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Robert Kiyosaki's Cashflow Quadrant

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I thought I wanted to bring up a tool that I’ve been thinking about for some time now. Hopefully it will help you to see where you want to be in a few years.

The background for this blog post is that we in a network I’m a member of, discussed career paths. As the other people around the table were all employees and they therefore discussed how career paths looked from this side of the table, I thought I could be a little fun to present them to my career path forecast as an entrepreneur.

Hopefully this will also give you a few insights.

Robert Kiyosaki’s Cashflow Quadrant

cashflow quadrantThe tool I want to discuss is Robert Kiyosaki’s Cashflow Quadrant. It is a simple tool to understand but can help put your own future into perspective.

Let’s first take a look at the model and I will shed some light on my own situation and why I think this tool is important afterwards.

As you can see on the diagram it consists of four boxes.

E – Employee

This is where most people are. They are employed by an organization or company and you are trading your time for money. If you want to make more money you have to spend more time working. Sure you can get a higher salary or find a better job, but the money does not scale. You only earn money when you work, if you get sick, go on a vacation or go into retirement your cashflow typically stop.

S – Self employed

This is where a lot of people start out. You work by yourself but also for yourself. Freelancers typically belong to this category. While you have more freedom and can typically charge more, there is still the issue that if you don’t work you don’t earn any money. It is typically the first step for people because you can continue to do what you did as as employee but at a higher salary and with a better boss :)

B – Business owner

Business owners own a system and typically have people working for him/her. It is no longer your hours that bring you income, but a system that you have setup. This could be selling other’s hours or selling a product. If you have built a good system, then it will run even if you get sick or decide to take a mini-retirement for six months.

I – Investor

This is where investors are. Just like the Business owner they do not get paid by the hour, but have money working for them. This can be investment in any kind of assets like real estate, stocks, businesses etc. Often you see people move to this category when they have made money as business owner.

So what’s my take on this?

Well, my whole plan is to go from S to the B and would say that I currently is somewhere between. Unfortunately I still have to work by the hour sometimes, but the good part is that I can choose when to do so myself. And I can also choose to work less as my “systems” get into place and start making me passive income (or semi passive income).

In the S category I still work as an IT consultant and while I do get some rather interesting jobs every now and then, I am still selling my time and this does not scale!

I am apparently good at what I do, because every now and then I get a headhunter who calls me to fill a permant position. These are often quite good jobs such as CTO (Chief Technology Officer) for smaller to midsized Danish companies. The problem is that while the job might be extremely interesting, I would go back to working at least 40 hours per week (and probably more).

This would give me less time to work on setting my “systems” up and I would have become trapped in the E category.

I am not ranting about all those who are employed, if it works for you great, but if you want to retire early you should probably try to move towards the Self employed state first. This would give you some more time to focus on getting a system or business setup that could eventually lead to enough income to an early retirement (or multiple mini-retirements spread out over a full life).

robert kiyosakiI think it is Robert himself that says that the two quadrants on the right own 95% of the world’s assets, so at least if you want to earn some money (not that I recommend that this should be the goal itself) – then you should start to take a look at your own career path.

Take action now

So what can you do now? Well,

if you’re an employee…

You could make a plan on how you could get to be a freelancer instead as an employee. You could start networking and get contacts in this field id you do not have so already. I would also recommend that you specialized. At least in the IT industri specialized freelancers have a much easier time than freelancers who “can do everything” (clients do not want to do everything, they have a given problem and want to find someone who can solve it best).

If you are already self employed

You should probably start to look into building products or systems. This is where I currently spend most of my time. This could be ebooks, coaching programs etc. You can see one of the business models that I am currently focusing on in Creating a paid membership site.

If you are already a business owner

You could take a look at investing your money. It does not have to be in real estate or stocks. It could also just be you angel investing. Investing in startups providing them with a little funding and perhaps a network and good advice. You could also simply invest in your own ideas and start a second business. Most of the money I am currently earning passively go into creating new businesses :)

If you are already an investor

and making money… you are probably on the right track and do not need to read this blog :)

I hope I inspired you to take a look at your own life!

Because this was the point. Where are you now and where do you want to be in 3-5 years!

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15 Responses to Robert Kiyosaki's Cashflow Quadrant

  1. Great post Rasmus. Yes I am with you when it comes to implementing the principles found in The 4 Hour Work Week. Good stuff man. Thanks again.

    All the best,

    Hameed Hemmat

  2. Rasmus says:

    @Hameed thanks, good to hear from a fellow 4hww. Your comment ended up in my spam queue which is why you get this rather late reply :)

  3. David says:

    Hi Rasmus

    What I like about ‘B’ is that if you don’t make the mistake of running the business but owning it, then the chances are pretty good that you can live a 4HWW lifestyle based on the money that ‘muse’ will (hopefully) make. If you own it (meaning: you only concentrate on the strategic aspects and not on the operational aspect) then you’ll have enough time to live a nice live or become a serial entrepreneur.

    Regards from Greece,
    David

  4. Rasmus says:

    Hey David.

    Yeah, that was the general idea. This is basically what I’m trying to do. Move my business from S -> B with the focus of removing me from the game as much as possible :)

  5. Petra K says:

    Hello Rasmus,
    Thank you for the wonderful insights over the last year. I was just re-reading and attempted to open the wordpress plugin download and your membership site book and found a disconnect. Could you be so kind as to re-send it?

    kindest regards,
    Petra

  6. Incredible what has been revealed by robert. many of the people sometimes do not really understand the importance of financial freedom

  7. Sonny says:

    Hi Rasmus,Very good article..and I agreed with your article,mostly people in the world are in E category and some people don’t understand about financial freedom..and very important if we start to move to B and I category

  8. Motyar says:

    Your posts always inspire me.
    Good one again, moving through quadrant, passed two of them. :)
    Keep it up.

  9. Enjoyed this article and a big follower of Robert’s. You really don’t think about how you fall into the trap of being an employee. You lose the time you need to build something for yourself. As I write this, I have my “work” computer on one side and my “building” computer on the other.

    Takes some juggling.

  10. Chris A. says:

    “In the S category I still work as an IT consultant and while I do get some rather interesting jobs every now and then, I am still selling my time and this does not scale!

    “I am apparently good at what I do, because every now and then I get a headhunter who calls me to fill a permant position. These are often quite good jobs such as CTO (Chief Technology Officer) for smaller to midsized Danish companies. The problem is that while the job might be extremely interesting, I would go back to working at least 40 hours per week (and probably more).”

    Don’t do it then. Or if you want to, find out if it’s the kind of position where you can work from home or anywhere and have to report back minimally. If so… outsource and delegate the hell out of everything to reliable sources on sites like Odesk.com or Elance.com

    Get paid handsomely for doing hardly anything and don’t even worry about paying them decent money. If it’s a $120K position as a CTO for example..even if you end up parting ways with $30k of your money, in theory… you’re still being paid $90k/yr for doing part time work *if at all*.

    “This would give me less time to work on setting my “systems” up and I would have become trapped in the E category.”

    What are your systems anyway?

    • Rasmus says:

      Hi Chris

      Thanks for commenting.

      I couldn’t dream of going back to a paid job. Last year I only worked 4 months – I couldn’t see myself as someone’s employee again :)

      One of the businesses I have that I often share (and also discuss in my book) is my ecommerce business where I do ecommerce sites for the Danish B2B market. The actual production is outsourced and I mainly handle the sales part.

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