Path to Financial Freedom using Robert Kiyosaki's Cashflow Quadrants

As the Corporate Divergent Community launches and grows into a hub for employees interested in entrepreneurship, it's important for the community to have a proven framework that keeps us organized and accountable on our journey towards financial freedom. Among the the many available models and principles available, Robert Kiyosaki's Cashflow Quadrants stands out because it is simple, clear and widely popular. 

Since everyone has different goals (personal, professional and financial), the Cashflow Quadrants provide guidance that we can each leverage to maximize our income within each quadrant. This topic is extremely interesting and unpacking each of the key points will be done over a series of blog posts because trying to consolidate all the information wouldn't do it justice. 

In this blog post, we'll dive into the following key sections:

1. Overview of the Cashflow Quadrants
2. Transitioning Between the Quadrants 
3. How the Corporate Divergent Community Will Help You Navigate the Cashflow Quadrants

Overview of the Cashflow Quadrants

The cashflow quadrants were developed by entrepreneur and educator Robert Kiyosaki. Many of you have probably read his book “Rich Dad Poor Dad”, which was published in the late 1990’s and continues to be a bestseller within the personal finance and entrepreneurship space. If you haven't had the chance to read it, I highly recommend you add it to your reading list as it's a classic for good reason.

Other books in the Rich Dad series include “Rich’s Dad guide to investing”, “Rich’s Dad increase your financial IQ” and of course “Rich Dad’s CASHFLOW Quadrants” which is the focus of this post. 

Before jumping into the quadrants, it's important to understand some of the Rich Dad concepts to have a clear picture of how & why Robert Kiyosaki developed these quadrants. Below are the highlights of his teachings:

• Focus on achieving financial independence and success
• The education system fails to teach essential financial skills
• Important to study the way money works and how to make it work for you
• Learn to acquire income generating assets while reducing liabilities such as personal debt.
• He promotes entrepreneurship as extremely valuable and advocates for creating multiple streams of income through business ownership and investments

Notice anything about his teachings and how it relates to the Corporate Divergent Community? The Rich Dad books (amongst many other popular titles) helped form how I perceive the importance of entrepreneurship and financial education.

Hence it makes sense that the community closely aligns with these principles of seeking financial independence, developing financial knowledge, understanding how money works and promoting entrepreneurship to diversify income instead of solely relying on the traditional 9 to 5 path.

The Cashflow Quadrants guide us in understanding key financial concepts and helps get us to the most suitable quadrant for our goals.

What are the four Cashflow Quadrants?

Source Credit:  I Love This Aim Global 

1. Employee (E)- (Works for the System) Typically a job and financial security is more important than making more money. They need to work in order to earn money, have a set salary and have their allotted vacation days set by their employer. Example: Finance Analyst
2. Self-Employed (S)- (Is the System) Seeks independence, wants to be their own boss and actually does the required work. They also need to work in order to earn money but do not have a set income cap because they get rewarded all the proceeds from their efforts. Any vacation time or sick time means they won't receive income for periods they are not able to work but they have the flexibility to work as they please. Example: Private Dentist Practice
3. Business Owner (B)- (Creates, Owns and Controls the System) They don’t work within the operations of the business, instead they delegate and are leaders that bring out the best in people. Their income is based on the productivity of their teams and their ability to manage the employees. They are able to leave the business for extended periods of time and still earn income because the business activities continue. Example: Bill Gates and Microsoft
4. Investor (I)- (Invests money in the System) They don't work or operate the business, instead they make money by investing money into business opportunities. Income is dependent on the returns from their investments. Example: Warren Buffett and Berkshire Hathaway

If you're interested in a video overview of these quadrants check out this youtube video. Explains each quadrant in under 10 minutes and is simple to follow. 

Which quadrant do most of us fit into? 

According to this April 2023 U.S. Census Bureau estimate, the U.S. population is approximately 331M, and according to this February 2023 St. Louis Federal Reserve chart, the working population is approximately 208M. A rough estimate is that 10-15% of the working age population are self employed, 5-10% are Business Owners and 5-10% are investors.

Since some individuals are both employees and investors (like those with 401k or IRA accounts), it's hard to pinpoint exact numbers. However, it's safe to say that around 70-80% of the U.S. population falls into the "E" quadrant. By moving into the other 3 quadrants we give ourselves the opportunity to enjoy some of the benefits reserved for the most financially privileged amongst us. 

Which is the ideal quadrant?

Everyone has unique goals, so the ideal quadrant is subjective. Kiyosaki states that the left quadrants (“E” and “S”) are active forms of income while the right ones (“B” and “I”) generate passive income. He also alludes to “I” being the key to achieving full freedom. 

At the time of this post, I am an employee with a 9-to-5 job, self-employed through side hustles, and somewhat an investor, as I invest in my 401k and crypto. My ultimate goal is to be a Business Owner and an Investor. 

In which quadrants do you find yourself? Which quadrants are your ultimate goals?

Transitioning between the Cashflow Quadrants

I couldn't find a detailed guide for transitioning between the quadrants, but I plan to create one for the Corporate Divergent Community. In the meantime, here are my general thoughts on what we can do to get closer to the right side of the quadrants. 

1. Shift your mindset and priorities
   • Your greatest asset is your time. Reduce distractions and stop wasting time on activities that don't get you closer to your life and financial goals.
   • Inventory your skills and connections. Leverage what you already have going for you and grow from there.
   • Embrace change and uncertainty. Remaining the same is the only thing that feels comfortable but being comfortable is the enemy of progress. Challenge yourself and minimize fear by planning for all outcomes.
   • Within the quadrants
     • Employees → Maximize your employment income and push yourself to develop an entrepreneurial spirit through side hustles or Intrapreneurship
     • Self Employed → Document your business, focus on process efficiency and identify areas where you can delegate/automate responsibilities
     • Business Owners → Focus is growth and maximizing income. Identify additional streams of income, new business opportunities and areas where you can invest your money for greater returns
     • Investors → Risk reduction/mitigation and identifying higher yield investments. This is the ideal quadrant for passive income and a life of financial security
2. Set your goals and constantly evaluate your progress (where are you succeeding and where are you failing?). Adjust accordingly and keep reminding yourself of your “why”. 
3. Commit to learning all the time. Learn about personal development, listen to audiobooks, watch educational videos, and identify any weak areas (i.e. finance, marketing, leadership, management, operations, creativity, etc.) and find ways to improve in those areas over time. You don't need to become an expert but having a fundamental understanding will be beneficial over the long run.
4. Remain optimistic and endure. This ties with your mindset shift but it's important enough to call out separately because the path leading away from being just an employee will challenge you and make you question yourself many times. You have to know that if others can do it, so can you and that where you are now doesn't have to be where you’ll always be. Doing this alone is difficult so the next recommendation is the most important to follow.
5. Find a support group, network with like minded individuals and seek out mentors. There are many online and in person communities that can help you on your journey so it's important to do your research and find the one that best fits your needs. 

For those that are interested in joining a community they can help form and develop over time, please consider the Corporate Divergent Community. Currently the community is an idea in the early stages of development but as it launches and continues to grow, it will serve as a valuable resource for individuals looking to navigate entrepreneurship and achieve financial freedom.

Our community is designed to provide support and resources to help you stay motivated, develop relationships and reach your goals. As part of the community, you gain access to other members, scheduled community calls, access to a growing resource library and you get the opportunity to help create the community you need for your own success.

In this post, we have explored the key aspects of Robert Kiyosaki's Cashflow Quadrants, the importance of transitioning between the quadrants, and how the Corporate Divergent Community can assist you on your journey. By applying the Cashflow Quadrants model, you can create a customized plan that leads to your personal financial and professional success. We encourage you to become an active member of the Corporate Divergent community, where you can contribute your own experiences, learn from others, and grow together. With the right mindset, resources, and support, there's no limit to what you can achieve as you navigate the path to financial freedom.