CASHFLOW Quadrant: The Case for The Right Side

Real Estate Investing 101
Yannik Cudjoe-Virgil

One of Robert Kiyosaki’s fundamental concepts, the CASHFLOW Quadrant, does a great job of illustrating the different ways people think about and receive income. The “Rich Dad Poor Dad” author divides people into four categories – employees (E) and self-employed individuals (S) who are on the left side of the quadrant, and business owners (B) and investors (I) who are on the right side.

The Limitations of the Left Side

Individuals on the left side of the CASHFLOW Quadrant trade time for money. Employees work for another individual or a corporation, and in exchange, receive a salary and other benefits. They like the security and predictability of a full time job, however, their income will always be dependent on their employer. If they lose the job, or the company goes out of business, they no longer earn money. Furthermore, even the highest paying jobs typically have a salary cap, putting a limit to the income an employee can earn.

Self-employed individuals have a little more control over their income as they are their own bosses. Their income, however, is limited by the number of hours they can work. Similarly to employees, if they stop working, their income will dry up. As Robert Kiyosaki explains, employees have a job and the self-employed own a job.

The Advantages of the Right Side

People on the right side of the CASHFLOW Quadrant engage in activities that can produce unlimited income. Business owners create products or systems, and then hire people to do the work instead of doing it themselves. Their money-making potential is not limited by time constraints. They can always hire more people who can complete more work and generate more income.

Investors identify and acquire assets that have the potential to produce passive income, allowing them to spend their time and attention elsewhere. Furthermore, they use cash flow from their current investments to buy even more income-producing assets, thus growing their wealth exponentially. Unlike business owners, investors don’t have to deal with employees, and unlike those on the left side of the quadrant, they don’t have to work to create income. Investors also benefit from the most tax breaks.

There’s an endless list of asset types investors can acquire, but one of the more popular options in recent years has been multifamily real estate. This asset class is perfectly suited for those looking for passive income. As a limited partner in a multifamily syndication, you put your money to work by investing in a cash flow producing asset. You then employ the syndicator to manage the operations of that investment for you while you collect cash flow and capital gains without having to lift a finger.

The Proven Path

Being on the right side of the quadrant, either as a business owner or an investor, is the proven path to financial freedom. Although unconventional by the general public’s standards, the “B” and “I” categories are the ones that can generate the long-term wealth and the economic stability we all strive to achieve.