WHERE ARE YOU?

WHERE ARE YOU?

Before putting any of the Rich Dad get-rich strategies into action, you need to figure out where you are, for if you don’t know where you are, you can’t know where you’re going. To help you get your bearings, I’ve devised a diagram made up of four quadrants.

You inhabit at least one of these quadrants; which of them depends on where your cash comes from. The diagram is called the CASHFLOW Quadrant. It looks like this:

 

Here are what the letters in each quadrant represent:

Employee

Self-employed worker

Business owner

Investor

Where you are in the CASHFLOW Quadrant is determined by how you generate income. Employees earn income by working for other people. Self-employed people earn income by working for themselves—they own their jobs. Business owners earn income from the businesses they own. Investors earn income from their investments—from money gener- ating more money.

Think about how you generate most of your income. In which quadrant do you primarily fall? Knowing the answer will help you chart your course into the future.

Different Quadrants, Different People

Generally speaking, people in the B and I quadrants reach their financial goals more quickly than people in the E and S quadrants. The good news for you, if you inhabit the left side of the quadrant, is that you don’t have to be stuck there. You can move to the right side. Indeed, if you want to be financially free, you have to move to the right side—if not to the B quadrant, then at least to the I quadrant.

Moving quadrants is a matter of choice and financial education. Changing quadrants means altering who you are, how you think, and how you look at the world. The change is easier for some people than for others simply because some welcome change while others fight it.

The E (Employee)

People in the E quadrant dread economic uncertainty and have a strong need for security. They’re often heard to say, “I’m not that interested in money.” What this really means is they’re not interested in making the life-transforming changes necessary to leave the E quadrant nest. For them, job security—which may be just an illusion—is often more impor- tant than money.

Employees can be janitors or presidents of companies. It’s not what they do or how much they earn that makes them E’s, but rather the fact that they’re working for others—and earning salaries and benefits. A benefit is a defined and assured compensation over and above salary. It is the E type’s security blanket.

The S (Self-Employed)

S types are do-it-yourselfers and their own bosses. When it comes to money, S’s have fiercely independent souls. They don’t like to have their income depend on other people. If they work hard, they expect to be paid well. They also understand that if they don’t work, they won’t get paid. While E types often respond to the fear of not having money by seeking security, S’s respond by taking the proverbial bull by the horns, working ever harder to rack up hours and hourly wages. Eventually they may burn out trying to do every- thing themselves.

This group includes professionals such as doctors, lawyers, and architects, who spend years in school. It also includes small business owners—for example, retail shopkeepers, restau- rant owners, consultants, therapists, travel agents, car mechanics, plumbers, and hair styl- ists—as well as direct-commission salespeople such as real estate agents.

S types tend to be hard-core perfectionists. That’s why others hire them. When you hire a brain surgeon, you want the best. The same goes for hiring a dentist, hair stylist, electri- cian, or lawyer. Because of their perfectionism, they often have a difficult time hiring other people to work with them. To their way of thinking, no one else can do the work as well as they can. S types may also be hesitant to train other people out of fear that their trainees will wind up being competitors some day.

For people in the S quadrant, independence, the freedom to do things their way, and the desire to be respected are much more important than money.

The B (Business Owner)

Unlike the perfectionist S, the B type loves to delegate work. The motto of a B is, Why do it myself when I can hire someone better to do it for me? The true B can leave his or her business for over a year and return to find it more profitable than before. That’s not usually the case with someone in the S quadrant. When an S leaves his or her business for over a year, chances are there is no business to return to.

Being a successful B requires technical business skills. B’s motto is O-P-M (other people’s money) and O-P-T (other people’s time). B’s understand the concept of leverage. To succeed, B’s need to know more than just how to build superior products or services— they need to know how to build the solid network of business systems without which their offering won’t sell. And they have to be skilled in the art of leadership. Successful B’s bring out the best in their people so that their people will carefully tend the network of business systems.

The I (Investor)

Regardless of which quadrant people make their money in, if they hope someday to be truly wealthy, they must ultimately move in to the I quadrant, for it is here that money becomes converted to wealth. What is wealth? Wealth is measured in time, not money. It is the number of days you can survive without physically working and still maintain your stan-dard of living. I types don’t have to work because their money is working for them.

The I quadrant is the playground of the rich. That doesn’t mean everyone in the I quadrant meets with financial success. You can be poor in the I quadrant as well as in the E, the S, and the B—and go bankrupt in any one.

WHERE DO YOU WANT TO BE?

When my educated dad advised me to get good grades and find a secure job, he was recommending that I enter either the E or the S quadrant. Poor Dad wanted me to become either a high-paid employee (an E) or a high-paid self-employed professional (an S) such as a doctor, a lawyer, or an accountant. He was very concerned about a steady paycheck, benefits, and job security.

My rich but uneducated dad offered very different advice. “Go to school, graduate, build businesses, and become a successful investor,” he told me. He was recommending that I enter the B and the I quadrants. “Too many people focus only on the left side of the CASHFLOW Quadrant—the E/S side,” Rich Dad said. He was right. We’re taught this focus from a very young age. Think about how children respond to the question, “What do you want to be when you grow up?” Firefighter, ballerina, doctor, teacher—these typical answers fall squarely on the left side of the quadrant.

If you’re like most people, you’re in either the E or the S quadrant. But the simple fact that you’ve chosen this course and are reading this manual means you’re contemplating becoming a B or an I. You’re getting ready to pull up your once-stubborn roots—to move beyond job security and toward financial freedom.

From Job Security to Financial Freedom

How can you become more financially secure? First, by becoming educated in the B or the I quadrant—that is, by achieving financial literacy. If you have confidence in your knowl- edge of both sides of the CASHFLOW Quadrant, you’ll feel more secure even if you have little money. That’s because knowledge is power. Once you have knowledge, you can lay in wait for opportunity and seize it when it goes by.

The path Rich Dad recommended for me was the path to financial freedom. Why? Because in the B quadrant, people would be working for me, and in the I quadrant, my money would be working for me.

The person who has knowledge in these two quadrants can achieve what most people throughout history have yearned for: freedom from work.

Congratulations on realizing you need to move into the right side of the quadrant! Now, let’s get started building your financial literacy!