SSS #48: Cashflow Quadrant


I just finished rereading Cashflow Quadrant by Robert Kiyosaki.

Luna joined me this time around. Aside from drooling on the pages, falling asleep mid chapter, and constantly babbling over me, I think she found it quite interesting.

Here’s my attempt at condensing a 300 page book into less than 1,500 words.


The Cashflow Quadrant is a way to categorize how people earn their income.

Poor Dad would say go to school and get good grades so you can ultimately get a good job (E). If you’re really good at your job, maybe you can turn yourself into a small business (S).

Rich Dad would say go to school to love the process of learning so you can build a business (B) and become an investor (I).


Employee Income (E Quadrant)

  • The “conservative” route - Having a Job
  • Trading time for money
  • Suited for those seeking a safe, secure, & steady income.

Small Business or Self Employed Income (S Quadrant)

  • The Perfectionist’s Do It Yourself Route: Owning a Job.
  • Specialists like Private Practice Doctors, Lawyers, & Accountants.
  • Independence trumps money for this group.
  • The hardest quadrant.
  • Rate of failure is extremely high
  • If you make it, being successful can be harder than failing.

Big Business Income (B Quadrant)

  • The Freedom Route: Owning a System
  • People work with and / or for you.

Investment Income (I Quadrant)

  • Owning Streams of Income.
  • Your money makes money.
  • This is the quadrant where your money converts to wealth.

In Regards To “The System”

  • E works for the system.
  • S is the system.
  • B creates, controls, and owns the system.
  • I puts money into the system and expects a return on investment.

Difference Between S-Business and B-Business

If you can leave your business for a year and come back to something better, you have a B type of business. There are systems and redundancies in place. Your presence is not required.

If you leave your business for a year and have nothing to come back to, you have an S type of business. Think Mom & Pop type businesses where the owners are always present.

S owns a job, while B owns a system. In other words, an S is the system. To be a good B, you need the ability to lead people, create systems, and build accountability.

Differences Between Left & Right Side of Cashflow Quadrant

E & S vs. B & I

Success on the left side means less free time. If you’re an employee, higher titles and more pay usually coincide with more work. If you’re self employed, the more you work, the more you make.

Success on the right side means more free time. If you’re a business owner, the more profits you make, the more oversight and redundancy you can afford, ultimately freeing up your own time. As an investor, the higher returns you achieve, the more you can enjoy your dividends.

Taxes on the left side are higher than taxes on the right side. Employees get taxes deducted from their paychecks before they see any money.

In addition to federal, state and local income taxes, simply being self-employed subjects one to a separate 15.3% tax covering Social Security and Medicare. While W-2 employees “split” this rate with their employers, the IRS views the small business entrepreneur as both the employee and the employer.

Rich Dad’s Strategy

Loop the right side: Build a profitable business, Invest the profits, Repeat.


Why? 2 Reasons.

  • Tax laws reward those who play in the B & I quadrants and have historically punished those who operate in the E & S quadrants.

In 1943, the United States began taxing all working Americans via payroll deductions. The government got paid before people in the E quadrant.

In 1986, the Tax Reform Act went after highly paid professionals in the S quadrant: doctors, lawyers, architects, dentists, engineers, etc. The TRA made it extremely difficult for them to shelter their income the way a B & I can do through depreciation or otherwise.

  • There’s virtually no upper limit to how much you can make on the right side.

As an Employee or Self Employed individual, there’s only so much you can make because you’re mostly trading your time for money and there’s a finite amount of time to work. As a business owner or investor, you can use technology and economies of scale to achieve scale that exceeds your own personal limits.

Novel Differences of Opinion:

E vs. B

  • E wants more pay. “I’m overworked and underpaid.”
  • B wants more work. “How can we incentivize them to work harder without paying them more?”

B vs. I

  • B wants more capital. “We need a bigger travel budget so our executives can take meetings face to face.”
  • I wants more dividends. “We need less executives so there are less meetings.”

S vs. B

  • A lawyer (S) puts together a lucrative deal for an Entrepreneur (B). The lawyer bills hourly and feels slighted. The Entrepreneur walks away with millions and is upset about the lawyer’s bill.

E vs. I

  • A loan officer at a bank gets paid once on commission for originating a new loan. A real estate investor gets paid forever on rental income cash flow. The Investor is annoyed by all the paperwork needed to get a loan. The Loan Officer is annoyed because he only gets paid once, while the investor gets paid in perpetuity.

My Takeaways

In the past month, I’ve reread Rich Dad Poor Dad and Cashflow Quadrant.

I’m planning to reread Tax Free Wealth & Loopholes of Real Estate in the coming weeks as well.

All four of these books are a part of the Rich Dad Poor Dad series.

I love Kiyosaki. Reading Rich Dad Poor Dad changed the trajectory of my life.

Here’s the catch: it’s not as easy as it seems.

Kiyosaki advises his reader to say “no” to the man. He encourages us to buy assets that generate cash flow or build profitable businesses that don’t rely on its founder to operate.

But he doesn’t teach us HOW. I quit my day job in March 2014 to pursue entrepreneurship. It’s been 6 years and I have yet to make as much money in a year as I did in 2013. I came close in 2019, but I’m not sure where I’ll land in 2020 because of the Coronavirus.

Here’s my personal issue with the Rich Dad Poor Dad series. While I agree with the advice: build a business and invest in assets that generate passive income, it’s so unbelievably difficult, it’s hard not to sometimes hate the person giving the advice.

Not only that, I have plenty of friends who are breaking the bank working the traditional 9-5. There's absolutely nothing wrong with Employee Income when you're paid handsomely for what you do. I am not a fan of people who put entrepreneurship on a pedestal.

More recently, I’ve transitioned into being an S. If I don’t show up to work, I don’t get paid. Simple as that. I am my business. It sucks. But, Dia and I are being extremely diligent in our investing.

Building a true B-type business seems impossible to me. I know many business owners. I don’t think a single one of them could actually walk away from their business for a year and come back to something that is better than what they left.

(If you're reading this and you have a business that doesn't require your presence at all, please hit me up. I will pay you to teach me your ways.)

.... All of this to say, I am determined to figure it out. I will build a B, Invest the profits, & Repeat.