There are basically four ways to make money. You can get a job, be self employed, own a business or invest. This categorisation was made popular by a guy called Robert Kiyosaki in his book – Cashflow Quadrant.
The cashflow quadrant represents the four ways in which income or profit is typically generated:
1. Employee (E): In this quadrant, individuals earn income by working for a company or another person. They trade their time and skills for a steady paycheck. The majority of people fall into this category. Most wealthy people all started out as employees before transiting into other quadrants.
2. Self-employed (S): These are professionals who own their jobs. They are their own bosses, and their income is directly tied to their work. Examples include doctors, lawyers, consultants, and small business owners. While they have more control, they also bear more responsibility, and their income often stops if they stop working.
3. Business Owner (B): These individuals own a system that generates income. They don’t necessarily have to be present for the business to operate or for income to be generated. Examples include owners of corporations or franchises. This quadrant allows for greater potential income and more flexibility of time.
4. Investor (I): Individuals in this quadrant make money from their investments. They invest money in avenues such as stocks, bonds, mutual funds, real estate, etc., to generate income. This is often considered the quadrant with the most financial freedom but also requires significant financial intelligence to navigate effectively.
According to Kiyosaki, each quadrant requires a different mindset and skills. His philosophy encourages people to shift from the left side (E and S) to the right side (B and I) of the quadrant to achieve financial independence. The right side is where passive income exceeds expenses, meaning that individuals do not need to actively work to sustain their lifestyle. The transition requires not just financial investment but also education, time, and often a shift in mindset about money and work.
It’s important to note that the Cashflow Quadrant is a simplified model of the ways to earn income. It’s useful for understanding different paths to wealth and financial independence, but everyone’s individual financial situation and goals are unique and may not neatly fit into one quadrant.
