Rich dad’s cashflow quadrant guide to financial freedom

Rich dad's cashflow quadrant guide to financial freedom

If you have read Rich Dad and Poor Dad then you know about this Rich dad’s cashflow quadrant guide to financial freedom book.

Robert had himself said in this book that this is sort of second part of his previous book.

Now you may ask What is different in this book? and you might have some more questions.

Thats the reason I am writing this post and the only reason to do this is I want to make you familiar with some core and valuable topics discussed in this book.

So in case you want the crux of the book without having to go through it then you have come to the right place.

We will be not discussing the belief system and why money is important?

As a reader myself, I can understand if you read this kind of book and consume this type of content then you are very well aware of this.

So without any further ado lets get started.

You will be presented with some valuable insights and tools from the lessons and later part an actual 7 actionable steps program.

What is Quadrant and where you are in it?

Quadrant is not any principle or any hard and fast rule.

It is the belief of Robert Kiyosaki that all or most people belong to two or at least one of this.

Refer below graphic to understand briefly.

RIch Dad Cashflow Quadrant
RIch Dad Cashflow Quadrant

He strongly urges everyone to make themselves financially literate and become more aware that world is more than just living paycheck to paycheck.

To put it simply, if you are doing job then you are making someone else rich with your hard work and intelligence.

On the other hand if you are businessman or investor then others will work for you.

To be honest with you I personally believe this is not 100% true. ( If someone feels good about their job and you are happy then its good for you.)

So that was one thing which I contradict with him.

But let just stick to the topic this post is not about what I think of his philosophies, but to make you familiar with some good statements and knowledge discussed in the book.

So let’s move to the next section.

ADVICE – Rich Dad Vs Poor Dad

To really get the understanding of book it is advisable that you should know What exactly the dabate is about.

I wiil not take your much time.

Simply refer below chart and then we will move on.

Rich Dad Advice
Rich Dad Advice

ADVICE – Go to school, get educated, build a business, and become a successful investor.

So that basically all should you need to know about Poor Dad and the mindset which keeps him that way.

3 kinds of Business

There are three main types of business systems commonly in use today.

Each business system has its strengths and weaknesses, yet each ultimately does the same thing.

If operated properly, each system will provide a steady stream of income without much physical effort on the part of the owner once it’s up and running.

The problem is getting it up and running.

They are the following :

(A) Traditional Corporations— where you develop your own system

3 kinds of business in
3 kinds of business

(B) Franchises— where you buy an existing system

(C) Network marketing— where you buy into and become part of an existing system

How can you get to B quadrant?

There are 3 ways which are sufficient to provide a blueprint sort of to get there and here it is.

NoteThese three ways are not steps or procedures, they may have relatedness but it’s all up to you to become indulged in one or two or maybe all three.

(1) Find a mentor

A mentor is someone who has already done what you want to do and is successful at doing it.

Don’t find an advisor. An advisor is someone who tells you how to do it but may not have personally done it.

One of the biggest tips my rich dad gave me was this: “Be careful of the advice you take. While you must keep your mind open, always be aware of which quadrant the advice is coming from.”

A traditional way of learning about systems is getting your MBA from a prestigious school and then getting a fast-track job that takes you up the corporate ladder.

An MBA is important because you learn the basics of accounting and how the financial numbers relate to the systems of a business.

Yet having an MBA doesn’t mean you’re competent to run all the systems that ultimately make up a complete business system.

Even with a mentor and/or years of experience, this first method is labor-intensive.

Creating your own system requires a lot of trial and error, up-front legal costs, and paperwork.

All of this occurs at the same time you’re trying to develop your people.

(2) Buy a Franchise

Another way to learn about systems is to buy a franchise.

When you buy a franchise, you’re buying a tried-and-proven operating system.

By buying the franchise system, instead of trying to create your own system, you can focus on developing your people.

Buying the system removes one big variable when you’re learning how to be a B.

A word of caution: Franchises are hard for people with an S-quadrant mentality who want to do their own thing. If you buy a franchise system, be an E.

Just do it exactly the way they tell you to do it.

Nothing is more tragic than the courtroom fights between franchisees and franchisors.

The fights happen because the people who buy the system really want to do it their way, not the way the person who created the system wants it done.

If you want to do your own thing, then do it after you’ve mastered both systems and people.

(c) Get involved in network marketing (also called multi-level marketing or direct distribution systems)

Just as with franchises, the U.S. legal system initially attempted to outlaw network marketing.

It has been banned and restricted in some countries.

Any new system or idea often goes through a period of being classified as strange and suspicious.

After I dropped my prejudices and began researching network marketing,

I found many people who were sincerely and diligently building successful network-marketing businesses.

Due to the technological advances in the computer industry, these organizations are totally automated, and the headaches of paperwork, order processing, distribution, accounting, and follow-up are almost entirely managed by the network-marketing software systems.

New distributors can focus all of their efforts on building their business instead of worrying about the normal start-up headaches of a small business.

You can start generating money just by your sweat equity ( or very little money but more time ) invested for 4-5 years.

The 7 Steps to Finding Your Financial Paradise

This is the last section of this post and this is the essence of today’s post.

You see I did not say throughout the post that this is summary or this post is equally heavy in value to the book.

But I believe that there is one or two major ideas that someone think big enough that they write book around it.

Like in the Atomic Habits by James Clear.

You may find good ideas throughout the book but for the most part, you inclined towards this one concept only of How can you build good habits?

And the answer is Cue, Craving, Response, and Reward.

You get the idea what I am trying to say to you.

So here are the 7 steps..

See below image to read all seven steps and all 7 steps are briefly discussed in coming sections.

Step 1: It’s Time to Mind Your Own Business

For many people, their financial statements are not a pretty picture.

Simply because they’ve been misled into minding everyone else’s business instead of minding their own business.

To change all that, I suggest following these action steps:

1. Fill out your own personal financial statement.

In order to get where you want to go, you need to know where you are.

This is your first step to take control of your life and spend more time minding your own business.

2. Set financial goals.

Set a long-term financial goal for where you want to be in five years, and a smaller, short-term financial goal for where you want to be in one year.

Set goals that are realistic and attainable.

A. My five-year financial goals are:

1) I want to increase cash flow (i.e., passive income— income you earn without you having to work for it) from my assets to $_______per month.

2) I want to have the following investment vehicles in my asset column (e.g., real estate, stocks, businesses, commodities) __________________

B. My one-year financial goals are:

1) I want to decrease my debt by $_______.

2) I want to increase cash flow from my assets to $_______per month.

C. Using my five-year goals, I will complete my financial statement again to show how it will look five years from today.

Now that you know where you are financially today and have set your goals.

Therefore you need to get control of your cash flow so that you can achieve your goals.

Step 2: Take Control of Your Cash Flow

This sections starts with blunt statement.

People who cannot control their cash flow work for those who can.

(A) Review your financial statements from Step 1.

(B) Determine which quadrant of the CASHFLOW Quadrant you receive your income from today._______

(C) Determine which quadrant you want to receive the bulk of your income from in five years. ___________

(D) Begin your Cash-Flow Management Plan:

A. Pay yourself first. Put aside a set percentage from each paycheck or each payment you receive from other sources.

  • Deposit that money into an investment savings account.
  • Once your money goes into the account, NEVER take it out until you are ready to invest it.
  • Congratulations! You have just started managing your cash flow.

B. Focus on reducing your personal consumer debt.

The following are some simple tips for reducing and eliminating personal debt.

Tip #1 If you have credit cards with outstanding balances, discipline yourself to use only one or two credit cards. Any new charges must be paid off in full every month.

Do not incur any more long-term debt.

Tip #2 Come up with $150–$200 extra per month.

Now that you are becoming more and more financially literate, this should be relatively easy to do.

If you cannot generate an additional $150– $200 per month, then your chances for financial freedom may only be a pipe dream.

Tip #3 Apply the additional $150–$200 to your monthly payment of ONLY ONE of your credit cards.

You will now pay the minimum PLUS the $150–$200 on that one credit card. Pay only the minimum amount due on all other credit cards.

Often people try to pay a little extra each month on all their cards, but those cards surprisingly never get paid off.

Tip #4 Once the first card is paid off, apply the total amount you were paying each month on that card to your next credit card.

You are now paying the minimum amount due on the second card PLUS the total monthly payment you were paying on your first credit card.

Continue this process with all your credit cards and other consumer-credit debt. With each debt you pay off, apply the full amount you were paying on that debt to the minimum payment of your next debt.

As you pay off each debt, the monthly amount you are paying on the next debt will escalate. 245 CASHFLOW Quadrant

Tip #5 Once all your credit cards and other consumer debt is paid off, continue the procedure with your car and house payments.

If you follow this procedure, you will be amazed at the shortened amount of time it takes for you to be completely debt-free.

Most people can be debt-free within five to seven years.

Tip #6 Now that you are completely debt-free, take the monthly amount you were paying on your last debt, and put that money toward investments. Build your asset column.

That’s how simple it is.

Step 3: Know the Difference Between Risk and Risky

These are the people who most often say, “Investing is risky.”

For them, it is risky, but not because investing is risky. It is their lack of knowledge and formal financial training that makes investing risky.

But you can develop more realistic approach by learning about below two things:-

Financial Literacy – It is not simply looking at the numbers with your eyes, but also training your mind to tell you which way the cash is flowing.

Rich dad often said, “The direction of cash flow is everything.”

So a house could be an asset or a liability depending on the direction of the cash flow.

If the cash flows into your pocket, it is an asset. If it flows out of your pocket, it is a liability.

In case you are well aware of fact of investing then you can try Mutual Funds.

Financial Intelligence – Robert said about financial intelligene something like, it is the “the ability to convert cash or labor into assets that provide cash flow.”

But one of his favorite sayings was, “Who is smarter? You, or your money?”

For rich dad, spending your life working hard for money only to have it go out as fast as it comes in is not a sign of high intelligence.

Remember that a rich person focuses his or her efforts on acquiring assets, not working harder.

He suggest following actions steps to do the same:-

(1) Define risk in your own words.

A. Is relying on a paycheck risky to you?

B. Is having debt to pay each month risky to you?

C. Is owning an asset that generates cash flow each month risky to you?

D. Is spending time to obtain financial education risky to you?

E. Is spending time learning about different types of investments risky to you?

(2) Commit five hours of your time each week to do one or more of the following:

A. Read the business section of your newspaper and the Wall Street Journal.

B. Listen to the financial news on television or radio.

C. Read financial websites, magazines, and newsletters.

D. Play the CASHFLOW game, and visit a local CASHFLOW Club.

E. Attend educational seminars on investing and financial education.

F. Consider hiring a coach to help you work through the process of becoming financially free.

Step 4: Decide What Kind of Investor You Want to Be

(1) Get educated in investing.

Once again, I recommend you become proficient as a Level-4 investor before trying to become a Level-5 investor. Start small, and continue your education.

Each week do at least two of the following:

A. Attend financial seminars and classes. I attribute much of my success to a real estate course I took as a young man that cost me $385.

It has earned me millions over the years because I took action.

B. Look for For-Sale signs in your area.

Call on three or four per week and ask the agent to tell you about the property.

Ask questions like:

  • Is it an investment property?
  • Is it rented?
  • What is the current rent?
  • What is the vacancy rate?
  • What are the average rents in that area?
  • What are the maintenance costs?
  • Is there deferred maintenance?
  • Will the owner finance?
  • What types of financing terms are available?

Practice calculating the monthly cash-flow statement for each property and then go over it with the real estate agent to see what you forgot.

Each property is a unique business system and should be viewed as an individual business system.

C. Meet with several stockbrokers and listen to the companies they recommend for stock buys.

Research those companies and consider opening a trading account and making some small investments.

D. Subscribe to investment newsletters and study them.

E. Continue to read, attend seminars, watch financial TV programs, and play the CASHFLOW® board game.

2. Get educated in business.

A. Meet with several business brokers to see what existing businesses are for sale in your area. It is amazing how much terminology you can learn by just asking questions and listening.

B. Attend a network-marketing seminar to learn about its business system. (I recommend researching at least three different network marketing companies.)

C. Attend business-opportunity conventions or trade expos in your area to see what franchises or business systems are available.

D. Subscribe to business newspapers, magazines, and other types of communications.

Step 5: Seek Mentors

(1) Seek mentors.

Find individuals in both the investment and business arenas who might act as mentors to you.

A. Seek out role models. Learn from them.

B. Seek out reverse role models. Learn from them.

(2) Who you spend your time with is your future.

Write down the six people you spend the most time with.

Remember that the qualifier is who you spend the most time with, not the nature of your relationship. (All of your children count as one person.)

Don’t read any further until you have written down your six names.

I was at a seminar many years ago when the instructor asked us to do this. He then asked us to examine the names we had written and announced, “You are looking at your future.

The six people you spend the most time with are your future.”

(3) In your list of six people, after each person’s name, list the quadrant they operate from.

For example

(4) The next step is to list each person’s level as an investor.

(5) Then carefully choose with whom you want to spend most time and how they contribute in you?

Step 6: Make Disappointment Your Strength

I personally think that this is one of most important thing in life is how you deal with disappointment.

Believe me, you will face many and from your experience itself, you can say it’s true.

And below Quote is perfectly suits this section in rich dad’s cashflow quadrant guide to financial freedom.

Inside every disappointment lies a priceless gem of wisdom.

Before diving into actions steps, there are some advice that Robert got from his dad.

I wiil be writng just them and they are self explanatory,

a. Expect to be disappointed.

b. Have a mentor standing by.

c. Be kind to yourself.

d. Tell the truth.

He suggests the following action steps for this purpose:-

(1) Make mistakes.

That is why I recommend starting with baby steps.

Remember that losing is part of winning.

Its hard but you can do this and thats one of key in rich dad’s cashflow quadrant.

E’s and S’s are trained to think that making mistakes is not acceptable.

B’s and I’s know that making mistakes is how they learn.

(2) Start small.

If you find an investment you want to invest in, put a little money down.

It is amazing how quickly your intelligence grows when you have money on the line.

Don’t bet the ranch, your mortgage payment, or your retirement.

Simply put a little money down, pay attention, and learn.

(3) The key is to TAKE ACTION!

Reading, watching, and listening are all crucial to your education.

But you must also start DOING.

Make offers on small real estate deals that will generate positive cash flow, join a network-marketing company and learn about it from the inside, invest in stock after researching the company.

When I was researching about this post I came across this one post which talks about same, if you want you can check it out through here.

Seek advice from your mentor or financial or tax advisor if you need it. As Nike says, “Just Do It!

Step 7: The Power of Faith

The only person who determines the thoughts you choose to believe about yourself is you.

Robert suggests only one action step and it is – The only person who determines the thoughts you choose to believe about yourself, is you.

Maybe you are expecting this is going to be very big.

But peope it is not and I don’t blame him for that.

In case if you are feeling that this step needs more explanation then you can read Chapter 17 of rich dad’s cashflow quadrant guide to financial freedom.

So thats it from my side readers and I really appreciate if you are sticking till now.

READ next section and if you can do support Financebread.

Don’t Hesitate

All I need from you is your Support.

I wrote this post on starting of this month of December. So take it as small gift from my side for Christmas.

Now you might we wander its first week of the month and 25 December is still quite far now.

Its kinda strange, someone says something like this to you.

Did I said Strange.

Yes, I am feeling strange and sometimes I have no clue why I am even doing this.

But still there might be someone who like this post and my work (are you one of them).

My hosting and domain will stays online till last week of July 2021. So no doubt till then I will definitely keep doing this.

I am afraid that if no one reads it then there is no point in me giving time and writing this.

And I am saying this from perspective of someone who wants to deliver good content.

So share your opinion with me, even if you don’t like pleae be little humane and share what you feel through comments.

At last I just wanna remind you that on Facebook Group I share lot of things which I cannot share here as this blog is strictly focuses on business and finance.

You can find FinanceBread on lot of other platforms also.

Thanks for spending your time with financebread.

till then,

Take Care and Be healthy.

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