Typically in these quadrants you get lower tax rates. Rightly or wrongly, our tax system is designed to favor large businesses (B) and investors (I). Small business owners don't have lobbyists, a team of lawyers and accountants to minimize taxes and regulations. The self-employed are constantly getting hit with new taxes that larger businesses can either avoid or minimize through various legal tax loopholes or vaivers. That, unfortunately, doesn't seem to be the case anymore. After all, small businesses comprise 70-80% of our economy. ConclusionĪt one time, small businesses were praised in our country. Things you build once and have a long (5-10 year+) timespan in payouts. It can also be things like trademarks, copyrights, and royalties. These are the investments that will allow you to retire. Investments like stocks, bonds, and real estate generate an annual cashflow. This is where you truly have passive income. In other words, you don't have to be working for the business to generate income. You aren't selling your time for money, but rather selling a product or service. You have others working for you as employees. B – Business ownerĪ business implies you have a system in place. The positive benefit you have more personal and financial freedom than an employee.
You own your own business, but in reality the business owns you. This is one step better than an employee, but in reality you still are trading time for money. If you don't work, you don't make any money. With this position in the quadrant there is no passive income. Another option is work for another company that pays better. If you want to earn more money, you must work more hours. You work for a company and trade your time for money. You are literally making money while sleeping. Things like real estate, stocks, bonds are sources of passive income. You do not have to be present to generate income. In order to make money you must perform something. On the left side of the table is active income. Investor (I) – People like Warren Buffett.Businesses that are selling products and predefined services. Business Owner (B) – Big businesses (500 and more employees).Self-Employed (S) – Small business owners or self employed (Doctors, and lawyers).E Employee (E) – Otherwise known as a job.The goal is to progress through the arrows and become more on the right side of the table. You can be in all quadrants, but most people are not.
E and S quadrants are on the left side, and B and I quadrants on the right side. It explains perfectly the way our tax system has been setup and how various professionals view the world.Īs Kiyosaki discusses in the book The Cashflow Quadrant a table is divided into four areas. Love or hate Robert, his Cashflow Quadrant makes sense.
If you were to take in only one of his ideas, this would be it. I take in the good ideas, see what works, and throw away the bad ones. After reading many financial books over the years, I don't accept anything discussed as gospel. It explains the various career paths and clearly explains our tax system structure. One of Robert's great concepts is the CASHFLOW Quadrant®. One of my goals with this blog is discussing what I think are some of the good ideas in the financial space. However, there are some gems to be found. The signal to noise ratio in his books are pretty high. As I've mentioned in my review of Rich Dad Poor Dad, his books are thought provoking and go against the grain of many other personal finance “gurus”, but they contain a lot of fluff. Robert Kiyosaki's books have a lot of junk in them.