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Cashflow Quadrant
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Building a Pipeline to
Wealth: The Cashflow
Quadrant
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Each of us resides in at
least one of the four
Quadrants of the CASHFLOW
Quadrant™.
Where we are is determined
by where our main source of
income comes from. Many of
us rely on paychecks and are
therefore employees, while
others are self-employed.
Employees and self-employed
individuals reside on the
left side of the CASHFLOW
Quadrant™. The right side of
the CASHFLOW Quadrant™ is
for individuals who receive
their cash from businesses
or investments they own.
My Rich Dad told me a simple
story when I was 12 years
old that has guided me to
great wealth and financial
freedom. It was Rich Dad’s
way of explaining the
difference between the left
side of the CASHFLOW
Quadrant™, the 'E' and 'S'
Quadrants™, from the right
side of the 'B' and 'I'
Quadrants™.
Once upon a time there was
this quaint little village.
It was a great place to live
except for one problem. The
village had no water unless
it rained.
To solve this problem once
and for all, the village
elders decided to put out to
bid the contract to have
water delivered to the
village on a daily basis.
Two people volunteered to
take on the task and the
elders awarded the contract
to both of them. They felt
that a little competition
would keep prices low and
ensure a backup supply of
water.
Self-Employed
Thinking
The first of the two people,
Ed, immediately ran out,
bought two galvanized steel
buckets and began running
back and forth along the
trail to the lake which was
a mile away.
He immediately began making
money as he labored morning
to dusk hauling water from
the lake with his two
buckets. He would empty them
into the large concrete
holding tank the village had
built.
Each morning he had to get
up before the rest of the
village awoke to make sure
there was enough water for
the village when it wanted
it. It was hard work, but he
was very happy to be making
money and for having one of
the two exclusive contracts
for this business.
Business Owner
Thinking
The second winning
contractor, Bill,
disappeared for a while. He
was not seen for months,
which made Ed very happy
since he had no competition.
Ed was making all the money.
Instead of buying two
buckets to compete with Ed,
Bill had written a business
plan, created a corporation,
found four investors,
employed a president to do
the work, and returned six
months later with a
construction crew.
Within a year his team had
built a large volume
stainless steel pipeline,
which connected the village
to the lake.
At the grand opening
celebration, Bill announced
that his water was cleaner
than Ed’s water. Bill knew
that there had been
complaints about dirt in
Ed’s water.
Bill also announced that he
could supply the village
with water 24 hours a day,
seven days a week. Ed could
only deliver water on the
weekdays. He did not work on
weekends.
Then Bill announced that he
would charge 75% less than
Ed did for this higher
quality and more reliable
source of water. The village
cheered and ran immediately
for the faucet at the end of
Bill’s pipeline.
In order to compete, Ed
immediately lowered his
rates by 75%, bought two
more buckets, added covers
to his buckets, and began
hauling four buckets each
trip. In order to provide
better service, he hired his
two sons to give him a hand
for the night shift and on
weekends.
When his boys went off to
college, he said to them,
"Hurry back because someday
this business will belong to
you." For some reason, after
college, his two sons never
returned. Eventually Ed had
employees and union
problems. The union was
demanding higher wages,
better benefits, and wanted
its members to only haul one
bucket at a time.
Work Smarter, Not
Harder
Bill, on the other hand,
realized that if this
village needed water, then
other villages must need
water too. He rewrote his
business plan and went off
to sell his high speed, high
volume, and low cost, clean
water delivery system to
villages throughout the
world.
He only makes a penny per
bucket of water delivered,
but he delivers billions of
buckets of water, and all
that money pours into his
bank account. Bill had
developed a pipeline to
deliver money to himself as
well as water to the
villages.
Bill lived happily ever
after, and Ed worked hard
for the rest of his life and
had financial problems
forever after. The end.
That story about Bill and Ed
has guided me for years. It
has assisted me in my life’s
decision-making process. I
often ask myself, "Am I
building a pipeline or
hauling buckets?" Am I
working hard or am I working
smart?"
And the answers to those
questions have made me
financially free.
The CASHFLOW Quadrant™ is
about the four different
types of people who make up
the world of business, who
they are, and what makes
individuals in each Quadrant
unique.
It will help you define
where you are in the
Quadrant today and help you
chart a course for where you
want to be in the future as
you choose your own path to
financial freedom.
While financial freedom can
be found in all four of the
Quadrants, the skills of a
‘B’ or ‘I’ will help you
reach your financial goals
more quickly. A successful
‘E’ should also become a
successful ‘I’. |
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Robert Kiyosaki |
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Robert
Kiyosaki is
an investor,
businessman
and
best-selling
author. His
book, Rich
Dad Poor
Dad, reveals
what the
rich teach
their kids
about money
that the
poor and
middle class
do not.
Retiring at
the age of
47, Robert
continued
with his
love of
investing.
It was
during his
"retirement",
he wrote
Rich Dad
Poor Dad,
the #1 New
York Times
bestseller.
Robert
followed
with Rich
Dad's
CASHFLOW
Quadrant and
Rich Dad's
Guide to
Investing -
all 3 books
have been on
the top 10
best-seller
lists
simultaneously
on The Wall
Street
Journal, USA
Today and
The New York
Times. In
January 2001
Robert
Kiyosaki
launched
Rich Kid
Smart Kid |
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