There will always be business owners, self-employed people and employees. And there will certainly always be rich and poor. What steers you towards one quadrant or another is knowledge, along with financial education and the art of hiring people to delegate specific tasks to them. Although sometimes the most important thing is to change our mindset.
Spending your whole life working for money while believing that money isn’t important means denying the evidence that money is what matters most when it comes to maintaining a particular standard of living.
Robert Kiyosaki wrote about the ways a person can earn an income. To explain it, he drew up a quadrant he called the cashflow quadrant.
Everyone earns their income from one part of the quadrant. Most people we know earn theirs from the left side, while a small group earns theirs from the right side. Here is a short explanation of what each letter in the quadrant means.
E stands for the employee who works for a company. This person looks for a secure job with a good salary. Risk scares them, so they prefer the peace of mind of a steady job. They adapt their standard of living to the income they receive. The only way they can earn more is to work more hours.
S stands for the self-employed worker. This can be someone with a trade (plumber, electrician, fitter, etc.) or a highly qualified professional (doctor, lawyer, accountant, etc.). They appear to be business owners running their own business, but the truth is that they are the business. The only thing that sets them apart from an employee is that they have no boss, since they earn their income through their own work (just like an employee). The only way they can increase their income is to add more working hours. The biggest disadvantage of being self-employed is that if they stop working for any reason, their income stops. Some people think they have started a business, when what they have really created is a harder job, with the uncertainty of not knowing whether the income will come in.
B stands for the business owner. What distinguishes the B from the S is that a good business owner delegates the running of the company to someone else, a manager. A business owner can leave the country and the company keeps making a profit for them. A business owner earns profits not only from their own work but from the ability to hire capable people to run the company, building distribution networks and reinvesting part of the capital it generates.
I stands for the investor. The investor may be self-employed or a business owner. The investor earns income from many sources of investment, whether by investing in companies, partnering with others, buying shares, and so on. An investor makes their money generate more money. Money works for them, and they never work for money. These are the real “rich” (although remember that for money to work for you, you first have to work to earn the initial capital that will later work for you).
I’ve known businesses that weren’t profitable. The owner would raise the shutter in the morning and pull it down again after a 14-hour working day. This man decided to sell his business to someone else. The new owner turned it into a profitable business, and without even having to be there, so it’s a question of management.
Still, without losing sight of reality, the truth is that to be in any of these quadrants you have to work very hard. I’d even say that the people in the B-I quadrants are there because they have worked much harder (or smarter) than those in E-S.
Further reading
- Why a new business fails
- How to start a business without money
- Profitable investments in times of crisis
- Tips for running your company
- Hiring a leader to run your company
Featured image: Gage Skidmore from Peoria, AZ, United States of America, CC BY-SA 2.0, via Wikimedia Commons.
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