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The Cashflow Quadrant: Transitioning from Employee to Investor

February 17, 2020

Ever since the industrial age, the standard template for a career has been to go to school, get good grades, graduate, and get a nice, high paying job.

But more and more people are looking for alternatives to their regular 9-5 job.

Knowledge on business and investing has become more accessible to the general public–now found on websites, blogs, books, and even mainstream media outlets.

Today we look at one of the original personal finance gurus, Robert Kiyosaki, and one of the main concepts behind his work: The Cashflow Quadrant.

Rich Dad, Poor Dad

Robert Kiyosaki was born in Hawaii where he grew up with two dads: his biological father (Poor Dad), and the father of his friend (Rich Dad).

Poor Dad was a full-time employee while Rich Dad was an investor and business owner. He grew up observing behavior and habit differences between his two dads in terms of financial matters.

This was the inspiration for his best-selling book, Rich Dad Poor Dad, where he first published the concept of the Cashflow Quadrant.

Cashflow Quadrant

This concept illustrates the 4 types of people in the world of time and money divided into two categories – the left and right side of the quadrant.  

The Left Side

People on the left side trade their time for money. This side is focused on creating Active Income, where you have to work to make money.

E – Employee

As long as you trade your time for money, you’re in this category.

This quadrant is one of the hardest ones to get rich in because, as we all know, our time is finite and limited.

Though there are people who tilt the balance and earn huge incomes, it’s still traded for a finite amount of time.

Employees work in a job and Kiyosaki defines this as ‘Just Over Broke’. Because employees are risk-averse, they don’t spend much time learning about how money works. Instead, they value the security of the job and only work to getting a high paying job with great benefits.

S – Self-employed

These are freelancers, tradespeople, and highly-paid professionals. Doctors and lawyers with their own practice and famous actors are also in this category.

People who are self-employed own their job. They’re not bound by a contract like employees and are free to choose when and how often they work.

The bad thing about it is that, like the employee, they only make money working. They are the only ones who can perform the job and, thus, still need to do active work to make money. Once they stop, the money stops as well.

The Right Side

People on the right side work hard to create assets that make money for them. Their income is not capped by the amount of time that they have. This side focuses on making Passive Income, where you don’t have to do any work to make money.

B – Business Owner

A business owner has actually created a separate entity that creates money. This means that the amount of value created – and therefore money earned – can far exceed the hours put in.

The earning potential in this category goes way beyond hours put in because a business owner can hire employees or source services from other businesses like manufacturers. And when the business owner wants a higher income, they can focus on expanding the business.

By owning a business, you are basically creating a machine to magnify your efforts and eventually be able to stand and run on its own without any of your efforts.

A business owner has more flexibility and control than an employee or the self-employed in that they can make changes to how the business is run depending on the economic climate and how the company is performing. 

I – Investor

When you invest, you’re making your money work for you. This means you don’t have to be involved in doing the work.

Though this may sound similar to the business owner that has to put up capital, an investor doesn’t need to put in the initial work to make a business run. The money machine works in perpetuity, making the investor money even while they sleep.

They acquire income-generating assets to produce more income to buy additional assets and so on. The more money they have invested, the more income they can generate. The earning potential is not limited to the hours in a day, only in the money invested.

Making the Transition

The move from a full-time employee to a full-fledged investor is not a simple process. It all starts with your beliefs around money and being rich.


According to Kiyosaki, most people have beliefs that are not conducive to becoming wealthy.

Beliefs like ‘I’ll never be rich’ or ‘Investing is risky’ all limit your potential for change.

In order to make the transition, he advises challenging your beliefs that are holding you back.


To make the transition, you will also need to change the way you spend your money.

Kiyosaki advises creating Assets and not Liabilities.

Put simply, assets are “things that earn you money” and liabilities are “things that take money away from you.”

Assets earn passive income and earn you money even if you don’t do any work. Examples are stocks, bonds, index funds, dividend stock, REITs, investments in businesses, and real estate holdings that earn a net income.

You can also build your own business and be intentional about it being able to run without you. This way you’re not just acquiring assets, you’re creating assets.

Liabilities are things that take money out of your pocket or depreciate in value. Examples are your car or debt in any form like your mortgage, car loans, and personal loans. The biggest liability is debt that compounds on itself.

The most important thing is to keep learning about money and focusing on building passive income.

Start Your Journey Today

These days it’s so easy to start the transition from Employee to Investor. The internet serves as both a valuable source of financial knowledge and a method of accessing investment opportunities easily.

You can get started in real estate investing for as little as $500 with DiversyFund’s Growth REIT. For stock investments, index funds are a good, low-cost choice with low or no fees.

So start your journey today and start making your way from Employee to Investor.

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