Many of us would have heard of the best-selling book 'Rich Dad, Poor Dad' , but only a few of us know about the cash flow quadrant theory, proposed by the author, Robert Kiyosaki. He divided the temperaments based on which people earn in life into 4 parts or quadrants. The four types are employees, self-employed, business owner and investor.
Quadrant One: Employee
The first two quadrants -- the Es and Ss -- are people who are largely dependent on their jobs for their livelihood. Employees are those who work for a company or organisation. They devote most of their waking hours to that company and would be in serious financial trouble if that company were to go under or if they lost their job. Most people, at least at some point in their lives, are employees.
Quadrant Two: Self-Employed
Only slightly-better-off than employees are the self-employed, who work for themselves. In a down turned economy, the self-employed may struggle to take on new projects and their time might be filled with trying to find new job leads rather than on making money. While they may have more time to devote to their own projects since they aren't under constant supervision from a company, the self-employed still pay high taxes and are at the mercy of their clients.
Quadrant Three: Business Owner
The third quadrant is composed of business owners, those who have taken their skills as self-employed people and transformed them into running their own enterprises. Business owners have distinct advantages -- they can control production, hire employees and find creative ways to pay taxes, such as writing off business expenses and taking advantage of changes in the economy.
Quadrant Four: Investor
Investors, those in the fourth quadrant, are at the highest level of financial security, according to Kiyosaki. Investors are those who take what they earn and invest it in real estate, savings, bonds and other forms of dividend-producing assets. The goal of investors is to stop working altogether and to live off the income from their investments. The "Rich Dad, Poor Dad" model encourages all people -- even employees in quadrant one -- to become investors. All of us, Kiyosaki says, can save money and start down the path to financial freedom.
What we need to do is to understand our existing characteristics, learn financial intelligence in a better manner and put the two on the tangent for upliftment.
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About the Author:
Vidhi Goel, a first-year student and a member of E-cell at IIM-Indore. She is interested in entrepreneurship and knowing more about the startup culture.
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