Robert Kiyosaki’s second book entitled “Cashflow Quadrant” is a sequel to Rich Dad Poor Dad. Rich Dad Poor Dad served as a beginner course while Cashflow Quadrant is the intermediate course. It discusses in detail the concepts in Rich Dad Poor Dad and is a book that dwells more into a theoretical approach in contrast to the anecdotal approach of Rich Dad Poor Dad. Here is the cashflow quadrant with explanations.“E” stands for employment. This is when you go and work for someone else. The upside is there is a steady paycheck coming in as long as you go to work. There are also employee benefits which vary from company to company such as employee loans, car plans, housing plans, medical benefits, vacation and sick leaves and bonuses. Some companies still offer a retirement plan but most have shelved it in favor of separation pay or a 401k plan. There is the potential to earn big money if you reach the upper echelon of the organization. John Francis "Jack" Welch, Jr. and Lido Anthony "Lee" Iacocca are examples of people who have been CEO’s of big multinational companies. However chances are slim as you have to compete against thousands if not millions of employees. The downside to this is that when you get sick or are unable to report to work, your income dissipates.Also you are highly taxed and do not have control over your time and income. “S” stands for small business. This is when you put up a small shop or engage in a trade or profession. Examples of this are the owners of the neighborhood barbershop, meat store and flower shop. The upside to this is that you have more freedom once you reach a certain level of income because you could hire employees to do the grunt work for you. Also the income level is generally higher than that of an average employee.Also there is the possibility your company could evolve into a big business.However the downside to this once you also reach a certain level of success you become swamped with work and have little time for the family. Also, you are the last one to be paid as you have to pay the rent, utilities, employees and suppliers first before you pay yourself.
“B” stands for big business. This is the kind of business that cranks out the cash whether you like it or not. There is a proven system in place and the business does not need your presence and participation in order to prosper. The test to know if it is a big business is that when you leave and the business still flourishes, then it is a big business. The upside is that the income level and time freedom available is what 95% of the population could dream of. You are your own boss and control your destiny and could leave the business to your children. The downside is that as in any business, there is a chance for risk and failure. Examples of big businesses are McDonald’s, Dell, Microsoft, Toyota, Walmart, Mattell and Hasbro.
“I” stands for investor. It is the quadrant that lets you leverage upon your resources to gain more resources. You no longer have to work for money but money now works for you. Investment options vary from simple time deposits to stocks, bonds, securities and business ventures. The upside is that you are not a slave to the alarm clock and could wake up what time you want and do things that you want and yet the income is still there. The downside is that several bad investments could make you lose your shirt and there are inherent risks in investing. The wealthiest people in the world are investors. Examples are William “Bill” Gates and Warren Buffet.