Most people might say they aspire to having financial freedom. But the vast majority do not have sufficient understanding of the basic principles of how things work to know how to get there. In fact, they don’t even know how to begin to go about getting there.
Fortunately, there is someone who gave the matter some clear thought and ended up publishing many best-selling books on the subject. Robert T. Kiyosaki published the first book, generally called “Rich Dad Poor Dad” (Ref. 1) in 1997. He then followed that up with “Rich Dad’s Cashflow Quadrant” (Ref. 2) in 1998. There have been reprints of both books. It is the concepts illustrated in the second one that I found particularly insightful.

FYI: The reference to “J.O.B.” generally gets translated to “just over broke.”
Those in the left column (E and S) represent about 95% of the population but have only about 5% of the wealth. On the other hand, those in the right column (B and I) represent about 5% of the population but have about 95% of the wealth. I don’t know about you, but I’d rather be in the right column.
Employees
In this quadrant “you have a job.”
You are trading your time on the job for a specified amount of money per unit time. The amount of money usually reflects the training, skill and experience you contribute to your employer as you perform the tasks of your job.
One of the key needs being satisfied from being an employee is a sense of security. And for much of the twentieth century this employee need was being met by employers. But from about the 1980s onward this expectation of security and stability that a job represented started to falter.
Some things you need to remember when you have a job working for a business.
- It is NOT “your job”! It is your employer’s job. They can fill it in any manner they choose, with compensation generally at any level they choose. And they can terminate your employment generally when they wish. (This is true even if it violates some government regulation. In that case they just pay the applicable penalty.)
- Supply and demand principles apply to employee compensation. The more people in the job market with your skills/experience the lower value your employer places on you. Why? You can easily be replaced.
- Automation reduces the demand for employees – and it’s only going to get worse. This puts a downward pressure on pay levels. And you can forget about the concept of job security.
- As we saw with the Pandemic, businesses had to re-invent themselves to adapt or go out of business entirely. Those that survived became more efficient. And that usually meant making do with less people. Job security was always a myth. But now, anyone who plans their future on the basis of always being employed are being recklessly foolish. At a minimum, establish a second stream of income before trouble comes calling!
Self-employed
In this quadrant “you own a job.”
One of the key needs being satisfied from being self-employed is a sense of being in control. Nobody can do it better than you. When you’re really good at what you do you are something of a perfectionist. Being in a regular job would feel like being a square peg in a round hole, because you would be expected to do things “the company way.” This kind of person hates to delegate, because as far as they are concerned nobody else can do it better than they can.
You are “self-employed” when you offer some skill, knowledge or talent to someone who needs that – typically on a limited time or temporary project basis. The project could be for a few minutes (think a barber, hair stylist, dentist) or it could take hours (plumber, electrician), days, weeks or months. But it typically comes to an end when the service has been delivered. A customer may ask you to do something like that again in future. But that’s a separate project and there is no certainty that it will happen again. If it’s ongoing and for a single client, you are really an employee with a job.
Like the Employee, the Self-employed person is trading time for money. They are doing the job their way. And they may be getting paid very well for what they do. But they are limited in what they can earn by the number of hours they can work.
At the end of 2019 I ended a 50 year career in a particular specialty. I spent the last three decades of that career as a senior consultant, primarily to government organizations. What this Cash Flow Quadrant made clear was that I was deluding myself when I thought I was an entrepreneur and a business owner. The tax department said I was a business owner and I could deduct certain business expenses for tax purposes. I owned my own business; but my income was limited by the number of billable hours I could put in. I was frustrated that my income was not the huge amount I envisioned for being a successful business entrepreneur.
Those who consider themselves part of the “gig economy” trend are actually in the Self-employed category. The gig economy is driven by employers deciding it’s more cost effective to buy the skills they need only when they need them, rather than have them on staff with all of the overhead costs that involves, on top of their salary.
Business Owners
In this quadrant “you own a system and people work for you.”
True business owners like to surround themselves with smart people from all four quadrants. Their role is to think and lead. The doing is delegated.
That is the big difference between Business Owners and those on the left side of the quadrant. Leverage is in play here, specifically time leverage.
Let’s take a hypothetical example. Suppose the owner puts in 40 hours per week. (In truth they could work 20-80 hours per week or more but let’s keep things simple.) Now let’s presume they have 100 employees, each putting in 40 hours per week. But with his/her 40 hours of business owner effort, there is in fact 4,000 additional hours of work happening each week to generate income in some manner. That’s time leverage at work. The Self-employed person can’t hope to generate that kind of income even if they put in 60, 80 or 100 hours a week.
Investors
In this quadrant “money works for you.”
Investors make money with money. They don’t have to work because their money is working for them. In this quadrant, leverage is in play. But it’s the leverage of money not the leverage of time. The reality is that you need a fairly large pot of money in play for this to be effective.
“Regardless of which quadrant people make their money in, if people hope someday to be rich, ultimately they must come to the Investor quadrant. It’s in the ‘I’ quadrant that money becomes converted to wealth.”
Robert T. Kiyosaki, Rich Dad’s Cashflow Quadrant (Ref. 2)
Possible Strategies for Moving Ahead
From my perspective, the big challenge is this: how can an employee or someone who is self-employed become a business owner, who is able to exercise leverage, without having a huge sum of money up front? As Robert Kiyosaki said, in the absence of money you have a mind and you have time. Use both to good effect.
So what can someone with a job do to transition to be a real business owner? I see a few options.
Buy or Set up a Traditional Business
A traditional business – manufacturing, services, retail – requires significant financial investment. Typically, if you had that kind of money you most likely wouldn’t be working in a job. The risk is high. Why? Because you have to invest a considerable amount of money up-front and if the business fails you lose it all or owe millions to the bank. This is probably not a viable strategy for an employee to pursue.
Supplement with Part-time Employment or Part-time Self-employment
As an employee you could take on another part-time job to supplement your income. Or in your spare time you could offer your services directly on a piecemeal basis, becoming self-employed part-time. But in either case, you are still trading time for money. There is no leverage. This is OK as a band-aid, but not a viable long term strategy.
Grow a Self-employed Business
A self-employed person could sell more work than they can handle by themselves, so they hire others to do the additional work for the project. If they can continue to sell more work than they can handle themselves, this arrangement becomes an ongoing business. Leverage is involved because they are getting more net income from the project than they could as a single individual. Their biggest challenge may be getting over their aversion to delegation.
This is how many small businesses begin. And some of them grow into large businesses. This is possibly a viable strategy. But it presumes you have some skill, knowledge or talent that you can offer people/organizations who need that kind of thing in volume and are prepared to pay for it.
Join a Network Marketing Company
In a network marketing business, you buy a distributorship which gives you the rights to sell the company’s products or services wherever the company is set up to do business. The way you do that is by approaching the people you know or meet in the course of living your life – your network of family, friends and acquaintances (both in-person and online). This is word of mouth advertising (which is the most effective marketing method known) and it got its name because you are approaching your network of contacts. You earn a commission on any sales you make, month after month. It is a very legitimate and effective business model.
The second aspect of a network marketing business is where leverage comes into play. As a distributor you can enroll others to be distributors in your team. Each of them is an independent business like you. Any sales they make results in them earning a commission, just like you. But also, their sales volume also contributes to your commission because you are the person who brought them into the business. (For a more fulsome explanation read Home Based Business? What You Need to Know.)
To understand the effect of the time leverage let’s use an example. You are working a part-time job so you can only devote about 20 hours per week to your network marketing business. But let’s assume you have been able to bring 10 distributors into the business. And let’s further assume that they are like you and are only able to work 20 hours per week. Using the formula similar to that for the traditional business owner we see that while you are putting in your 20 hours, your team has put in an additional 200 hours into the business to your benefit.
But it doesn’t end there. Each team member has personal incentive to grow their own business! Each of them can enroll additional distributors to their business just like you did. And the number of hours expands, even when you’re sleeping!
Advantages:
- Low cost of entry means you can go directly from Employee to Business Owner without going through the Self-employed stage. Of course, a Self-employed person could do this as well.
- You are able to work part time until you are making enough to go full-time, only then leaving your Employee role behind.
- You are able to work from home or wherever there is an internet connection.
Challenges:
- Because the business model is pretty simple many people make the erroneous assumption that it is easy. It is not. Like any business, it requires a lot of work. If you are not prepared to put in a lot of work, you will not succeed.
- And running any business demands a different mindset from that of an employee. Anyone who is a new business owner has the challenge of holdovers from an “employee mindset.” If you are used to being paid for the time you put in, you may have difficulty now with not getting paid until you produce tangible results (e.g., sales that produce commissions).
- These things lead to frustration and some people quit – but then they blame network marketing instead of their own limitations and inability to adapt, learn and grow. This tends to give network marketing a bad name.
This is a viable low-cost low-risk strategy. However, it requires determination, a willingness to learn (e.g., new skills, new ways of thinking), a commitment to work diligently and to develop a business management mindset that leaves the employee mindset behind.
Final Thoughts
Making a shift from where you are (e.g., Employee or Self-employed) to another quadrant (e.g., Business Owner) requires a significant shift of mindset. That is the greatest challenge. All the rest (knowledge, skills, etc.) can be learned.
There are some key questions to consider. Are you sufficiently dissatisfied with your current situation that you feel you MUST make the change? Are you prepared to accept the fact that, at least initially, things will be uncomfortable? You are going to fail at things. Are you willing to accept that this kind of failure is part of the learning process and it’s OK, despite the fact that your entire education to this point tended to punish you for failure?
On the other hand, when you make this shift and succeed, you will have become a completely different individual. This kind of change will cause you to grow as a person. It is a phenomenal self development opportunity.
References
Ref 1: Kiyosaki, Robert T., Rich Dad Poor Dad What the Rich Teach Their Kids About Money – That the Poor and Middle Class Do Not!. Scottsdale, AZ: Plata Publishing, LLC 2011
Ref 2: Kiyosaki, Robert T., Rich Dad’s Cashflow Quadrant Guide to Financial Freedom. Scottsdale, AZ: Plata Publishing, LLC 2011
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