Mindsets to Making Money in Robert T. Kiyosaki’s “Rich Dad’s Cashflow Quadrant”

A lot of people know about Robert T Kiyosaki’s most successful book, “Rich Dad, Poor Dad”. However, in addition to that amazing book, you can also read his other book called “Rich Dad’s Cashflow Quadrant.” This is another fantastic book that will help you in changing your mindset regarding personal finance. This book was originally published in 1998. If you are interested in learning a bit more about money and finances, keep on reading. My review of this book and the takeaways will prove to be helpful for you. 

About The Author

Robert T. Kiyosaki is an American author and a businessman. He is the founder of the Rich Dad company and Rich Global LLC. Robert T. Kiyosaki was born in the U.S state of Hawaii. He was born on 8th April 1947. Along with Rich Dad’s Cashflow Quadrant, Robert T. Kiyosaki has written other informative books that deal with money and finances. These books may include Rich Dad Poor Dad, Rich Dad’s Guide To Investing, and Rich Dad’s Retire Young, Retire Rich. 

In his book Rich Dad’s Cashflow Quadrant, Robert T Kiyosaki discusses various principles and concepts. We will cover them here.

1. Income Cashflow can be Categorized into 4 Quadrants

The main concept that Robert T Kiyosaki discusses in his book is the four quadrants: E, B, S, and I. He believes that every person out there lives within one of these four financial quadrants. These quadrant can characterize how the person thinks about making money. Let’s understand each letter and the quadrant it represents.

• ‘E’ represents Employees that have a job. People in this quadrant are those that rely on stable jobs to fulfill their need for money. Their main goal is to obtain financial security from their job. Employees believe that their waged position will provide them the security they need. 
• ‘S’ represents the Self-employed who own a job. They are also trying to make money. However, they will try to generate it on their own instead of relying on an employer. The main principles they may value is ‘control’ and ‘perfectionism.’ The Self-employed do things in their own way in order to “do it right”. Due to this reason, their money-making operations tend to be smaller to maintain control and they don’t grow. 
• ‘B’ represents Business owners who own a system. They will try to own or start a certain system that could make money for them over time. These are the people that want to build a system that scales. Unlike ‘S’ people, they care more about the operations rather than “perfectionism”. Business owners don’t necessarily want to be involved in the day-to-day operations, but oversee a system that can be refined and tuned to be more profitable. 
• ‘I’ represents Investors who own their own investments.  They will try to generate money by putting their own money into a particular system. That system can be a business, stocks, funds, or any other cash-returning vehicle. That system will ultimately generate more money for them. They have almost no direct involvement in the money-making system, unlike the other quadrants. They are letting their money work without actively spending their time running the operations.

Which quadrant can you see yourself in?

2. Take Control of Cash Flow Patterns

The second principle Robert T Kiyosaki emphasizes in his book is the basic cash flow patterns of the lower, middle, and upper classes. For people in the middle and lower class, their major income comes from jobs. They earn money from working, and then they spend it on liabilities and expenses. This cash flow pattern is characteristic of Employees, and even the Self-employed.

On the other hand, those in the upper class of society tend to draw their income from their assets rather than a job. Undoubtedly, they may have a lot more liabilities in their financial portfolio, but those liabilities are often de-risked by the cash made from the assets they own over time.

The most common cash flow pattern in our society comes from those of Employees. This is a mindset challenge. You may feel as if you are doing well financially by owning a car and a big house. However, you may not realize that you are living month to month on your paycheck. 

Here’s a good test. What will happen if your earned income suddenly stops, or you lose your job? If an unexpected situation can put you into financial hardship, then maybe you aren’t doing as well financially as you thought? According to Robert T Kiyosaki, the majority of the population works at this financial red line. They earn money from their jobs; the money is deposited into their bank account; then the money disappears into expenses. 

According to Kiyosaki, while people work jobs to earn money, their employers and the government thrive off their labor. Kiyosaki summarizes his thoughts on cash flow patterns with the statement – ‘People who cannot control their cash flow work for those who can.’

3. Be Financially Literate

From an early age, we are taught the idea that our house is our asset, and you need money in order to make money. That idea is not quite right. People have this type of concept due to their lack of financial literacy; they are only exposed to an oversimplification of how finances work.  Without seeing the bigger picture of how financial systems work, many people are forced into the Employee or Self-employed quadrants. 

People in the Business owner and Investor quadrants tend to be more financially successful because they better understand and know how to leverage the financial systems. When trying to figure out good money-making decisions, they are more focused around facts and numbers rather than sentiments and ideas. Simply working a job for an employer does not require much financial expertise since everything is provided for. However, being an investor or business owner requires a good working knowledge of how to leverage finances to grow a system for profitable returns.

There is no denying the fact that people who are wealthy put most of their time into investing. It is because of this reason that they are usually wealthy. According to Robert T Kiyosaki, with the passage of time, the wealth from people in the Employee or Self-Employed quadrant will be transferred to the people on the Business Owner and Investor quadrants.

4. Financial IQ and Emotional IQ

Most people may not recognize this, but a lot of your financial IQ is dependent on your emotional intelligence. How one handles failure is a huge differentiator between the rich and the poor. Only fools expect everything to always go their way, and be surprised when there are roadblocks.

Most people that are not financially successful cannot face failures. Moreover, they spend most of their life trying to avoid failures and disappointment. It is a hard thing to do for sure, however, having the habit of this avoidance prevents you from taking initiatives or risks that may come with lucrative opportunities. 

How many times does it happen where a person tries to start a new business, but due to a disappointment or failure, they give up on the whole idea. According to Robert T Kiyosaki, disappointment won, and won too easily, in such situations.

In contrast to this, the business owners and investor mentality is different. They understand that it may take a considerable amount of time to achieve success. Robert T Kiyosaki says that ‘Financial IQ is 90% Emotional IQ and only 10% technical information about finance or money.’ 

Everyone has fears. However, those that are able to tackle their fears, doubt, and uncertainties head on are those that will be successful. The size of your success is measured by the strength of your desires, the size of your dreams, and how you handle disappointment along the way. 

Main Takeaways

If you want to change your mindset regarding money and finances, Kiyosaki’s Cashflow Quadrant can help. If you haven’t been thinking about finance and cashflow in this way before, it will be a game-changer for you. However, if you are expecting that this book will teach you step-by-step the practical way of transforming yourself from an employee to a business person, be ready for disappointment. For that, you may need to internalize and practice the principles from this book and the others written by Robert T. Kiyosaki.

I must say that this book has helped me a lot when I first read it. It sheds light on the false premise that if you work hard at a high-paying job, you will be financially successful and independent. Kiyosaki has always done a great job at challenging our traditional mindsets when it comes to how to approach money. I’m not saying that everybody must become a business owner and/or investor. I’m not saying that being an employee or self-employed person is bad. There are definitely pros and cons to each style and approach to making money. However, it is important to know the difference, and what you want to be when it comes to your personal journey.