Book SummaryRich Dad's Cashflow Quadrant, by Robert T. Kiyosaki

1-Page Summary1-Page Book Summary of Rich Dad's Cashflow Quadrant

Rich Dad’s Cashflow Quadrant is the sequel to Robert Kiyosaki’s international bestseller, Rich Dad, Poor Dad. The central principles in Rich Dad’s Cashflow Quadrant and Rich Dad, Poor Dad are the same: The best way to achieve wealth is to eschew security and working hard at a “good job” in favor of cultivating boldness and developing assets that will generate passive income. Kiyosaki uses the concept of four “cashflow quadrants” to emphasize that it’s not what you do that makes the difference between achieving financial freedom and being stuck in a cycle of job dependency, but what kind of income you earn.

The Rich Dad books have appealed to millions. Many readers credit them with waking them up to the concept of passive income. The books also have their fair share of critics. By Kiyosaki’s own admission, the books are less a step-by-step guide to achieving wealth than a readable, engaging rundown of the core concepts and values about money Kiyosaki says you need to rethink. The downside to that, and perhaps the most common critique of the Rich Dad series, is that the books can lack convincing supporting evidence.

In this guide, we’ll start by discussing why wealth is so important, then explore Kiyosaki’s reasons for rejecting the traditional path to achieving it. Finally, we’ll detail his advice for achieving financial freedom through asset development.

To Become Wealthy, Develop Assets

Most people believe that the key to wealth is getting a “good,” high-paying job. But according to Kiyosaki, the type of income you generate is more important than the type of work you do. He divides income into four categories, which he calls “cashflow quadrants”:

1. Employees (E)
2. The self-employed and small business owners (S)
3. Big business owners (B)
4. Investors (I)

According to Kiyosaki, the first two income categories, employees (E) and the self-employed and small business owners (S), are usually dead-ends on the road to wealth. The other two categories, big business owners (B) and investors (I), are the most conducive to accumulating wealth because those are the categories in which you can develop passive income in the form of assets. Rich Dad’s Cashflow Quadrant is about moving from the E and S categories to the B and I categories, or at least adding I income to existing E or S income.

Kiyosaki wrote this book for people who are, as the saying goes, tired of working hard for their money, and not letting their money work for them.

Money Matters

Rich Dad’s Cashflow Quadrant is about how to generate wealth, but Kiyosaki starts by explaining why you should prioritize wealth in the first place. To Kiyosaki, money is time, and time is freedom: The more money you have, the less time you have to spend working for it. And the more money you have, the more money you have to spend doing what it is you want to do. Kiyosaki wants you to surpass both job security, where you have a job that you can live and rely on, and achieve financial security, where concerns about money don’t dictate the way you live. The best outcome, to Kiyosaki, is financial freedom, the point at which you never need to work again and can afford to do just about whatever you want.

Financial Freedom vs. Financial Independence

In contrast to Kiyosaki’s focus on financial freedom, most of the personal-finance community stresses the importance of “financial independence.” This is the point at which your passive income can pay for all your expenses and you no longer have to work.

When Kiyosaki talks about financial freedom, he’s usually talking about capitalist-level wealth. In contrast, financial independence only means that your passive income is greater than your expenses, so you can be financially independent with much less wealth.

Some of this difference between “financial freedom” and “financial independence” is semantic, but it’s useful to know what these terms are most likely referring to when you hear them.

The Four Cashflow Quadrants

Kiyosaki’s “cashflow quadrants” represent four ways of generating income. The way you generate income defines your category, not what you do to earn it. You can, and in many cases should, generate income in multiple categories.

The E and S Categories: The Traditional Path

Traditional wisdom tells us to go to college to get a stable “good job” that will pay enough for a comfortable life and provide retirement benefits. That job is usually in the Employee (E) or Self-employed (S) category.

In the E category, employees generate income by agreeing to do work in exchange for a salary. They have a boss and a paycheck. Kiyosaki says employees choose the E category because they value security and certainty. Traditional thinking says E category jobs are stable because they offer steady income and a clear job description. But there are downsides—Kiyosaki says the biggest disadvantage of an E category job is lack of control over your own work.

(Shortform note: While Kiyosaki is quick to point out the downsides of being an employee, many people seek out E category jobs because they enjoy work they can only do in the E category. Professors, researchers, chefs, and teachers, for example, all make a salary and often attract people interested in the particular kind of work offered in the E category.)

In the S category, small business owners and the self employed are their business. They are their own boss, and they can also be the boss of other people, but without their labor, expertise, and management, their businesses can’t run. Their income is the profit from their business. Kiyosaki says people choose the S category because they value security and excellence in their work. According to Kiyosaki, people in the S category see it as the most stable way to generate income...

Rich Dad's Cashflow Quadrant Summary Shortform Introduction

Most people believe that the key to wealth is getting a “good,” high-paying job. But according to Robert Kiyosaki, the type of income you generate is more important than the type of work you do. Kiyosaki identifies four categories of income, which he calls “cashflow quadrants.” They are:

1. Employees (E)
2. The self-employed and small business owners (S)
3. Big business owners (B)
4. Investors (I)

Kiyosaki argues that generating income from the B and I categories, rather than the traditional E and S categories, is the best path to wealth: Generate capital in business and invest it in assets so you can develop streams of passive income.

Kiyosaki wrote this book for people who are, as the saying goes, tired of working hard for their money, and not letting their money work for them.

About the Author

Robert T. Kiyosaki was born in 1947 in Hawaii. He is a motivational speaker, real estate investor, and the author of the best-selling personal finance book of all time, Rich Dad Poor Dad. The book held a place on the New York Times Bestseller list for six years and has been translated into...

Rich Dad's Cashflow Quadrant Summary Part 1: Why Wealth Matters

In Rich Dad’s Cashflow Quadrant, Robert Kiyosaki argues that to generate wealth, what kind of income you generate is more important than how much income you generate, or what kind of work you do. Kiyosaki uses the stories of his now-famous “Rich Dad” (his friend’s father) and “Poor Dad” (his own father) to illustrate how different income types lead to different results.

He divides income into four categories, which he calls “cashflow quadrants”:

1. Employees (E)
2. The self-employed and small business owners (S)
3. Big business owners (B)
4. Investors (I)

According to Kiyosaki, the first two income categories, employees (E) and the self-employed and small business owners (S), are usually dead-ends on the road to wealth. The other two categories, big business owners (B) and investors (I), are the most conducive to accumulating wealth because those are the categories in which you can develop income-generating assets. Rich Dad’s Cashflow Quadrant is about moving from the E and S categories to the B and I categories, or at least adding I income to existing E or S income.

We’ll dive into the four income categories in Parts 2 and 3, but first you need to...

Shortform Exercise: Do You Want More Freedom?

Reflect on the relationship between your work and your free time.

What is your current ratio of work to free time? Is it something you want to change?

Rich Dad's Cashflow Quadrant Summary Part 2.1: Employees and Small Business Owners

Common wisdom focuses on what kind of jobs generate the most money. Kiyosaki wants us to think differently and focus on what kind of income will generate the most money. As we’ve previewed, there are four general ways of generating income: as an employee (E), as a self-employed person or a small business owner (S), as a large business owner (B), and as an investor (I). In the E and S categories, you generate income from the work you do.

In this section, we’ll start by defining how you generate income in the E and S categories. (We’ll discuss the other two categories, B and I, in Part 3.) We’ll also discuss the traits that generally attract people to these categories.

Then, we’ll explain why Kiyosaki says the E and S categories constitute the “traditional path” and why they’re no longer a safe bet for financial security, much less financial freedom.

Employees and the Self Employed/Small Business Owners: The E and S Categories

According to Kiyosaki, in both the E and S categories, the money you make is based on the work you do. Here, we’ll define both categories and explain how income is generated in each one. We’ll also explore the values...

Rich Dad's Cashflow Quadrant Summary Part 2.2: Why the Traditional Path to Wealth No Longer Works

According to Kiyosaki, the path to financial security used to be clear. Traditional advice tells us to get a college education and then find a good job in the E or S categories with benefits and a pension. On this path, which we’ll call the traditional path, you could expect financial security for the rest of your life.

To Kiyosaki, that’s a plan that worked in the 20th century. But in the 21st century, the traditional path leads to hard work in exchange for job dependency, inadequate retirement, a pernicious debt cycle, tax disadvantages, and diluted savings, not financial security, and almost certainly not financial freedom.

What You Used To Get on the Traditional Path: Education → Good Job in the E or S Categories → Great Benefits and Pension → Secure Retirement

What You Get On the Traditional Path Today: Debt-Causing and Possibly Not Very Useful Education → Job Dependency in the E or S Categories → More Debt → The Short End of The Stick on Taxes → Inadequate Benefits and Pension → Insecure Retirement

Problem 1: Traditional Education Doesn’t Teach Us the Skills to Achieve Wealth

On the traditional path, higher education was the first step to generating...

Shortform Exercise: Update Your Financial Knowledge

How does what you learned from your financial education measure up to Kiyosaki’s advice?

Think about your level of financial education when you were 18. Did it come from formal education, family, friends, or independent research?

Rich Dad's Cashflow Quadrant Summary Part 3: Big Business Owners and Investors—Why the Way to Wealth Is in the B and I Categories

Kiyosaki says that while lower-, middle-, and even upper-middle-class parents teach their kids the out-of-date financial path we just outlined, rich parents teach their kids the income generation strategy of the B and I categories.

While in the E and S categories you generate income in exchange for the work you do, in the B and I categories income comes primarily from assets you own. According to Kiyosaki, this is the surer path to financial freedom.

In this chapter, we’ll lay the foundation for understanding how the B and I categories work. First, we’ll define how income is generated in the B and I categories, and discuss the traits you need to succeed in these categories. Then, we’ll review how B and I income is different from E and S income, and discuss why B and I income is the way to wealth. In chapter 4, we’ll cover how to succeed in the B and I categories.

Big Business Owner (B)

People working in this category control not only a business, but a business system. If they leave, the work still gets done. People in the B category own their business and generate income by its profit, though they no longer do the day-to-day labor of making it function....

Shortform Exercise: Which Is Your Cashflow Quadrant?

Where are you financially, and where do you want to go?

Determine, roughly, what your income, expenses, assets, and liabilities are.

Rich Dad's Cashflow Quadrant Summary Part 4: Becoming a B and I

Now that you understand the four “cashflow quadrants” and the logic behind why it’s easier to generate wealth in the B and I categories, we can move on to learning how to break into and succeed in the B and I categories.

To Kiyosaki, success in the B and I categories is as much about finance and business skills as it is being emotionally prepared to make big life changes, take risks, and maintain determination and flexibility.

In this chapter, we’ll start with Kiyosaki’s actionable advice for getting started in the B and I categories. Then, we’ll discuss the mental skills he says are just as important.

How to Break Into the B Category

Kiyosaki recommends the B category because it’s a far likelier path to wealth than working in the E or S categories because you can take advantage of other people’s time to generate wealth.

Kiyosaki says you have two choices when trying to establish yourself in the B category: create your own business system, or buy one that already exists.

Kiyosaki offers four routes to owning your own system in the B category:

1. Find a mentor in the kind of business you want to enter. Remember Kiyosaki’s warning about whose advice...

Shortform Exercise: Prepare to Invest

Analyze your financial and mental readiness to transition to the Cashflow Quadrant where real wealth is made.

If you’re in debt, how much debt do you need to pay off before you can devote funds to investing?