just starting out in life to the highly paid private-practice lawyer, consultant, or public speaker. In a very real way, the S stands for slavery: You don’t really own your business; your business owns you.
B Quadrant: The B quadrant is where people go to create big businesses. The difference between an S business and a B business is that you work for your S business, but your B business works for you. Those who live and work in the B quadrant make themselves recession-proof, because they control the source of their own income.
I Quadrant: This is not rocket science. My rich dad taught me to live in the I quadrant by playing Monopoly, and we all know how that works: four green houses, one red hotel; four green houses, one red hotel.
I’m not saying being an employee is a bad thing. For most people it’s exactly how they should earn their money. I’m just saying it’s only one way of generating income, and one that is extremely limited.
What’s happening right now is that people are waking up to this fact. These people—including you—are realizing that the only way they’re going to have what they really want in life is by setting foot on the path of the entrepreneur. Again, check out this presentation to see how I like to do my investing.
And by the way, I’m not the only one who sees this. You may or may not have heard of Muhammad Yunus, author of Banker to the Poor, but the Nobel Committee in Oslo, Norway, has heard of him. They gave him the Nobel Peace Prize in 2006 for his concept of microcredit for Third World entrepreneurs. “All people are entrepreneurs,” says Yunus, “but many don’t have the opportunity to find that out.”
He said that before the economy started tanking in ’07 and ’08, and in the wake of all the financial bad news, more and more people are actively seeking the opportunity to do exactly what Mr. Yunus is talking about.
Entrepreneurial fever over the last 10 years has been kicking into high gear, because when the economy slows down, entrepreneurial activity heats up. In fact, entrepreneurs flourish in down times. In times of uncertainty, we look for other ways to generate income. When we know we can’t rely on employers, we begin to look to ourselves. We start thinking maybe it’s time to break out of our comfort zones and get creative to help make ends meet.
A U.S. Federal Reserve survey shows that the average household net worth for entrepreneurs is five times that of conventional employees. That means entrepreneurs are five times more likely to come out of a downturn unscathed and even stronger than before, because they’ve created their own strong economy.
A recent survey found that most U.S. voters view entrepreneurship as the key to solving the current economic crisis. “History has repeatedly demonstrated that new companies and entrepreneurship are the way to bolster a flagging economy,” said the survey’s executive director.
Maybe those “most U.S. voters” who say they believe that will actually get off their duffs and do something about it. It’s possible, though I’m not holding my breath.
When the economy crashes, for the majority it’s a hardship, but for some entrepreneurs—the ones who are open-minded enough to understand they are times pregnant with economic potential. Not only is now the time to have your own business, but in fact, there has never been a better time than right now, today.
As I said, when the going gets tough, the tough get going.
Changing Jobs Is Not Changing Quadrants
Now let me explain why it’s so important to understand these different quadrants. How often have you heard someone complain about their job, then decide to make a change, only to end up a few years later with the same old complaints?
I keep working harder and harder, but I’m just not getting ahead.
Every time I get a raise, it gets eaten up by taxes and higher expenses.
I’d rather be doing [fill in the blank], but I can’t afford to go back to school and learn a whole-new profession at this stage of my life.
This job stinks! My boss stinks! Life stinks! (etc.)
These and dozens of others like them are all statements that reveal a person who is trapped—trapped not in a certain job, but in an entire quadrant. The problem is, most of the time when people do get up the initiative to actually make a change in their lives, all they do is change jobs. What they need to do is change quadrants.
The left-hand side—the E and S quadrants—is where most people live. That’s where we are brought up and trained to live. “Get good grades, so you can get a good job,” we’re told. But your grades don’t matter in the B quadrant. Your banker doesn’t ask to see your report card; he wants to see your financial statement.
Breaking away from those typical job structures and creating your own stream of income puts you in the best position to weather an economic storm, simply because you are no longer dependent on a boss or on the economy to determine your annual income. Now you determine it.
At least 80% of the population lives in the left-hand side of this picture. The E quadrant, especially, is where we are taught we will find safety and security. On the other hand, the right-hand side—the B and I quadrants—is where freedom resides. If you want to live on that side, then you can make it happen. But if you want the relative safety of the left-hand side, then maybe what I have to share here is not for you. That’s a decision only you can make.
Which quadrant do you live in? Which quadrant do you want to live in?
Editor, Rich Dad Poor Dad Daily