Sunday, February 14, 2010

Rich Dad's CashFlow Quadrant for me

The CashFlow Quadrant was created by Robert Kiyosaki from the Rich Dad Company.

The Ascii representation of the CashFlow Quadrant is as follows:

E | B
S | I
In summary,
E stands for Employee
B stands for Business Owners
S stands for Self-employed
I stands for Investors

The cashflow quadrant organises the ways in which we can obtain income into just 4 categories. Most of us earns from the E quadrant, that is, being an employee. Some of the others will earn from the rest of the quadrants. They are just different methods of income generation, even though eventually, money is still the same.

The key to using this quadrant is to know that different methods of income generation require different frames of mind, different technical skills, different educational paths, and different types of people. Different people are attracted to different quadrants. To generate income from different quadrants requires different skills and a different personality, even if the person found in each quadrant is the same. It's analogous to generating income using Fundamental Analysis or Technical Analysis; different methods, different mindsets and different skills are required.

Most of us have the ability to earn income from all 4 quadrants. Which quadrant we choose depends a lot on ourselves, on our differences, and it is these differences that either attract or repel us from each of the quadrants. Even a tuition teacher can earn from any of the 4 quadrants. For example, the tutor can earn from the E quadrant by working for a tuition centre. He can earn from the S quadrant by finding and teaching students himself. He can also earn from the B quadrant by opening a tuition centre. Finally, he can earn from the I quadrant by investing in bonds, equities, or some other businesses.

For me, my income comes from the following...
E Quadrant: I'm a full time engineer being employed by a MNC.
S Quadrant: I teach tuition... lots of it...
I Quadrant: I put a substantial portion of my monies into defensive dividend generating securities.

So far, the S quadrant earns me the most, followed by the E quadrant, and then the I quadrant. The only quadrant I have not earned any income from is the B quadrant, although I do hope I will be able to in the future.

Of course, as time goes on, income generated from the S quadrant and E quadrant will be diverted into the I quadrant, resulting in greater income generated from this I quadrant, until eventually, it too can become a substantial source of income.

And this, is how the CashFlow quadrant applies for me. Have you applied the CashFlow Quadrant on yourself as well?

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