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Book Review : Cashflow Quadrant

Updated: Aug 25, 2021

Cashflow Quadrant

Author: Robert Kyosaki

Published: 1998

Topics: Income Generation, Income Diversification, Wealth Building Strategy

Key Concepts: Cashflow Quadrant

Author: Robert Kyosaki

Published: 1998

Topics: Income Generation, Income Diversification, Wealth Building Strategy

Rating: 5 / 5

Key Concepts: Cashflow Quadrant, Income Diversification, Entrepreneurial Mindset, Investor Mindset, Savings Rate, Passive Income, Active vs. Passive Income, Transition from Passive to Active I was introduced to Robert Kyosaki through Rich Dad Poor Dad which is another book in our Top 20 list that highlights entrepreneurship, investment, cash flow and risk. Cashflow Quadrant focuses on understanding and categorizing the different types of cashflow that can be generated with a focus on active vs. passive income. I selected the Cashflow Quadrant as the first book I would review for the website as it has had a profound impact on my perspective and is a strategic framework that I use on a daily basis for making decisions about how I spend my time and resources. The cashflow quadrant framework divides the way income is generated into four categories: employee, self-employed professional, investor and business owner.

The left side of the quadrant is the active side with both the employee and self-employed professional categories. In these categories people exchange time for money. Employees trade hours for an hourly wage or years for an annual salary. The professional also trades time for money but may be able to have some business ownership and leverage components. Examples of this include the doctor and lawyer who trade time for billings or the real estate agent who trades time for commissions.

On the other side of the quadrant we have the passive side. This side of the quadrant includes investing where the investor invests capital for profit and the business owner leverages capital, entrepreneurship and systems for profit.

My personal view on the cashflow quadrant strategy is that people should strategically try to diversify their income sources and shift into the I and B quadrants. This can be accomplished by saving income generated in the active quadrants and investing it into the I quadrant or by investing entrepreneurship (time, strategy and effort) plus capital into the B quadrant. Your personal savings rate describes the speed at which your life transfers from the active to the passive quadrants and is a great indicator to track the effectiveness of your current financial strategy. Once someone has enough income from the passive side to provide a comfortable quality of life they have achieved financial freedom. From a strategic perspective I am constantly asking myself how can I invest my time and resources to speed up my transition into the I and the B Quadrants. This question can be used as a compass to guide you to financial success.

Savings Rate = Annual Savings / Annual Income

Passive Income > Cost of a Comfortable Life = Financial Freedom “The poor and middle class work for money. The rich have money work for them.” - Robert Kyosaki

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