Basics of Markets and Investing
This page answers the FAQs of the amateur investors.....
WHAT IS THE CASHFLOW Quadrant?
The diagram below is the CASHFLOW Quadrant.
The letters in each quadrant represent:
E For employee
S for self-employed
B for business owner
I for investor
WHICH QUADRANT DO YOU GENERATE
YOUR INCOME FROM?
The CASHFLOW Quadrant represents the different methods by which income or money is generated. For example, an employee earns money by holding a job and working for someone else or a company. Self-employed people earn money working for themselves. A business owner owns a business that generates money, and investors earn money from their various investments-in other words, money generating more money.
Different methods of income generation require different frames of mind, different technical skills, different educational paths, and different types of people. Different people are attracted to different quadrants.
While money is all the same, the way it is earned can be vastly different. If you begin to look at the four different labels for each quadrant, you might want to ask yourself, "Which quadrant do you generate the majority of your income from?"
Each quadrant is different. To generate income from different quadrants requires different skills and a different personality, even if the person found in each quadrant is the same. Changing from quadrant to quadrant is like playing golf in the morning and then attending the ballet at night.
YOU CAN EARN INCOME IN ALL FOUR QUADRANTS
Most of us have the potential to generate income from all four quadrants. Which quadrant you or I choose to earn our primary income from is not so much what we learned in school; it is more about who we are at the core-our core values, strengths, weaknesses and interests. It is these core differences that attract us to or repel us from the four quadrants.
Yet, regardless of what we "do" professionally, we can still work in all four quadrants. For example, a medical doctor could choose to earn income as an "E," an employee, and join the staff of a large hospital, or work for the government in the public-health service, or become a military doctor, or join the staff of an insurance company needing a doctor on its staff.
This same doctor could also decide to earn income as an "S," a self-employed person, and start a private practice, setting up an office, hiring staff and building a private list of clients.
Or the doctor could decide to become a "B" and own a clinic or laboratory and have other doctors on staff. This doctor probably would hire a business manager to run the organization. In this case, the doctor would own the business, but not have to work in it. The doctor also could decide to own a business that has nothing to do with the medical field, while still practicing medicine somewhere else. In this case, the doctor would be earning income as both an "E" and as a "B."
As an "I," the doctor also could generate income from being an investor in someone else's business or in vehicles like the stock market, bond market and real estate.
The important words are "generate income from." It is not so much what we do, but more how we generate income.
DIFFERENT METHODS OF INCOME GENERATION
More than anything, it is the internal differences of our core values, strengths, weaknesses and interests that affect which quadrant we decide to generate our income from. Some people love being employees, while others hate it. Some people love owning companies, but do not want to run them. Others love owning companies and also love running them. Certain people love investing, while others only see the risk of losing money. Most of us are a little of each of these characters. Being successful in the four quadrants often means redirecting some internal core values.
YOU CAN BE RICH OR POOR IN ALL
FOUR QUADRANTS
It also is important to note that you can be rich or poor in all four quadrants. There are people who earn millions and people who go bankrupt in each of the quadrants. Being in one quadrant or the other does not necessarily guarantee financial success.
NOT ALL QUADRANTS ARE EQUAL
By knowing the different features of each quadrant, you'll have a better idea as to which quadrant, or quadrants, might be best for you.
For example, one of the many reasons I chose to work predominantly in the "B" and "I" quadrants is because of tax advantages. For most people working on the left side of the Quadrant, there are few legal tax breaks available. Yet, legal tax breaks abound on the right side of the Quadrant. By working to generate income in the "B" and "I" quadrants, I could acquire money faster and keep that money working for me longer, without losing large chunks to pay taxes.
Author : Robert T Kiyosaki
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