ESBI - Cashflow Quadrant

There are 4 ways to earn money in this world which illustrated best by Robert Kiyosaki the author for the book “Rich Dad, Poor Dad”. He named this the cashflow quadrant and by understanding this you will understand how you can get out of the rat race instead of stuck as one.

E – Employee

Most of us are taught in school to be an employee. Did you realize that the time to go to school, having recess time for 30mins and end school at certain hour is exactly mirroring the schedule at work place? You need to clock in certain time and given an hour break before you go off at the end of the work day. You are seated in a row at school which is exactly the same as most of the companies structure their office layout.

There is no right or wrong but if you choose to be an employee then you are trading your time for money. You are being paid say RM2000 as starting pay but your manager is being paid maybe RM5000 and both of you clock in exactly the time in the office but doing different role. You need to spend a few good years in the corporate to be recognize in order to get promoted and there is no guarantee.

S – Self Employed

This is referring to the people that have their own business. For example, profession such as doctor, lawyer and the traditional businessman. They are not really a business owner as they are running the business by themselves that is why they are called self-employed. They need to put in effort to work just that now they are paying themselves from the earning of the business instead of relying on someone else to measure how much they worth.

As the time evolved, more and more employees started to toy around the ideas to become their own boss due to low salary increment, bad benefits and worse is having nightmare immediate superior. You can see some of your friends started some businesses like retail selling clothes, café, bar, cake house and so on. They think that by doing own business, they can get out of this dilemma without knowing they are actually jumping from one hot pan into another hot pot.

B – Business Owner

This is by far one of the best alternatives but not many understand how it works. Some probably still confused between Self Employed and Business Owner as both are running their own business and not working for others depending on their salary.

To simplify this for everyone understanding, self-employed means you need to still go to put in your own effort to run the business and can’t be away for long. For example, if you own a restaurant or café, you need to do the hiring, shop operations, managing staff, serving customers and all by yourself and if you are away for a week, you might not know what is going to happen to your business. While business owner, they own a business with system so that it can goes autopilot without worrying the absence of them in the business. Franchising is one of the more popular one although it used to get banned in certain countries as in the beginning, people can’t accept such business model that you need to pay such a high amount of investment to operate a franchise business. Later on, the trend started to switch over to insurance, property and network marketing.

I – Investor

This is ultimately the key to the financial freedom and also time freedom yet many have misconception on this. I would say most of the people fall into 2 categories which is the first category is those that do not believe in it. They think that only the rich can be investor as it requires a lot of money so it is better and safer for them to keep those money in the bank on FD or just buy some bonds which can guarantee a 4% - 6% return. Second group of people are the one that think they can still be the investor despite they are just an employee so they start to save their money so that they can participate in stock trading, property and so on.

The first group of people since they do not believe in this quadrant, they will continue with their own way of living which you can see the gap now getting wider between the rich and the poor. There will be no middle-income group anymore in the future.

The second group of people, they save up so much of their money to invest but can you imagine if they invest wrongly into certain stock or property, that means all their hard-earned money will be stuck and not able to get back any return. I am not saying don’t do it but there is method and way to do it which can bring more benefits than damages.

Why is this cashflow quadrant so important? It is crucial for most people to move from ES quadrant over to BI. One will ask, if everyone don’t want to be employee and become business owner, who will serve us in the restaurant? Who will open the door for us at the hotel and carry our luggage? Yes, you are absolutely right only IF everyone become business owner. You and I know for sure not everyone will be because it takes a lot of resilience, perseverance and desire to achieve that. I would also say that whoever that have such mindset are not destined to be a business owner because why are you concern whether if everyone turns business owner there will not be anyone working as employee? By default, that is an employee mindset which we can’t change but it has been conditioned since young at school.

It is never a question of you can or not but whether you want it or not..