Rich Dad’s Cashflow Quadrant: Rich Dad’s Guide to Financial Freedom

Key lessons from the audio book

Everyone can be categorized according to how they get their money: Employee, Self-employed, Business owner, or Investor. Each of these four categories, or quadrants, has its strengths, weaknesses, and characteristics.
Employee, or the E-quadrant, values security above all else and seeks the safety of a long-term contractual agreement. This person works within someone else’s system to earn money.
The Self-employed person, or the S-quadrant, does not want their income to be dependent on other people. They essentially own their job and is likely a hardcore perfectionist who values independence and expertise.
Self-employed is the riskiest quadrant. Nationally, nine out of ten such businesses fail in the first five years, mostly due to a lack of experience and capital. The key to success in this S-quadrant is to know when to get out and move onto something new.
The Business owner, or the B-quadrant, has a system where other people do the work— like Henry Ford, who surrounded himself with smart people who knew all the answers so that he could concentrate on new ideas.
The Investor, or the I-quadrant, uses money to make money. The opportunity for real wealth lies in the I-quadrant.
E- and S-quadrant stock market investors focus on diversification. But as Warren Buffett advises, diversification is a way not to lose money, rather than a way to make money. The better strategy is to focus on a few investments, not on diversification.
To quote Buffett: “Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.” Don’t hand over your investment decisions to an “expert.”
The right side of the quadrant is the safe side. With a secure system that produces money for you, you don’t need to worry about unemployment.
The secret to wealth is the same as the secret to win the game Monopoly: buy four green houses and then trade up for a large red hotel.
Your mortgage is a liability and a debt that you have to service, not an asset. Even if you pay off your mortgage, your house is still a liability: it has to be maintained, and you have to pay taxes on it. Property is only an asset if it generates income through positive cash flow.
Gold is not necessarily the ultimate asset: “Even gold is only an asset if you buy it for less than you sell it for.”
The ideal path to financial independence is to move from quadrant E or S into quadrant B, and from there into quadrant I. A financially successful Business owner will have the skills, time, and money to support the ups and downs of the Investor.
You don’t become rich when you work hard to make money that you then spend, you become tired. Kiyosaki lived modestly for years and worked hard not to pay bills but to acquire assets.
People who fear loss buy a stock at $20, then sell it as it rises lest they lose what they gained. They also hold on when it slides down to $5 with hope that price will come back up. The Investor is neutral on wins and losses and only sell a stock when it has peaked or as soon as it starts to slide.
To start on your path to financial freedom, write down where you want to be financially one year from now and five years from now. Draw up personal income and balance sheet statements to show all your income, expenses, assets, and liabilities.
To eliminate your consumer debt, put aside $150-$200 every month to pay down credit cards, then car payments, then your mortgage. Most people can be debt-free in five to seven years. Put what you used to spend to service your debts into assets that generate income.
Educate yourself. Spend at least five hours a week to read the Wall Street Journal, listen to the financial news, read financial websites, magazines, and newsletters, or attend seminars on investment and financial education.
Become an expert at one particular type of problem. Bill Gates is an expert who solved software-marketing problems. Warren Buffett is an expert who solved stock market problems. Kiyosaki became an expert who solved problems in apartment housing.
Acquire assets that provide passive or long-term residual income. Start with small steps, the “green houses” of Monopoly, and gradually build up to larger investments.