7 Steps to Financial Freedom from the Cashflow Quadrant by Robert Kiyosaki

In Cash Flow Quadrant, Rich Dad’s Guide to Financial Freedom, Robert Kiyosaki, the author of Rich Dad, Poor Dad, shares a diagram that his rich dad shared with him when he was a child. The diagram is a square divided into four sections with employees and solo practitioners on the left side of the square and businesses and investors on the right.  Rich Dad explained that those who want financial freedom usually need to find a way to earn money from the right side of the quadrant.

This is the square:

E B
S I        

Kiyosaki’s rich dad told him that in the marketplace, employees, the Es, have core values that cause them to seek a safe, secure job with benefits. Rich dad explained that they are employees because “their core value is security.”

Rich dad said that the solo practitioners, S’s, are small business owners or the self-employed and their core value is "if you want it done right, do it by yourself." Generally, S's are a one- person act and they operate by themselves.

Rich dad said that B stands for big business, like Bill Gates. Bs define big business as 500 employees or more.  B’s say, "I'm looking for a good system, good network, and the smartest people I know to help run my business." They differ from the S because they don't want to run the company by themselves. Instead, they want to find smart people to run the company for them.

An I is an investor. These people have money that works for them.

Bs and Is use the labor of the Es and Ss to become rich. That is why his rich dad wanted him to learn how to become a B and an I. 

Kiyosaki's poor dad wanted him to go to school and get a secure job at a company with benefits. But his rich dad suggested that he should get a job to learn, not to earn, and then he should start his own business.

Step One

Step one to financial freedom is to mind your own business instead of working very hard to make everyone else rich. First, create a financial statement to determine your net worth, observing all your assets and all your liabilities. Second, set financial goals of where you want to be in five years and what you need to do to get there this year. Then break that down into smaller monthly and weekly goals.

Step Two

Step two to financial freedom is to take control of your cash flow. Rich dad reminded Kiyosaki that those who cannot control their cash flow work for those who can. The fastest track to financial freedom for many is to keep living expenses low and use cash flow to invest in assets that generate cash, such as cash producing income property.  Many find it helpful to set aside a specific amount of money or a percentage of income from each paycheck to invest and never use that money for anything else. If you have debt, find a way to earn an extra hundred dollars or two each month and use that to pay off the debt with the lowest balance. When that debt is paid, use the extra hundred or two, plus the amount you paid on the debt you just paid off, to apply to the next debt. Keep doing this until all the debt has been paid.

Step Three

Step three to financial freedom is to obtain knowledge to discern the difference between risk and risky.  To do this, obtain financial literacy.  Rich dad defined financial literacy as being able to understand the numbers and to determine in your mind which way the cash is flowing.  Additionally, financial intelligence was defined as the ability to convert cash or labor into assets that provide cash flow. To do this, spend about five hours each week to obtain financial literacy by reading business pages, listen to the financial news, learn about investing, read financial magazines and newsletters, or play the Cashflow game manufactured by Kiyosaki.

Step Four

Step four is to decide what type of investor you want to be. A-type investors seek problems. B-type investors seek answers. C-type investors are like Sgt.Schultz from the old Hogan’s Heroes show, saying, “I know nothing.” Start small and learn how to solve problems if you want to get on the fast track. Take action by attending financial seminars. Look at real estate for sale and practice calculating the cash flow statement from each property.  Meet with business brokers to find out which businesses are for sale. Attend business conventions and trade expos. Subscribe to business newspapers and magazines.

Step Five 

Step five is to seek mentors.  Kiyosaki’s poor dad wanted him to find a job with a high salary and benefits, to pay bills and live below his means. But his rich dad suggested that he focus on developing passive income streams. Rich dad also wanted Kiyosaki to live below his means and he pointed to a financial statement’s liability column and warned, “And lead us not into temptation.” Consider that the six people who you spend most of your time with are your future.

Step Six

Step six is to make disappointment your strength. Rich dad reminded Kiyosaki that when people are lame, they like to blame.  When learning something new, be prepared to be disappointed because things will not always work out the way you anticipate. Kiyosaki finds it helpful to have a mentor standing by when he tries something new. Thus, even if a deal falls through, you will likely learn something new from your mentor that you can use in the future. When you take action, you will make some mistakes. That is why it is important to start small.

Step Seven 

Step seven is to have faith.  Always listen to your words and only use them in your favor, never against yourself. Personal truths are often revealed during moments of strong emotion. Money does not stay with people who do not trust themselves. Listen to the words that come from your heart, your stomach, and your soul. Believe in yourself and start taking action today.

Conclusion

Write a long-term plan that will lead to your financial freedom and begin working on your plan.

Rating: $$$$$ out of five.  Kiyosaki was the first person I encountered who tried to explain to people that the world is changing and the old financial paradigm used by the older generation is no longer working. If you seek financial freedom, Kiyosaki's books are a great place to start the journey.

This book was purchased, not a gift.   

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