Why you must move from employee to business owner + investor AND how to do it!

A look at Robert Kiyosaki's (Rich Dad / Poor Dad) Four Quadrants


Robert Kiyosaki, the author of Rich Dad, Poor Dad, rightfully (and eloquently) argues that in order to become financially free we’ve got to move through four quadrants— as quickly as possibly— and arrive at the Business Owner and Investor stages.

His four “Cash Flow Quadrants are:

  • Employee
  • Self-Employed
  • Business Owner
  • Investor

There’s a logical progress to the movement.

First, most of us begin as employees— we work for someone else. They give us money in exchange for time. This is true of everyone from the minimum-age earner at the coffee shop to the school teacher to the government official to the woman who just graduated law school and took a job at the downtown firm.

Second, many of us become self-employed— we do projects whereby we create income streams that provide us with money in exchange for time. This category is tricky, because it’s easy to confuse “Business Owner” with this designation. As Kiyosaki explains, you are the business. So it seems like you have a business, but you most often don’t. The business has you.

The third category, Business Owner, (right top) works different than Self-Employment. The main difference is this: a business “works” and you get paid even when you’re not there.

Here are a two questions to ask when considering the difference between Self-Employed (left bottom) and Business Owner (right top):

  • Does the business continue when I’m not there (i.e., can I take a vacation and still get paid)?
  • Could the entity exist if I walk away permanently (or it it hitched to me being present)?

If you can’t answer “yes” to each of the questions above, you don’t have a business. You might in the early stages of a business, but you’re still self-employed. And that means you’re still in the time-for-money tango.

The fourth category, Investor (right bottom) is yet another step in our progression. At this point, you invest in other people’s businesses— meaning you get paid for a business you don’t even manage.

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