The Cashflow Quadrant
From the book Rich Dad Poor Dad, Robert Kiyosaki says that there are four categories of working people who makes money. We call this the four quadrants.
The first category and the great majority are employees who work for a salary. People who work for a salary have all their deductions taken off at source. They take the money home and they spend it on their lifestyle and they very seldom ever get ahead. A friend of Brian Tracy once said that “You never get rich working for someone else. You only get rich working for yourself. How ever employee status is where we start. We all have to start somewhere.
example: shop assistant, mcdonalds cook, bank manager, bank teller, nurses, tv presenter, artist or animator working for a studio..etc.
Note: Some employees are part time property investors or stock market traders.
The second category of people is self employed people. These are people who earn their livings from commissions, income, bonuses, fees and so on. They are what you might call free agents. Many people who are contractors or who are computer programmers or who are repair people or even doctors, lawyers, architects and engineers who work on their own are basically self employed. In other words they can only eat what they kill. They can only get money when they are actually working and getting results that are being paid for.
example: plumbers, electricians, some doctors, lawyers, architects, engineers, computer programmers, consultants…etc.
Note: Some self employed people are part time property investors or stock market traders.
The next level up are entrepreneurs. Entrepreneurs are people who have other people working for them. When you start off with your job and you start your own business you are an entrepreneur in a way. But you are only become a serious entrepreneur when you begin to hire people who can do certain things for you to free up your time to do things that are more valuable. Here is the key to entrepreneurship. The whole purpose of hiring other people is so you can do more of those things that pay you the very most. And you don’t hire other people to do things that you should be doing. If your biggest skill is your ability to sell, you don’t hire sales people and sit in the office behind the desk shuffling papers.
Entrepreneurs leverage themselves. Multiply their ability by hiring others to do specialised functions that they are either not good at or which is not a good use of your time.
This is the highest level of all. These are people who put up their own money. And can borrow the money of others and they create wealth or sources of wealth that generate income for them when they are not working. Even an entrepreneur has to be working all the time. But an investor is a person who owns a piece of a business or maybe even owns the whole of a business and it continous to generate revenue.
When you buy stocks you are investing in another company that other people are running. If they run the company well you will make money from stocks and mutual fund investments. This is a form of investing. Your ultimate goal in life is to become an investor. However you will have to go through being an employee, being self employed and being an entrepreneur in order to generate the revenue necessary so that you can be an investor.
From the book Rich Dad Poor Dad by Robert Kiyosaki and audio book Making Millions by Brian Tracy.