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The Cashflow Quadrant - Why The Rich Get Richer
Active vs Passive Income
There are 2 types of income:
Active Income: You are trading time for money. In order to make money you must perform something. Every day you start from zero.
Passive Income: You do not have to be present to generate income. Things like real estate, stocks, bonds are sources of passive income. You are literally making money while sleeping.
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The Cashsflow Quadrant
The Cashflow Quadrant is a concept from Robert Kiyosaki's "Rich Dad Poor Dad" which represents the different methods by which income is generated:
- Employee (E) – Otherwise known as a job
- Self-Employed (S) – Small business owners or self employed (Doctors, and lawyers)
- Business Owner (B) – Big businesses (500 and more employees). Businesses that are selling products and predefined services.
- Investor (I) – People like Warren Buffett
Active vs Passive Income
There are 2 types of income:
Active Income: You are trading time for money. In order to make money you must perform something. Every day you start from zero.
Passive Income: You do not have to be present to generate income. Things like real estate, stocks, bonds are sources of passive income. You are literally making money while sleeping.
SIMILAR ARTICLES & IDEAS:
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“A person can be highly educated, professionally successful, and financially illiterate.”
Robert Kiyosaki
Financial Literacy Questions
A financially literate person should be able to answer these questions:
- How much are they earning after tax and after saving for retirement? Is it fair considering their education level and job title?
- Are they earning above sector median rates, below, or on par?
- How much goes to their retirement accounts?
- How much goes into their investments?
- What are the rates of return on their investments when benchmarked against an index like the S&P 500?
- What are their financial plans?
- Can they read a company's financial statement?
- Do they understand their tax benefits?
- Do they understand their retirement requirements?
- Do they have a plan for retiring?
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"Rich Dad, Poor Dad" is Fiction
John T. Reed, a real estate investor, looked into the accuracy of Kiyosaki's best-selling book and found it inaccurate:
- The Rich Dad is most likely an invention. ...
"Rich Dad, Poor Dad" contains dangerous advice
According to John T. Reed the famous book is filled with bad advice:
Dangerous advice
- "If you're gonna go broke, go broke big"
- Convinces people that college is for suckers
Law-breaking advice
- Advocates committing a felony: have rich friends for trading stock based on non-public inside information, he says "That's what friends are for."
- Recommends tax fraud by deducting vacations and health club dues
- Brags about using a partner weasel clause in which his cat is his partner
Kiyosaki is making money from a personality cult
Many critics pointed out that Kiyosaki is selling a cult, not financial advice.
He is accused of tapping into the fantasies of the masses & being short on specifics, both attributes of religious cults.
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Key Ideas
Side Hustle to Make More Money
You don't have to sacrifice all of your free time to start a side hustle, use the time you’re comfortable with and make a little bit of progress every day.
Take Action
Get to working on improving your finances today, not tomorrow. Reading the steps and thinking you’re capable of doing it but postponing it is just an excuse, an unprofitable one.
Communicate With Your Partner
Talking about your financial goals, and scheduling time once a month to go over your finances together can prevent money from affecting your relationship.
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