This is Robert Kiyosaki’s “Cash Flow Quadrant.” It is the single BEST way to break down how money is made.
Here is a quick synopsis of the Cashflow Quadrant;
You start in the upper left hand corner(Quadrant I) as an employee. You receive a salary, possibly benefits, taxes are taken out of your paycheck, and on and on. Think corporate America for this quadrant. Moving to the next step is being self employed(Quadrant II). Here you work for yourself and are typically highly skilled in a trade or niche. Think Real Estate Agent, Private CPA, or Actor. You could also be an independent contractor who works for multiple companies/people within this quadrant. Moving to the upper right hand side of the quadrant is the business owner quadrant(Quadrant III). The difference here is that you have employees who work for you and you are not necessarily hands on with the day to day operations of the business. The last quadrant in the lower right hand side is the Investor quadrant(Quadrant IV). This quadrant is reserved for those who have money and are now investing their money into things that will make their money become more money.
I started this blog in an attempt to help ambitious self-driven men in all aspects of their lives by providing insights and ideas. We all have our strengths (mine happens to be in Pillars 1&3). And of course, we all have our weak spots. I’ll be the first to admit that Pillar 2: Career/Financial has been mine. I have no doubt been working on it and continue to take the bull by the horns on a daily basis to improve. My entire life I have strove to avoid the monotony of a 9-5 life. I’ve tried many, many avenues to avoid life behind a desk. I was dj, real estate agent, mortgage broker, outside salesman, bartender, and even started a beverage company. All were in pursuit of one thing; balance. That perfect balance of time, money, and freedom. I looked for this in the form of entrepreneurialism. Life in the fast lane right?…come up with a product/service/brand and release to the world and make millions…Yahtzee! If only it were that easy! My beverage company days taught me otherwise. I was overextended financially, undercapitalized, and way over my head. After a soul wrenching divorce from my business partner that ended in a lawsuit, I was forced to reevaluate and retool my strategy. Here is what I developed for myself and I hope it can be of some help to you as well…
The aim is to one day be in quadrant IV. But how do we get there? Well, unless you have the good fortune of inheriting a whole lot of money, a family business, etc. you are probably going to be starting out at Quadrant I. Here’s where the challenges begin. You must consistently be aware of yourself. Analyze your strengths, weaknesses, likes, and dislikes. In your job search pay attention to these things because they are what will make a job a good or bad situation. What you are trying to avoid is taking a job that you spent two months looking for, interviewing, etc only to grow to loathe it a month later. If you do end up loathing it, realize first that it is in the no way the end of the world, second what it is that you dislike, and third the steps you need to take to move into something that fits you better. If you are new to the job market, use all of your job opportunities both good and bad to hone your self awareness and improve on your weaknesses. In order to transition to Quadrant 2, you will need to have a much better sense of your self as this quadrant will often times require a much more dialed in skill set. The transition from Quadrant I to Quadrant II can be very difficult for multiple reasons. First off, it represents the first shift in mindset within the quadrants. For this reason, we will focus solely on the jump to Quadrant II for the purposes of this post.
Many if not most of us of were raised with regimented employee mentalities. School is regimented and it teaches us to follow directions, memorize, and regurgitate. Check out Garret Loporto’s blog on schooling here for an in depth look at the current state of schooling. Yes it's from 2010, but with further growth of the internet his message is even MORE relevant today! Our parents want us to follow their directions. If we are obedient and do as they say then we are rewarded. In working a “normal” job or 9-5, if we stay within the confines of the job and do what our bosses ask of us then we are rewarded. To summarize the Quadrant I mentality: Life is regimented and habitual, you look to others for approval and act based on the rewards given, and the financial return is comfortable and steady. If you are a creature of comfort then stay here! This is your home…If you are like me and equate stability with boredom, then read on!
Enter Quadrant II. Life on your own. This quadrant is going to require that you have a stronger personal boundary than quadrant I. Here you are typically required to seek out your own work and you may even have to set your own prices and act as your own personal receivables department. Here are a few examples of self employed endeavors I have partaken myself. Real Estate Agent, Mortgage Broker, labrat, DJ, club promoter, product promotions, and massage therapy. All of these pursuits were different on the surface but they all share a lot of the same characteristics. You are on your own for finding work. Networking is hugely important. If you fail to find work then you make no money. Sometimes there are droughts. Sometimes money does not come when expected or it does not come at all(be careful who you work for when you step into quadrant II!). You have to keep your own records of who you work for and how many hours you worked for. And my favorite, you are required to pay your own taxes.
These are the downsides, now for the upsides. And yes, there are many!…Here are a few; You have a lot of control over your schedule. You have the opportunity to try any myriad of random jobs that come your way. Everyday can be different and unique. You can pick who you work with. And of course my personal favorite; leverage. What do I mean by this? Well, if you work a 9-5, chances are it is your only job. One employer=one source of income(I’m quick, I know). If you lose your job, you no longer have money coming in. If you were working making $55k/year, living at lets say a $50k/per year lifestyle, the thought of losing your one source of income could be pretty damn scary. So now with this fear firmly in place, what happens when your boss strongly asks you to work Saturday when you had prior plans? If you have balls of steel you may be able to say no, but chances are that fear begins to creep in and a scene from Office Space quickly takes over. So what if you do say no? Then your boss decides you are unreliable, disloyal to the company, and replaceable with some other yes man. You lose your job, realize you only have $5k in savings which will last you one month, and are forced to jump back into the job market and take the first job offer that comes your way. Not exactly taking your career path by the horns eh? I’m going worst case here, but you get the point I’m trying to make. With being self-employed your options become greater as time goes on(pending of course that you actually perform well when hired ha!). With greater options comes greater choice and thus greater leverage. Don’t like an offer, say no. Mid way into a project and don’t like the job you are being asked to perform, or the client, tell em to take a hike! Why? Because you have the leverage of choice!
Sounds nice huh? Like a dream come true compared to waking up everyday Mon-Fri or, if life really sucks, Mon-Sat. Now how do you realistically make this transition? First off, you need to minimize your liabilities. Sell off or eliminate the lease you are carrying on your Audi A4, get rid of your DirecTV movie and sports package or better yet eliminate cable all together(you need to be reading more anyway if you are going to work at a higher level), and for god sake stop blowing $100 on your bar tab every time you go out! Free yourself of obligations and you free yourself of your need to make money. At the same time, figure out what your next move is. If you're like me and you really like dealing with people, then maybe it’s working in promotions. You can start by finding some random weekend work to build up a resume and see if you like it. Then, if you like it, you can now find a longer term gig that will allow you to quit your 9-5 and give you time to setup other gigs for when your current gig ends. Since you are OF COURSE exceeding client expectations and building your network of friends in the industry, you are getting plenty of work and are well on your way to a much more balanced and interesting life. Another amazing thing will begin to happen during this transformation. Remember that dream you had of becoming a famous actor? Your new found confidence will spark that old dream and you will realize that you now have the time, flexibility, and extra money(since you eliminated all but the bare necessities to live off of) to pursue them. Pretty cool huh? Now beware of traps while you pursue your new found dream…
Let’s say that your goal is to in fact become an actor and it requires you to go to castings that take place primarily during business hours Monday-Friday. You have gone on ten castings and have yet to be casted for a part but you can tell that you are getting closer with each new experience. You have been freelancing in promotions which has allowed you the flexibility of schedule to go on all of your castings. The money you have been making, while not great, is enough to survive on. The current manager at one of the companies you do a lot of work for is leaving and informs you that you have been tapped to become the next manager. It means double the hours and more than double your current pay rate but you will be required to work business hours Monday-Friday. While it’s very tempting to take the job and get back to the comfortable lifestyle you once lived, don’t be fooled. Remember why you left that life in the first place. If you take it, you can all but kiss your aspirations of becoming an actor goodbye…
So remember to keep your Quadrant II mentality: Life is full of endless opportunity. You just need to go out and get it! While money can be slim in the beginning living in Quadrant II, remember, the bumps in the road are much much smaller than the pot of gold that awaits those who choose to stay the course…
For more on the Cashflow Quadrant, buy Robert Kiyosaki's book here:
I also highly recommend the first in his Rich Dad Poor Dad series: