Robert Kiyosaki, the famous author of the best selling book Rich Dad Poor Dad, stated that people are divided into four groups base on the income. He call this the cashflow quadrant as shown on below picture.
E stands for EMPLOYEE. Most people belong to this group. They sacrifice their time in exchange for money. They get their income from the company that hires them. Sad to say, they only get money for every work that they performed. This is called an ACTIVE INCOME. You won’t receive anything if you will not exert any work or effort.
S stands for SELF EMPLOYED. This group consists mostly of those people with specialized skill. Like a lawyer who builds a law firm, a doctor who builds a clinic, a mechanic who builds an auto shop and a lot more similar cases. For this group, they don’t have the employer as they are the boss. Like the E group, they also trade their time for money. Without them, their clinic or shop won’t function. This is also an example of ACTIVE INCOME. They won’t receive any income if they stop working.
B stands for BUSINESSMAN. These group hires people to work for them. They don’t need to work to earn money, as other people are already working for them. They have their time on their hand, and can do anything they want. Money keeps on flowing in no matter what they do and any time of the day. This is called the PASSIVE INCOME.
I stands for INVESTOR. This last group uses money to work for them. Some examples are investment in stocks, bonds or mutual funds. Their money will keep on growing even they sleep. The good thing is, their money works harder and harder everyday, without complaining. Like B group, this is also called the PASSIVE INCOME as there are no work required from them.
All of us belongs to one or even more quadrant. At the start, we may be an employee then do business and invest. Businessmen can also invest as the same time. Same with self employed, they can upgrade to businessmen and do investing as well.
To be able to be retire and be financially free, you need to increase your PASSIVE INCOME. This isdone thru doing business or investment. These are the dream quadrant that all of us wished to be in. Unfortunately, only few people make it on this quadrant with total departure in E and S.
So which quadrant do you belong now?