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.
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”:
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.
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.
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.
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 because they have the most control. The biggest disadvantage to trying to make a living in the S category is that most small businesses fail.
(Shortform note: Kiyosaki doesn’t mention that one of the biggest dangers of self-employment or owning a small business is not being able to fully plan for the amount of money you’ll make within a given period. E category workers are subject to job insecurity, like a round of layoffs because of trouble at the company or an economic downturn, but an S category worker’s job is also inherently at least a little insecure because they are not in a long-term contract with an employer.)
Kiyosaki notes that in the E and S categories, the harder you work, the more you have to work. As you work hard and become more successful in the E and S categories, you gain responsibility, which translates to more work. Even though your pay may jump, you’ll have less time to enjoy yourself spending it.
While these categories offered security in the 20th century, Kiyosaki argues that changes in the economy mean that they’re anything but secure in the 21st century. Kiyosaki lists five reasons the E and S category job trajectory no longer provides the “good jobs” of the past and is instead now a trap for job dependency.
Reason #1: College Doesn’t Guarantee a Good Job or Wealth
While higher education is still usually necessary, the skills we learn in college aren’t the skills that will lead us to wealth. Financial security and/or freedom is now detached from a job and attached to knowing the skills to succeed in business and investing, which we don’t usually learn in our undergraduate education, unless we study business.
(Shortform note: Due in part to the trend known as “degree inflation” where college degrees are required for jobs that don’t actually demand them, a college education may be more necessary than ever for getting a job. At the same time, 57% of Americans say a college degree doesn’t provide its money’s worth. Between 1989, four years before Rich Dad’s Cashflow Quadrant was published, and 2016, the cost of college (adjusted for inflation) nearly doubled.)
Reason #2: There Aren’t Enough Good Jobs
Kiyosaki identifies downsizing as one reason there are fewer “good jobs.” Because of cheap labor overseas, a trend toward consolidation in business, and automation, employers are cutting jobs and cutting pay.
(Shortform note: Experts also recognize the rise of the gig economy, labor laws that favor employers over employees, and income inequality as reasons there are fewer good jobs to go around.)
Reason #3: Your Job Won’t Provide a Secure Retirement
One of the biggest advantages to an E category job is a pension. From the 20th to the 21st century, however, the norm has shifted from a defined benefit system to a defined contribution system. In the defined benefit system, you were guaranteed a pension, which meant income for life after you stopped working. In the defined contribution system, you only get what you and your employer contribute during your working years. Consequently, you’re at risk of running out of income during your retirement. Since you aren’t guaranteed income for life, your pension is susceptible to market forces. In a crash, you could sustain significant losses.
(Shortform note: Until the 1980s, defined benefit pension plans were common, and originally, defined contribution plans were meant to exist alongside defined-benefit plans. Now, just 17% of private-sector workers have pension plans available to them. Companies prefer defined contribution systems because they’re cheaper and easier to manage.)
Reason #4: Debt and Taxes Will Bleed You Dry
The traditional path from higher education to a good job to a secure retirement doesn’t account for what Kiyosaki says your two biggest expenses will be in the E and S categories: debt and taxes.
(Shortform note: Student loan and credit card debt are two major categories Kiyosaki covers. Average student loan debt in the U.S. is almost $40,000. The average American owes slightly over $8,000 in credit card debt.)
(Shortform note: While the rich do use everyman investment tools like Roth IRAs, they also have access to stock deals and assets that are inaccessible to most.)
Reason #5: Inflation Will Dilute Your Savings
Kiyosaki is adamant that parking your money is one of the worst things you can do with it. He says when you save money, you’re really just letting it lose value due to inflation.
(Shortform note: In I Will Teach You To Be Rich, personal finance author Ramit Sethi agrees with Kiyosaki that saving your money means you’ll lose some to inflation. However, Sethi does not have the same doomsday outlook about the impact of inflation on the economy as a whole as Kiyosaki has. Like most economists, Sethi sees some inflation as a part of a healthy economy.)
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 Business owner (B) and Investor (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.
People in the B 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. A B’s income is the profit from their business, and their business is considered an asset. B’s need to be skilled in delegation and leadership, as well as have a high degree of financial literacy.
The B Category vs. the S Category
The distinction between S’s (small business owners) and B’s (big business owners) is subtle, in part because B’s often start off as S’s. For example, when a tutor sells her expertise and teaching abilities, she is her own product and her own business, which puts her in the S category. However, when the tutor becomes the owner of a tutoring company, she owns the system that finds and trains tutors, connects students to tutors, markets the service, and takes care of logistics. The tutoring company owner profits from the work and time of the E category tutors she hires. She’s now in the B category.
In the I category, investors commit money (called capital) to something and expect to make a profit. Beyond the initial investment, they don’t have to work day to day like those in the other categories do. Instead, their livelihood comes in the form of assets that generate passive income. Examples of passive income include dividends from stocks, interest on bonds, and rental income. I’s need to be comfortable with risk, since managing risk is the foundation of investing.
Kiyosaki says the best path to wealth is to make a significant amount of money in the B category and then use that capital as an investor in the I category. The kind of wealth that provides financial freedom is almost always generated in the I category, where it compounds without your labor.
(Shortform note: You only need to generate B category-level capital in order to invest if you’re aiming to be a capitalist. While Kiyosaki devotes a lot of space to advocating readers set their sight on that kind of wealth, you don’t need to own a B-category business to invest at a smaller scale, even if you’re aiming to “cross over” to living on passive income. The central function of investing remains the same whether you’re a high-flying B or a worker in the E or S categories investing for retirement.)
The reason B and I income is a much surer bet for generating wealth than E and S income is, as we previewed, the fact that assets are the way to compound your money without your labor. The income you generate from assets is called passive income. While in the E and S categories, your income minus your expenses and liabilities equals the money you have to live on, in the B and I categories, your income equals passive income from your ever-compounding assets minus your expenses and liabilities.
Success in the B and I categories requires understanding a different kind of logic and adopting a different value system than the logic and value system of the E and S categories. In the B and I categories, you:
Should B’s and I’s Make Money for Everyone Else?
Many people, usually on the political left, believe people in the B and I categories should make the government rich, so the government can help those who need it.
Between 2008 and 2015, about 30 Fortune 500 companies paid nothing in U.S. taxes. While the Obama Administration lowered the corporate tax rate slightly during his presidency, the Trump Administration's 2017 tax cut lowered the corporate tax rate from 35% to 21%, roughly doubling the number of major companies that paid nothing or less in taxes.
As of fall 2021, Republicans and Democrats in the U.S. Congress are debating the size of a post-Covid-19 spending bill that Democrats, who want to spend a larger sum than Republicans, say will be paid for primarily by increasing the tax burden on the rich.
Kiyosaki argues that succeeding in the B and I categories is as much a matter of skill in business and investing as it is about cultivating the mental fortitude to stick with a long-term and challenging task: generating wealth.
According to Kiyosaki, there are two groups of people: people who understand how money flows and grows, and people who don’t. Those who don’t usually remain solely in E and S categories, without assets or the possibility of growing their income into wealth and destined to make money for other people.
On the other hand, people who are fluent in money know that the best way to wealth is to be in the B and I categories, and they end up making money for themselves. An understanding of money, finance, business and investing is crucial in generating wealth, whether you’re looking to work in business and investing full time, or supplement your E and S income with passive income from investing.
(Shortform note: It’s harder, and more important, to be financially literate today than it was in the past. Financialization of the U.S. economy has meant saving, investment, and retirement options are now more complicated than they’ve ever been. Between 1950 and 2019, the financial sector’s share of the U.S. GDP rose from about 3% to over 20%.)
(Shortform note: When Kiyosaki wrote Rich Dad’s Cashflow Quadrant, the internet was nowhere near as ubiquitous as it is now. Email newsletters can be a great way to learn about investing or a particular industry, or develop your financial knowledge in general. They can also help you cut through the seemingly endless advice on the internet.)
Kiyosaki offers five strategies for breaking into the B category, all of which are also ways to increase your financial knowledge:
Strategy #1: Find a mentor in the kind of business you want to enter.
A mentor will help you sift through the noise and will teach you what’s really important, and they can also be a sounding board and a guide as you learn by doing. Be sure your mentor is successful in the field you want to enter, not a professional advisor you’re paying.
(Shortform note: Research shows that having a mentor makes you better at your work, happier doing your work, and more likely to move up in your career. Three-quarters of people say having a mentor would help them, but more than half of people don’t have one.)
Strategy #2: Work for a company in the field you want to own a business in for 10-15 years.
After that amount of time, Kiyosaki says you’ll understand all the elements of that kind of business system and be ready to strike out on your own.
(Shortform note: The company you work for today could be your competition in the future. Even if your employer won’t be a primary competitor, you can learn a lot from studying competitors that sell to a slightly different audience, or that offer a different but related product.)
Strategy #3: Buy a franchise.
In the above two strategies, you’re learning to build a business system. When you own a franchise, the system already exists. Your job is to make sure the people who work for you are running the system as best as possible.
(Shortform note: Watch out for hidden costs, misleading success statistics, and noncompete clauses when shopping for a franchise.)
Strategy #4: Become a network marketer.
Network marketing is another way to join a pre-existing business system. You also don’t need nearly as much start-up capital or business acumen as you do when you buy a franchise, and the organization you work with can offer you valuable business education.
(Shortform note: Some network marketing schemes are scams and can be classified as pyramid schemes. Single-tier systems are safer than multi-tier systems, where top-tier salespeople make money off lower-tier salespeople and which can be pyramid schemes.)
Kiyosaki offers three steps to begin generating passive income through asset ownership:
1. Get out of debt. You need capital to invest, and it’s hard to have enough to spare when you’re in significant debt.
(Shortform note: Kiyosaki differentiates between good debt and bad debt; sometimes going into debt is a necessary part of investing.)
2. Decide what kind of investor you want to be. Kiyosaki emphasizes how important it is to know how you’re going to use the I category to achieve wealth. You can use a financial advisor or learn to invest yourself as a serious side practice to generate retirement or supplemental income, or you can dedicate yourself to investing as a full-time job to “crossover” into financial freedom, where you live off your investment income.
Practicing Crossover Investing Through Retirement and Supplemental Investing
Kiyosaki categorizes retirement investing, supplemental investing, and crossover investing as three separate investing types, but both retirement investing and supplemental investing can turn into crossover investing:
Many new investors start with retirement investing primarily because it’s easy and accessible—many employers will take contributions directly from your paycheck, before you can spend it. If you consistently invest between 25% and 50% of your paycheck, in 20 years, you may find that you’ve “crossed over” and no longer need to work. Instead, you can live off the income from your investments.
Supplemental investing also has the potential to get you to the “crossover point.” The bottom line is, the more of your E and S income you save and invest, the likelier you are to achieve crossover investing.
3. Get started by investing in the stock market and in real estate. Call stockbrokers and ask for their guidance, then open a small trading account. In real estate, buy, sell, and manage your own properties. No matter what you decide to invest in, learning and research are key to mitigating the risk that comes with investing.
(Shortform note: Kiyosaki is shorter on specifics for investing than Sethi. Sethi recommends starting with stock market investing, beginning with mutual and index funds, or, if you’re willing to sacrifice some profit for ease, investing in target-date funds.)
In both the B and I categories, you need to develop mental and emotional fortitude. Both starting out in the B and I categories, and especially transitioning from the E and S categories to the B and I categories, are long, tough challenges.
(Shortform note: In Your Money or Your Life, Vicki Robin agrees that a core part of financial freedom is freedom from fear and worry about money. She argues that by consciously connecting money to your values, purpose, and dreams, you can diffuse some of your financial anxiety.)
(Shortform note: Kiyosaki emphasizes that the journey to financial security and freedom is a marathon, not a sprint. James Clear’s concept of “atomic habits” from his book of the same name is useful for breaking down a big undertaking into smaller parts. Atomic habits are small adjustments that are easier to start and will eventually compound into changed behavior.)
(Shortform note: In her book Grit, Angela Duckworth argues that between two people with equal ability, the grittier person will achieve more success, and that grit is a skill that can be honed with practice.)
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:
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.
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 more than forty languages. Rich Dad’s Cashflow Quadrant is one of 14 books in the Rich Dad series, which together have sold over 26 million copies.
Before becoming a personal finance author and personality, Kiyosaki developed the educational board game CASHFLOW and founded his brand, The Rich Dad Company, with his wife, Kim Kiyosaki. In 2006 and 2011, Kiyosaki published books on personal finance and entrepreneurship with Donald Trump. Kiyosaki maintains a public presence and continues to make headlines, commenting on personal finance and politics.
Sharon Lechter co-wrote Rich Dad Poor Dad, Rich Dad’s Cashflow Quadrant, and most of Kiyosaki’s other books in the Rich Dad series. She’s an accountant and a businesswoman and was appointed to a position on the President's Advisory Council on Financial Literacy in the Bush Administration. In the late 2010s, she sued Kiyosaki for cutting her out of her share of profit from their Rich Dad work and settled for $10 million.
Connect with Robert Kiyosaki:
Publisher: Warner Books
Rich Dad’s Cashflow Quadrant: Guide to Financial Freedom, published in 1998, is the sequel to Robert Kiyosaki’s 1997 blockbuster, Rich Dad Poor Dad. The Rich Dad Poor Dad series is part of a movement in popular personal finance books away from offering techniques for living below your means and saving as a strategy for building wealth. Instead, the Rich Dad books and others like it emphasize that to become rich, you need to learn to think like a rich person. Rich people, according to Kiyosaki, understand that the key to generating wealth is generating passive income.
Kiyosaki’s politics, which inform and appear in his books, range between libertarian and conservative. His anti-taxation, anti-entitlement, pro-gold standard positions shape his books, including Rich Dad’s Cashflow Quadrant.
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 prioritizing security and working hard at a “good job” in favor of cultivating boldness and learning to manage the risk of investing so you can create passive income. Rich Dad’s Cashflow Quadrant uses the idea of four income categories to make clear how the type of income you earn is central to generating wealth.
Many reviewers consider the Rich Dad, Poor Dad books to be at least as much self-help as they are financial advice. Slate identifies the similarities the Rich Dad books, including Rich Dad’s Cashflow Quadrant, share with other popular self-help books, like Who Moved My Cheese and Fish:
Kiyosaki’s Rich and Poor Dads and their conflicting advice have indeed proved memorable and are often credited for the Rich Dad books’ enduring popularity. Kiyosaki’s personal anecdotes about his own life and those of his Rich and Poor Dads feature heavily in Rich Dad’s Cashflow Quadrant. While written in an engaging everyman style, Kiyosaki’s anecdotes can be more entertaining than instructive: He often fashions his personal anecdotes as parables, though the average person would have an exceedingly hard time replicating his circumstances.
The Rich Dad books have appealed to millions. Many readers credit the Rich Dad books with waking them up to the concept of passive income in the first place. Others appreciate Kiyosaki’s motivational persona, saying it inspired them to better manage their finances and learn about investing.
The books also have their fair share of critics, who are skeptical of the authenticity of Kiyosaki’s anecdotes and of the practicality of his advice. 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. Rather than offering considered arguments for his advice, critics maintain that he relies on platitudes, political talking points, and unverifiable anecdotes.
Beyond insufficient evidence, some reviewers criticize Kiyosaki for peddling controversial advice that can be dangerous for the novice entrepreneur or investor that the book targets. Among other contrarian claims, Kiyosaki argues that a 401(k) is a terrible investment and that your house is a liability, not an asset.
Much has also been made of Kiyosaki’s personal wealth. A common criticism of Kiyosaki (and other celebrity personal finance personalities) is that the bulk of his wealth comes not from his business investments, as he claims, but from his Rich Dad brand. Furthermore, commentators have long questioned whether the Rich Dad persona the brand revolves around is real; in 2003, Kiyosaki apparently admitted in a magazine interview that he didn’t see why “Rich Dad” had to be any more real than Harry Potter, though his books are clearly marketed as non-fiction.
Kiyosaki can be repetitive, and he introduces concepts circularly. We’ve cut through Kiyosaki’s sometimes meandering writing and anecdotes to more clearly represent his core argument.
We also provide context, opposing arguments, and consensus opinion for Kiyosaki’s more controversial claims and note when Kiyosaki’s evidence is based on political ideology. We will often contrast Kiyosaki’s advice with Ramit Sethi’s in his personal finance book I Will Teach You To Be Rich. While Kiyosaki’s advice is contrarian, overpromises, and has a decidedly conservative bent, Sethi’s represents the consensus opinion regarding what constitutes good personal finance advice for the average person.
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”:
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 understand that wealth is about more than just money. In this section, we’ll explain why Kiyosaki says more wealth equals more freedom, why you don’t need to strive for billions to take advantage of the income generation strategies of the B and I categories, and why you shouldn’t feel guilty about wanting wealth.
Robert Kiyosaki has been rich and has been poor. Rich is better, he says, because the more money you have, the freer you are to pursue life on your own terms.
It goes without saying how more wealth equals more time and greater resources. 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. To Kiyosaki, being able to spend all your time doing exactly what you want is freedom.
One of the key differences between Kiyosaki’s “Rich Dad” and “Poor Dad” is in the relationship between their career trajectories and the amount of free time they had. As Rich Dad, a businessman and investor, excelled in his career, he had more and more time to spend with his family and on his passions. As Poor Dad, actually an upper-middle-class public education official in the E and S categories, excelled in his career, he had to work harder and longer hours, because he was given more work and responsibility.
In summary, the harder Poor Dad worked, the poorer he was in time. The harder Rich Dad worked, the more free time he gained.
(Shortform note: Other authors offer different reasons to try to attain wealth. In contrast to Kiyosaki’s emphasis on the free time wealth brings, Ramit Sethi, who we’ll continue to reference throughout this guide, explains his concept of a “rich life” in his book I Will Teach You To Be Rich. A “rich life” emphasizes the specific reasons you want to reach your financial goals—what particular things you could do with more money that would create a life that is fulfilling to you.)
Freedom to spend your time the way you want isn’t the only type of freedom wealth brings. According to Kiyosaki, the ultimate goal of building wealth is a step further—financial freedom. To Kiyosaki, financial freedom means never having to work again. The financially free can do nearly whatever they want, whenever they want, because money is almost never an obstacle.
While Kiyosaki focuses on how to achieve 1-percenter, capitalist-level financial freedom, where all your time is yours and almost nothing is out of reach, he says the principles he puts forward are equally useful for reaching financial security. Even if you’re not willing to commit yourself to the risks and lifestyle it takes to achieve financial freedom, Kiyosaki thinks that, at minimum, you should strive for a life where concerns about money don’t dictate the way you live.
Ultimately, Kiyosaki wants you to transcend job security, where your life is defined by the dollar amount on your paycheck and the parameters of your day-to-day work. To Kiyosaki, if all you have is job security, all you have is job dependency.
Financial Freedom vs. Financial Independence
In contrast to Kiyosaki’s focus on financial freedom, Sethi, and most of the personal finance community, stress 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. Financial independence offers more freedom, as Kiyosaki defines it, than financial security, because you no longer need to work.
When Kiyosaki talks about financial freedom, he’s usually talking about capitalist-level wealth. In contrast, financial independence can mean 1% level wealth, but since it only means that your passive income is greater than your expenses, 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.
Kiyosaki says there’s no shame in wanting to be rich. For one thing, he says, more wealth means more freedom, and no one can be blamed for wanting freedom.
Some people argue that wanting wealth and taking part in our capitalist system is immoral. While Kiyosaki allows that our system has significant flaws that create inequality, he says it’s easier to beat the system by generating wealth than it is to change the system to make it fairer. There are many reasons Kiyosaki thinks wealth accumulation is actually moral:
Trickle-Down Economics and the Morality of Wealth
Kiyosaki isn’t alone in asserting that accumulating wealth is a moral imperative. This belief is in line with the conservative theory of trickle-down economics. Trickle-down theory posits that the ownership class (also known as the asset-owning capitalists who are very successful in the B and I categories, which we’ll cover in Part 3), creates jobs for the middle and lower classes and therefore should be rewarded with lower taxes and less regulation.
Critics of trickle-down economics attribute it to growing income inequality. Instead of creating jobs, they say, giving benefits to the already-rich just makes them richer and deprives everyone else of resources they need. A 2020 London School of Economics study found that over 50 years in 18 wealthy countries, tax cuts mostly benefited the rich and had little effect on unemployment or economic growth. Many economists say tax cuts for the lower and middle classes are better for the economy.
While accumulating wealth may help you get out of debt, develop self-control, and teach your kids how to save, it’s unclear that the mere fact of having wealth is a moral good.
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?
Think about your career trajectory so far. As you advance in your career, do you have less free time or more free time? Why?
What would you do with more free time?
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.
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 Kiyosaki associates with the E and S categories, and how they influence E’s and S’s choice of work and attitudes toward money.
Keep in mind that neither your training nor your career field dictates what category you’re in; only the way you generate your income does.
An employee works for a business, organization, or person. As an employee, you have a paycheck and a boss. You have a contract and exchange work for money on a continuing basis.
Examples: CEOs and secretaries are both in the E category because they draw a salary from the company they work for.
Values: Kiyosaki says people drawn to the E category prioritize security. According to Kiyosaki, people often choose the E category because they value:
According to Kiyosaki, E’s are influenced by fear of uncertainty—in both their job responsibilities and especially in their finances—and are willing to sacrifice money for security.
Disadvantages: Other than the financial trap Kiyosaki says an E job will land you in (which we discuss in the second half of this section), Kiyosaki says the disadvantages of an E job are the lack of control you have over your day-to-day work and the idea that the better you are at your job, the more responsibility you get, and the harder you have to work. (Shortform note: A related disadvantage is “job creep,” where employees are gradually expected to perform more work than what’s detailed in their job description. This often eats into employees’ personal time.)
Benefits of the E Category
While Kiyosaki is quick to point out the downsides of being an employee, he’s short on positives. One benefit of an E category job is that it can be a great way to learn skills and get paid for it. Kiyosaki notes that he was an employee of the Xerox company for four years, where he learned to overcome his shyness as a salesman.
Furthermore, many people appreciate, rather than feel held back by, the structure of an E category job.
People with mortgages, student loans, or other long-term significant debt may appreciate predictable pay.
Parents with school-age children may appreciate a predictable work schedule.
Though Kiyosaki makes the disclaimer that all four “cashflow quadrants” make up an important part of the economy, he downplays the fact that 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.
The self employed and small business owners are their business. They are their own boss, and can also be the boss of other people, but without their labor, expertise, and management, their business can’t run. Their income is the profit from their business.
Examples: Restaurateurs, makeup artists, doctors, and writers are all in this category.
Values: Kiyosaki says people drawn to the S category prioritize personal excellence and independence. According to Kiyosaki, people often choose the S category because they value:
(Shortform note: As we’ll see, these values can contribute to a business’s success, but they may just as likely contribute to a business’s failure, as well.)
Disadvantages: The biggest negative in the S category, according to Kiyosaki, is that most small businesses fail. S’s are at particular risk for burnout because they have to perform all the functions of their business, not just their core competency. A self-employed stylist has to be her own marketing team, do all her own invoices and expenses, and plan all her own travel. Like E’s, if an S business does succeed, Kiyosaki warns that success means long hours and a lot of hard work.
Why Small Businesses Fail
About 60% of small businesses will fail within their first ten years. Causes for small business failure other than the ones Kiyosaki lists include:
Not enough capital. Small businesses need to plan to have enough of a financial cushion to keep them afloat until they become profitable. If they haven’t allocated enough, money can run out before the business is profitable, and it’s difficult for unprofitable businesses to get loans.
Having a bad business plan, or not sticking to your good business plan. A bad business plan is a simple recipe for failure, and most businesses can’t absorb major spending or other changes.
Poor or overwhelmed management. A small business owner has to manage both the business plan and a team of employees. They must have both business and leadership sense; one without the other is usually a sign of trouble.
Not reading the market. In the heat of their desire to have a certain kind of small business, many S’s will enter an already saturated market. Additionally, your location and marketing, including internet presence, need to connect you to the right customers. Your business can’t thrive without customers.
Caring more about excellence and independence than money: As discussed, people in the S category often take great pride in the quality of their work, but quality doesn’t always translate to more sales or contracts. When S’s prioritize excellence at the expense of efficiency or marketing, their business is likely to fail.
Kiyosaki assures us that E’s and S’s do important and necessary jobs in the economy. He says that E’s prize security, and S’s prize independence and excellence in their field in addition to and as a means toward security. However, because of economic changes over the past half-century, Kiyosaki argues that the E and S categories are significantly less secure than they used to be and are, in fact, risky.
(Shortform note: Kiyosaki doesn’t mention that one of the biggest dangers of self-employment or owning a small business is not being able to fully plan for the amount of money you’ll make within a given period. E category workers are subject to job insecurity, like a round of layoffs because of trouble at the company or an economic downturn, but an S category worker’s job is inherently at least a little bit insecure because they are not in a long-term contract with an employer. This, and the failure rate of small businesses, work against his claim that the S category is particularly secure.)
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
On the traditional path, higher education was the first step to generating wealth. A college degree led to a job in your field (usually in the E or S categories), and that job was the foundation for financial security.
As we’ll continue to explain, a job on its own is no longer a safe bet for financial security, and almost definitely won’t deliver financial freedom. According to Kiyosaki, education, including higher education, is inadequate for generating wealth in the 21st century for two related reasons:
1. Since, as we noted earlier, we can no longer count on traditional E and S jobs to deliver financial security, the higher education that prepares us for those jobs is no longer a crucial step toward financial security.
2. While financial security (and freedom) is now detached from a job and attached to knowing the skills to succeed in business and investing, we don’t learn these skills from traditional education. Kiyosaki says the financial education we get from our parents and communities, high schools, and college degrees is usually inadequate or wrong.
(Shortform note: One reason financial education in the United States is so poor is a lack of qualified teachers. Nine out of 10 teachers believe students should take a course on personal finance in high school, but nearly two-thirds of teachers did not feel qualified to teach one. And unlike math or language arts, most states don’t require expertise or significant training in personal finance to become a personal finance teacher. For this and other reasons, roughly 60% of American public school students receive less than 15 hours of personal finance instruction during high school.)
Unless we study finance or business, we don’t become financially literate in college, either. While Kiyosaki says we can learn important skills and ways of thinking in college (and advocates that we still get a college education), he says we should not expect that a college degree will lead to a good job or financial security. Further, just getting a college education can land you in tens of thousands of dollars of debt before you’ve even started your working life. As we’ll cover in later sections, debt is a big barrier to financial security and freedom.
(Shortform note: Due in part to the trend known as “degree inflation” where college degrees are required for jobs that don’t actually demand them, a college education may be more necessary than ever for getting a job. At the same time, 57% of Americans say a college degree doesn’t provide its money’s worth. Between 1989, four years before Rich Dad’s Cashflow Quadrant was published, and 2016, the cost of college (adjusted for inflation) nearly doubled.)
In the 20th century, a good job in the E or S category could support a comfortable life with job security and high wages. Now, Kiyosaki says, in addition to the pensions that used to be tied to your job (which we’ll get to in a moment), there are far fewer secure, high-income jobs.
Discrimination Limited Access to Good Jobs
It’s important to note that for much of the 20th century, women and people of color were denied access to secure, high-income jobs in the first place. Part of the reason there are “fewer” of these jobs to go around now is that they were never available to most of the population, and now more people are competing for them.
Historical discrimination also explains why a greater share of today’s jobs have inadequate benefits. Today, manufacturing jobs are in decline, while jobs in the service and retail sectors are growing. Because service and retail jobs were historically considered women’s work, they aren’t connected to benefits or high wages the way manufacturing jobs, primarily the purview of men, are.
Kiyosaki identifies downsizing as one reason there are fewer “good jobs.” Because of cheap labor overseas, a trend toward consolidation in business, and automation, employers are cutting jobs and cutting pay.
The Decline of Good Jobs
Along with downsizing, many other trends have contributed to the decline of secure, high-income jobs:
The rise of the gig economy has increased the number of jobs classified as independent contractor positions, which don’t offer benefits or stable pay.
The 1970s marked the beginning of the end for the strong labor laws first established in the 1940s. With labor laws that favor employers over employees, it is now much easier for employers to fight unionization, which strengthens benefits and pay.
Economists differ in their opinions on income inequality, but most agree that it’s not good for the average worker. Between 2009 and 2015, top 1% income grew faster than the income of the other 99% of the population in more than forty states.
The U.S. Private Sector Job Quality Index (JQE) is a monthly indicator created in 2019 that measures, unlike other common indicators, the quality of new jobs being created. Good jobs, according to the index, offer more than average income, bad jobs offer less. According to the index, more bad jobs have been created since 1990 than good.
One of the biggest advantages to an E category job is a pension. Unfortunately, pensions are one of the major ways financial security has changed from the 20th to the 21st century. You are less likely to have a pension than your parents or grandparents.
The norm has shifted from a defined benefit system to a defined contribution system. In the defined benefit system, you were guaranteed a pension, which meant income for life after you stopped working. In the defined contribution system, you only get what you and your employer contribute during your working years. You’re at risk of running out of income during your retirement. Since you aren’t guaranteed income for life, your pension is susceptible to market forces. In a crash, you could sustain significant losses.
(Shortform note: Until the 1980s, defined benefit pension plans were common. Originally, defined contribution plans were meant to exist alongside defined-benefit plans. Now, just 17% of private-sector workers have pension plans available to them. Companies prefer defined contribution systems because they’re cheaper and easier to manage.)
A 401(k) is a common defined contribution plan that, if offered by your employer, allows you to let your employer send a portion of your paycheck into your 401(k) account automatically. Like other defined contribution plans, it isn’t guaranteed in the event of a market crash. Kiyosaki thinks 401(k) plans are woefully inadequate retirement investment because:
Most Experts Recommend a 401(k)
It’s difficult to substantiate Kiyosaki’s claim that an average 401(k) plan takes 80% of the profit from your investment. In 2019, the average 401(k) plan provider’s profit was 0.45% of the invested assets. A typical rate of return for a 401(k) plan is 6-7%—greater than typical fees taken by the plan executor.
In I Will Teach You To Be Rich, Ramit Sethi says a 401(k) is one of the best retirement accounts for three reasons:
The money in your 401(k) is pretax, which means you won’t be taxed on it until you withdraw it. Since taxes aren’t taken out of your original investment, it will be larger and will compound more.
Your employer can match your contribution.
It’s automatic—since your contribution is taken from your paycheck, you don’t have to think about it.
While we can still rely on Social Security on paper, Kiyosaki is skeptical that the funds will be there when today’s workers retire.
(Shortform note: Social Security refers to the tax-funded federal programs available once you retire based on earnings from your working life. Politicians and commentators have been making predictions about the solvency of Social Security since its inception. Kiyosaki predicted Medicare, the taxpayer-funded national health insurance program, would be bankrupt by 2017, which didn’t happen. Now, in 2021, experts say Social Security can be paid through 2034 with its current funding.)
The traditional path from higher education to a good job to a secure retirement doesn’t account for what Kiyosaki says your two biggest expenses will be in the E and S categories: debt and taxes.
Mounting debt is one way your job locks you into a bad cycle. The more debt you take on, the more beholden you are to your job, because you need that income to pay back your debt each month. And unfortunately, according to Kiyosaki, the expectations of a good life on the traditional path increase our debt.
As we previously touched on, student loan debt creates job dependency before you’ve even started to work. Because of the often significant bill that comes due after graduation, you’re compelled to start working right away, and work towards a higher paycheck, so you can pay back your loans.
(Shortform note: Average student loan debt in the U.S. is almost $40,000. Between 1989 and 2016, college tuition grew almost eight times faster than wages, and the cost of college tuition doubled or tripled, depending on the kind of school. While many of our parents and grandparents could work their way through a four-year degree, it’s virtually impossible now. On average, it takes borrowers 20 years to pay back their student loans.)
Kiyosaki says since we’re often issued credit cards before we have any financial literacy (and many people never become very financially literate), we’re at risk for spending beyond our means and falling into significant debt. According to Kiyosaki, once we get that job we’ve taken out loans for, fretted over, and worked hard at, we want the material rewards we’ve been conditioned to associate with success and adulthood. We go into debt to pay for rent, furniture, vacations, and cars.
(Shortform note: The average American owes slightly over $8,000 in credit card debt. When 2005 legislation made it more difficult to declare bankruptcy, people used their credit cards to pay their bills, leading to a very significant increase in credit card debt.)
Eventually, we want the biggest debt-creator of all: homeownership. Against traditional wisdom, Kiyosaki thinks of your house as a liability, not an asset. Between your mortgage, property taxes, repairs, and other costs that come with owning your own home, you lose money every year on your home. Kiyosaki wants you to think about this simply: If you’re losing money every month on your home, it’s a liability, not an asset. (We’ll come back to this distinction soon.)
The Argument That Your Home Actually Is an Asset
The argument that your house is a liability and not an asset is one of Kiyosaki’s most contrarian claims. Many experts point out that even though you pay your mortgage and other homeownership expenses each month, every payment gets you closer to owning your home. Even if you never pay off your mortgage fully (though most people do), the greater share of your mortgage you pay off, the greater your equity (the amount of your property you own) and the greater share of the profit you’ll keep when you sell your home.
Even more simply, everyone needs a place to live. Buying a home makes more sense than renting for many people because renting builds no equity.
Finally, if you’re self-employed and your small business fails (which is likely), you’ll not only be out of a job, you’ll also likely be in significant debt.
(Shortform note: Small business owners can designate their businesses as LLCs (limited liability companies) to shield themselves from being personally responsible for business debt. However, it’s possible for a small business owner to personally guarantee an LLC. In that case, there is potential for a small business owner to be personally responsible for their business debt, which can be significant.)
Along with debt, taxes are likely your other biggest expense in the E and S category. Kiyosaki makes two main points about taxes:
1. In the United States and most other countries, when your pay jumps, so does your tax bracket. In Kiyosaki’s view, this means the more you earn, the more you’re punished for it. A coda on Kiyosaki’s point on homeownership: Traditional wisdom says that, since you land in a higher tax bracket once you start to make more money, you should buy a bigger house for the tax advantages. In Kiyosaki’s view, all this does is lock you into a position where you’re in more debt and have to work harder to pay it off.
2. The second point Kiyosaki makes about taxes, which is related to the first, is that there are fewer tax benefits in the E and S categories, and far more in the B and I categories. We’ll revisit this in Part 3.
(Shortform note: The U.S. has 7 federal tax brackets with taxation rates ranging between 10 and 37%; the lower your income, the less you pay in taxes. In a progressive tax system like this, wealthier people pay more in taxes and can still maintain a high standard of living, and poorer people can put more of their income toward meeting their needs. Critics, like Kiyosaki, bristle at how much more the wealthy pay in taxes. They argue that high tax rates on the biggest earners drive the wealthy to look for loopholes that end up making their tax bill smaller than it would be with a lower tax rate.)
If you can manage to save any between debt, taxes, and putting money away for retirement, Kiyosaki is adamant that parking your money is one of the worst things you can do with it. He says when you save money, you’re really just letting it lose purchasing power because money depreciates so rapidly. (The depreciation of money is called inflation; as money loses value, prices rise.) Your $500 in the bank won’t be worth $500 in 10 years. Though money in the bank earns interest, it also loses value because of inflation. Depending on the rate of inflation, you could be losing more value as your money depreciates than you’re gaining through interest.
(Shortform note: Sethi agrees with Kiyosaki that saving your money means you’ll lose some to inflation. For this reason, both authors advocate investing. However, Sethi does not have the same doomsday outlook about the impact of inflation on the economy as a whole as Kiyosaki has. Like most economists, Sethi sees some inflation as a part of a healthy economy.)
Kiyosaki attributes inflation to the full elimination of the gold standard—when the U.S. dollar was pegged to a value in gold—in 1971. (Shortform note: There are no countries today that use a gold standard. Proponents, usually conservative figures like Kiyosaki, argue that gold’s intrinsic value and scarcity makes it a stable value to attach to a currency. Opponents argue that the gold standard was never actually a particularly stabilizing force, and that the era of the gold standard (50 years around the turn of the century) was a relatively stable period for unrelated reasons. Either way, a dollar today is worth about 60% of a dollar in 1998, when Rich Dad’s Cashflow Quadrant was published.)
To help your money retain its value during periods of high inflation, many experts recommend buying bonds. Bonds are loans you make to a corporation or the government, which promises to pay you back the amount of your loan plus interest in a set period of time. In another piece of contrarian advice, Kiyosaki advocates against using bonds to save. Kiyosaki says that because the 2008 financial crash was predicated on unethically rated bonds and bond issuers are no longer in fiscal condition to pay back, bonds aren’t a secure bet anymore.
(Shortform note: In I Will Teach You To Be Rich, Sethi advises using bonds to invest, because they’re more stable than stocks and don’t fluctuate according to the market. Though the 2008 recession was caused by bad bonds, generally in recessions investors turn to bonds for their stability, and, arguably, the 2008 recession was caused by bad actors rather than by bad bonds.)
Even if your E or S category job does lead to financial security, with great retirement benefits and high enough pay not to have to worry about money, trading one not-so-bad job for a better job and eventually that much-coveted truly good job doesn’t change the fact that you are still fundamentally constrained by the limitations of your work and the life it defines for you. Financial security is not financial freedom. A job you love and that provides for you and a job you hate and that doesn’t provide for you both define the parameters of your life, even if you’re the boss.
Ultimately, Kiyosaki wants you to take away two main points about the E and S categories:
The More Pernicious Low Wage Work Cycle
Kiyosaki focuses on jobs that require college degrees and that pay enough for you to put at least some money away for retirement and take on significant debt. He focuses less on low-wage work, which often traps workers in a different and even more pernicious cycle. 44% of the American workforce earns low wage income, a figure that has increased since the 1970s.
Low-wage jobs are far less likely to offer any benefits.
Low-wage workers are more likely to be laid off because of their lack of attachment, though benefits, to the company.
Because of turnover in low-wage jobs, employers have little incentive to invest in training for workers to advance.
It’s harder to save money when you make less money.
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?
Write down three major points of financial advice you’ve received.
Does the advice you’ve received align with Kiyosaki’s emphasis on income type and the importance of generating capital to invest in assets, or does it align with the traditional path?
Now that you know Kiyosaki’s reasons for believing the traditional path to wealth no longer works, what pieces of advice are you rethinking?
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.
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. Like in the S category, a B’s income is the profit from their business, but their profit is generally greater.
Examples: Mark Zuckerberg (who founded and owns Facebook), Bill Gates (who founded and owns Microsoft), and the owner of your region’s pizza chain are all in the B category because they own business systems.
The B Category vs. the S Category
The distinction between S’s (small business owners) and B’s (big business owners) is subtle, in part because B’s often start off as S’s. For example, when a tutor sells her expertise and teaching abilities, she is her own product and her own business, which puts her in the S category. However, when the tutor becomes the owner of a tutoring company, she owns the system that finds and trains tutors, connects students to tutors, markets the service, and takes care of logistics. The tutoring company owner profits from the work and time of the E category tutors she hires. She’s now in the B category.
Similarly, in the early days of Facebook and Microsoft, Zuckerberg and Gates, respectively, did the majority of the work themselves and received their income from that work—they were in the S category. As their products and services grew into systems, they earned more of their income from the work of others rather than their own day-to-day work. They entered the B category.
Values: People working in the B category are delegators and leaders. They must also possess superb business skills.
(Shortform note: “Organizational intelligence” is the ability to lead a complex organization in a particular direction and is a core skill for business leaders.)
Kiyosaki sees the B category as a bridge to the I category. Most of us can’t go straight to the I category, because we don’t have enough money to invest yet, or the free time to spend on our investment strategy. You can generate money to invest and gain some free time in the B category.
(Shortform note: You only need to generate B category-level capital in order to invest if you’re aiming to be a capitalist. While Kiyosaki devotes a lot of space to advocating readers set their sight on that kind of wealth, you don’t need to own a B-category business to invest at a smaller scale, even if you’re aiming to “cross over” to living on passive income.)
This is Kiyosaki’s promised land, where financial freedom really lies. Investors commit money (called capital) to something and expect to make a profit. Beyond the initial investment, they don’t have to work day to day like those in the other categories do. Instead, their livelihood comes in the form of assets that generate passive income. Examples of passive income include dividends from stocks, interest on bonds, and rental income. To attain financial freedom, you will nearly always need to have I category income, because that is how you develop the passive income that will make up your livelihood once you stop working.
Examples: Because you can invest with almost any amount of money, anyone can be an investor. Kiyosaki identifies three ways to use the I category:
Practicing Crossover Investing Through Retirement and Supplemental Investing
Kiyosaki categorizes retirement investing, supplemental investing, and crossover investing as three separate investing types, but both retirement investing and supplemental investing can turn into crossover investing:
Many new investors start with retirement investing primarily because it’s easy and accessible—many employers will take contributions directly from your paycheck, before you can spend it. If you consistently invest between 25% and 50% of your paycheck, in 20 years, you may find that you’ve “crossed over” and no longer need to work. Instead, you can live off the income from your investments. At that point, you can use the little-known Rule 72(t) to withdraw funds from your retirement account and avoid the typical 10% penalty for withdrawing funds before age 59½.
Supplemental investing also has the potential to get you to the “crossover point.” The bottom line is, the more of your E and S income you save and invest, the likelier you are to achieve crossover investing.
Values: The most important values investors must have are comfort with risk and a desire to learn. Since you own the means by which you’re making money (your assets), you can mitigate risk by being as knowledgeable as possible about the risk you’re taking. The real risk in the B and I categories is taking risks without enough information.
(Shortform note: An important part of risk in business and investing that Kiyosaki doesn’t mention is that for most people, risk tolerance changes over the span of a lifetime. According to Sethi, the younger you are, the more time you have to earn back losses. The older you are, the more conservative your relationship to risk should be.)
Cashflow is an essential concept to understand both in terms of succeeding in the B and I categories, and it’s the central difference between the B and I categories and the E and S categories. Cashflow is the total amount of money you earn and spend, and is the total of your income, expenses, liabilities, and assets.
Income and expenses are simple as they sound. Income is the money you earn. Expenses are what you need to buy to survive that isn’t debt. Kiyosaki wants you to think of assets and liabilities as being equally simple.
(Shortform note: There are wider definitions of “asset” and “liability” than the ones Kiyosaki gives here. You can think of an asset as being anything of financial value that you own. A liability is anything you owe. Both individuals and businesses can have assets and liabilities. Jewelry or furniture can be considered a personal asset because you can sell them in exchange for money. A business liability might include heavy machinery that must be paid off.)
In the E and S categories, cashflow looks like this:
For an example in the E category, a teacher’s salary minus her living expenses equals her income. In the S category, a writer’s freelancing income minus her living expenses equals her income.
If you have liabilities in the E and S categories, your cashflow looks like this:
With liabilities, a teacher or freelancer’s salary minus her living expenses minus her student loans and mortgage debt equals her income.
In the B and I categories, cashflow looks like this:
1. Capital → Assets
First, when you invest, you make an informed bet that your investment will be profitable. A profitable investment is an asset and will supply you with passive income.
2. Passive Income from Assets - Expenses & Liabilities = Income
Once you have passive income, that, minus your expenses and your liabilities if you have them, is your income. This is a fundamentally different way of making money.
Not All Assets Are Created Equal
The central difference between the E and S categories and the B and I categories is that B’s and I’s have assets, and E’s and S’s don’t. Some types of assets, though, are easier to convert to wealth than others.
You may own a company worth a million dollars, but if you’re not willing to sell it at a given moment, it’s impossible for you to access that million, making it an illiquid asset. Other examples of illiquid assets, which you can’t convert to money by selling for a set period of time, are annuities, venture capital, hedge funds, and private real estate investment trusts, or REITs. Experts say that if you invest in an illiquid asset, you should expect great returns in exchange for how inaccessible your money will be.
Liquid assets, on the other hand, are accessible at any time and include stocks, bonds, savings accounts, and mutual and index funds.
Traditional thinking tells us that getting a “good” job is the way to financial security, and traditional education teaches us to think in ways that will help us be good at our E and S category jobs. According to Kiyosaki, working and earning income in the B and I categories requires new ways of thinking. Here, we’ll go over four major changes you have to make to your thinking to succeed in the B and I categories.
According to Kiyosaki, there are two groups of people: people who understand how money flows and grows, and people who don’t. Those who don’t are usually in the E and S categories. People who are fluent in money 1) realize how important it is to be wealthy and 2) know that the best way to wealth is to be in the B and I categories. If you’re fluent in money, you’re at a big advantage.
(Shortform note: It’s harder, and more important, to be financially literate today than it was in the past. While your grandparents may have made most of their day-to-day purchases in cash and may have had pensions that required very little decision-making, financialization of the U.S. economy has meant saving, investment, and retirement options are now more complicated than they’ve ever been. Between 1950 and 2019, the financial sector’s share of the U.S. GDP rose from about 3% to over 20%.)
In the E and S categories, you earn money from your work and time. Earners in the B category generate wealth by using other people’s time and people in the I category can make money using other people’s money.
Remember that in the B category, you own a system that can run without you. A B category business owner makes money from the time and labor of the people who work for their business.
In the I category, you can use your own money to invest, but you can also invest with other people’s, or a bank’s, money. (Shortform note: That money will probably come in the form of a loan, which you pay interest on. You’re betting that the profit you can make from the borrowed money will be more than the interest you owe.)
Three Ways to Use “Other People’s Money” to Start a Business
Other people’s money isn’t just for investing. It’s a common way to start a business, too, since most people don’t have enough capital on their own.
1) Borrow from the bank. A line of credit in the form of a credit card can be a good choice because many cards don’t charge interest for the first year, allowing you some time to generate a profit.
2) Apply for grants and awards. Be on the lookout for opportunities to acquire capital you don’t have to pay back.
3) Find an investor. Investors are always looking for great new business ideas—yours could be the one they’ve been waiting for.
The fundamental question to ask yourself in the B and I categories is: Who are you making rich? In a capitalist economy, Kiyosaki says, either you’re getting rich, or you’re making someone else rich.
In the E and S categories:
In all these scenarios, there’s someone upstream from you profiting from your labor.
In the B and I categories, however:
If you’re not strategizing your cashflow to primarily benefit you, you’re creating more wealth for someone else than you are for yourself.
Should B’s and I’s Make Money for Everyone Else?
Many people, usually on the political left, believe people in the B and I categories should make the government rich, so the government can help those who need it.
Between 2008 and 2015, about 30 Fortune 500 companies paid nothing in U.S. taxes. While the Obama Administration lowered the corporate tax rate slightly during his presidency, the Trump Administration's 2017 tax cut lowered the corporate tax rate from 35% to 21%, roughly doubling the number of major companies that paid nothing or less in taxes.
As of fall 2021, Republicans and Democrats in the U.S. Congress are debating over the size of a post-Covid-19 spending bill that Democrats, who want to spend a larger sum than Republicans, say will be paid for primarily by increasing the tax burden on the rich.
Kiyosaki argues that the wealthy play by different rules than everyone else. Kiyosaki identifies two ways our society rewards the wealthy for having wealth.
How the Rich Stay Rich
Wealth begets wealth because wealth begets power. The wealthy can better lobby politicians through their influence and donations. Since the 1970s, wealthy donors to conservatives in the U.S. have won significant tax and regulatory advantages that help the rich stay rich.
Wealth also begets wealth just because wealth begets wealth. Wealthy people can take bigger risks, which will return higher rewards, because they have a significant financial cushion to protect them if their investment fails. There are also thousands of ways wealth itself rewards and creates more wealth, including that:
The wealthy have better access to high-quality financial managers, who help them get high returns on their investments.
Wealthy people are more likely to earn high returns on their investments because of the size of their initial investment and because of the large proportion of their net worth that is liquid and can be invested.
Wealthy people can access private equity and hedge funds, which yield high returns.
Where are you financially, and where do you want to go?
Determine, roughly, what your income, expenses, assets, and liabilities are.
Which category does your cashflow put you in?
Think about the work you currently do. Who are you making rich? How?
Which of the four B and I mindsets will be most important to adopt to make yourself rich?
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.
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 you take. Make sure your mentor has actually succeeded in the field you want to enter and isn’t just someone who gets paid to dispense advice. (You’d be taking advice about being a B from a person who is an E—not a good idea, according to Kiyosaki.)
If you can do it, finding a mentor is one of the best ways to learn how to succeed in the B and I categories. A mentor will help you sift through the noise and will teach you what’s really important. Not only will a mentor teach you what they know, they can also be a sounding board and a guide as you learn by doing. Be sure your mentor is successful in the field you want to enter, not a professional advisor you’re paying.
(Shortform note: Research shows that having a mentor makes you better at your work, happier doing your work, and more likely to move up in your career. Three-quarters of people say having a mentor would help them, but more than half of people don’t have one. Once you scour your networks for a good candidate, experts recommend starting small and asking for an informational interview first. If the first meeting goes well, have specific goals your mentor can help you achieve, and make follow-up plans to keep the relationship going and hold yourself accountable.)
2. Work for a company in the field you want to work in for 10-15 years. After that amount of time, Kiyosaki says you’ll understand all the elements of that kind of business system and be ready to strike out on your own.
(Shortform note: The company you work for today could be your competition in the future. Even if your employer won’t be a primary competitor, you can learn a lot from studying competitors that sell to a slightly different audience, or that offer a different but related product.)
3. Buy a franchise. In the above two strategies, you’re learning to build a business system. When you own a franchise, the system already exists. Your job is to make sure the people who work for you are running the system as best as possible.
If you go this route, you have to do it by the book. Franchises aren’t for people looking to be creative in business.
Pitfalls of Buying a Franchise
In addition to having to follow someone else’s rigid rules for a business you own, there are a few other common pitfalls for franchisees:
Hidden costs. Make sure you’re aware of all the fees you may be on the hook for when you buy a franchise, in addition to the share of profits you have to pay back to the company you franchised from.
Misleading success statistics. Average revenue statistics may make your chances look better than they really are, because stand-out franchisees may be skewing a pool that actually earns much less. Franchises perform differently according to geography, so make sure you’re researching franchises in your area.
Noncompete requirements. You may be barred from working in the same business sector for a certain amount of time or for a certain period of time after you sell your franchise.
4. Try network marketing. Also called multi-level marketing, network marketing is another way to join a pre-existing business system, and it can be a good choice because you don’t need nearly as much capital (Kiyosaki says you can buy into a reputable network marketing organization for as little as $200). You also don’t need as much business acumen as you do when you buy a franchise, and the organization you work with can offer you valuable business education.
Network marketing gets a bad rap, but Kiyosaki says that if you can find an organization that aims to develop your business skills, leadership skills, and confidence, the experience can be well worth it. When you’re researching organizations, you should:
Network Marketing Red Flags
Some network marketing schemes are scams and can be classified as pyramid schemes. Like Kiyosaki alludes to, single-tier systems are safer than multi-tier systems, where top-tier salespeople make money off lower-tier salespeople and which can be pyramid schemes. Make sure you’re being paid from your product sales, not for recruiting others. Other red flags for pyramid schemes include:
Claims of extremely high earning potential. If it sounds too good to be true, it probably is.
Pressure from promoters. If anyone connected to the organization makes you feel like you’re under time pressure to make decisions or start working, they’re probably not reputable.
Distributors buy more product than they’ll sell. This is a sign that the way to make money at that organization isn’t directly connected to how much product you sell.
Note that MBAs are not one of Kiyosaki’s four routes to owning your own business: They’re a great way to get technical skills and a “fast track” to high management, but don’t teach you the full picture of what it really means to run a B category business.
(Shortform note: MBA programs also value real-world experience in their application processes. It may pay off to get some business experience before pursuing an advanced business degree.)
Investing is how you generate passive income. Passive income is the key to wealth and is essential for financial freedom.
At its core, investing is putting your money into things that you think will make you more money: assets. Key to investing is being good at investing. As we learned in Part 3, risk comes from lack of information. According to Kiyosaki, the risk in investing is investing without enough financial literacy or good information. If you can manage risk by educating yourself, investing is nowhere near as scary as it’s made out to be.
Very simply, you need money to be able to invest. If you’re in significant debt, especially with high interest, it makes sense to reduce or pay off all your debt before you start investing. According to Kiyosaki, debt management is an integral financial skill and is an important part of cashflow management.
Kiyosaki recommends this strategy for getting out of debt:
1. If you have credit card debt, use only one or two cards and pay off all new charges each month.
2. Earn an extra $150-$250 per month and use it to pay off one card. (Kiyosaki says if you can’t earn an extra $150 per month, the B and I categories are probably not for you.) Pay the minimum balance on all your other cards.
(Shortform note: Sethi notes that because your monthly minimum payment is a proportion of the balance, as you pay more and the balance decreases, so does your payment. If you keep making the same flat payment for the duration of your debt, you’ll pay it off faster and save money on interest.)
3. Once you pay off one card in full, move on to the others. Continue until all cards are paid.
4. Once all your credit cards are paid off, or if you don’t have credit card debt, use the same strategy with other debt, like your mortgage, car payments, or student loans.
5. Once you’re sufficiently out of debt, use the money you were putting towards your debt toward your investments.
If you don’t have debt, just put that extra $150-$250 per month toward your investments.
Another Strategy for Paying Off Credit Card Debt
Sethi offers an alternative (and more comprehensive) strategy for getting out of debt:
Add up your total debt. Make sure you have a big-picture view of everything you owe. Note the APR (Annual Percentage Rate, which means interest rate plus any fees you have to pay) and the minimum payment for each debt.
Decide whether to pay the card with the highest APR, which will save you the most money because you’ll save on interest, or the card with the lowest balance, to bolster your confidence by paying off a card quickest.
Negotiate a better APR. Your credit card company wants to keep your business.
Increase your monthly payments by diverting money from another spending category.
Depending on whether you’re aiming for financial security, independence, or freedom, Kiyosaki has different investing advice for you.
1. The Client is someone who pays a professional to invest their money. You put up the money, but you don’t make the decisions. While Kiyosaki encourages you to try to invest on your own, he says if you don’t have the will or the talent to do so, this is your path.
(Shortform note: Sethi agrees that unless you have a very complicated financial situation, hiring a financial advisor will cause you to lose money in fees while getting the same results you could learn to earn on your own. Sethi notes that mutual fund managers only “beat the market” 25% of the time. In addition to finding a no-fee financial advisor, Sethi says to make sure your advisor is a fiduciary—someone who is legally obligated to put your financial interests first.)
2. The DIY Investor. You do your own research and make your own decisions about where to invest your own money. That is the key feature of the DIY investor and the key difference between this and the next level, the Capitalist.
Ramit Sethi on Investing in the Stock Market
Kiyosaki is shorter on specifics for investing than Sethi. Sethi recommends starting with stock market investing, beginning with mutual and index funds, or, if you’re willing to sacrifice some profit for ease, investing in target-date funds.
1) Choose Your Own Portfolio
Start with mutual funds and index funds. A fund is a group of many different kinds of stocks and bonds that you invest in all at once.
Mutual funds are under active management, which means fund managers choose which investments to include. Mutual funds can sometimes produce great returns for a 1-2 year period, but in exchange for having a human choose your investments, you have to pay a significant amount in fees. Kiyosaki does mention mutual funds, but only to say they’re risky.
Index funds are under passive management, which means an algorithm creates a fund out of a section of the stock market, like the NASDAQ, which is a technology index. In the long term, Sethi says index funds are a better investment because they have very low fees.
2) Invest in Target Date Funds
- Instead of managing your own portfolio of stocks, bonds, and individual funds, you can invest using target-date funds. Target date funds are funds made of funds, and recalibrate as you get closer to retirement.
3. The Capitalist. By Kiyosaki’s definition, capitalists straddle two categories: They’re both big-business owners and investors. Whereas the DIY investor invests her own money, capitalists invest other people’s money. (Because they’re successful business people, banks and investors are more willing to loan them larger sums of money, which the capitalist invests.) You need to have the highest level of financial literacy to reach this level.
(Shortform note: You don’t need to be a capitalist to invest with other people’s money. You can get a personal loan to use to invest, but you’ll need to show you’re credible with a good credit score to get a good interest rate. You can improve your credit score by paying at least the minimum on your credit cards each month, working toward paying off your debt, and opening and closing new cards judiciously.)
1. Invest in what you know. Kiyosaki says that wealthy people don’t diversify their assets, and you shouldn’t either. He says it’s better to choose one, or just a few, investment categories so you can become deeply knowledgeable about them and make smarter investments.
(Shortform note: In I Will Teach You To Be Rich, Sethi strongly advocates diversifying your investments across both asset classes, like stocks and bonds, and the type of asset within each class. For example, he recommends investing in stocks of both small and large companies and a mix of short and long-term bonds from different issuers. He says diversifying your investments allows you to balance riskier investments with safer investments, and that the way you diversify your portfolio matters more than exactly what is in it.)
2. Move Your Money. Successful investors keep their money on the move. The concept of the “velocity of money” describes how your money should move: like an avalanche that grows larger as it picks up new assets.
(Shortform note: Technically, the term “velocity of money” means the rate at which money is exchanged in an economy. The healthier an economy, the more money is exchanged as people spend more on goods and services.)
3. Don’t follow the crowd. Don’t invest in something just because it’s popular. No one knows for sure what will be a good investment.
(Shortform note: Be particularly aware of possible speculative bubbles, where investors ignore rational valuations and invest based on logic other than intrinsic value. The classic example of a speculative bubble, as Burton Malkiel notes in A Random Walk Down Wall Street, is tulip-mania in 17th-century Holland.)
4. Blue Chip Stocks Aren’t Safe. Even though these stocks are generally considered less risky, they’re not invulnerable.
(Shortform note: Blue chip stocks are very large, well-established companies with good reputations for investor earnings. It’s a bad idea to invest only in blue chip stocks, though, for the reason Kiyosaki gives above.)
Now that we’ve covered Kiyosaki’s hard advice for breaking into the B and I categories, here we’ll focus on the soft skills central to the B and I categories and explain why Kiyosaki says a good relationship to money, risk, and yourself is key to being able to generate wealth.
As we noted in Part 4, ours is a world run by people who understand how money works. If you don’t, you’re vulnerable. People who understand how money works get their income from the B and I categories because they know it’s the best choice for generating wealth. If you’re aiming to make your living in the B and I categories, it’s imperative to be fluent in money. Remember, you need to actively take charge of acquiring a financial education because it’s likely that your parents and education didn’t adequately prepare you.
1. Learn by doing, and by failing. Kiyosaki says the best way to learn in the B and I categories is by actually doing some business and investing. Making mistakes is an integral part of the learning process. When you make a mistake and then work to understand why it was a mistake, you’re doing some of the best learning.
(Shortform note: In business, learning on the fly never stops, because you have to adapt as the business environment changes in ways you may not ever be able to predict.)
2. If it makes sense for you, continue in your formal education. Go to classes and seminars about topics that interest you. If you’re academically inclined, get a degree in a B and I field.
(Shortform note: But remember that an MBA may not be worth the money, especially in a post-Covid world.)
3. Talk to people who do what you want to do or have information about your field. Do your own research. Read business news and newsletters. You need to understand the current market and legal environment you’ll be working in.
(Shortform note: When Kiyosaki wrote Rich Dad’s Cashflow Quadrant, the internet was nowhere near as ubiquitous as it is now. Email newsletters can be a great way to learn about investing or a particular industry. They can also help you cut through the seemingly endless advice on the internet.)
4. Learn history, especially economic history, because history repeats itself. By having some knowledge of history, you’ll be able to put the current moment in context.
(Shortform note: Many academics, business leaders, and government financial officials agree that both undergraduates and graduates need more training in economic history. They emphasize that students need to understand the frequency and magnitude of economic disturbances in the past, so they’re adequately prepared for their possibility in the future.)
Many people who excel in business, and many other fields, were poor students in their traditional education. According to Kiyosaki, school creates an environment where students are afraid to fail and failure is punished. “A” students never failed in school, and so they become adults who are afraid to experience failure. “C” students already got over the shock of not being the best every time. For that reason, they’re more willing to take risks, which is key to success in the B and I categories.
(Shortform note: While there isn’t research to back up this business legend, other commentators add that “C” students are less likely to be perfectionists, which benefits them in business, where nothing ever goes perfectly. They also note that “C” students may have had lackluster grades because they devoted time to developing passions outside of school, which shows curiosity and determination. At the same time, Kiyosaki specifically notes that getting an MBA from an elite institution is a good way to break into the B category. “A” students are more likely to find their way to a top-tier business school.)
Many skills important in business and money-making (and life in general) aren’t taught in school and are often more important than an A in advanced English or trigonometry.
Kiyosaki emphasizes that we need to learn to love learning, but that some of the most important learning happens outside of traditional education. It’s vital to figure out what you want to learn about, and how you want to learn about it. It may look nothing like sitting in a classroom.
(Shortform note: Kiyosaki name-checks Daniel Goleman’s book Emotional Intelligence. Goleman argues that success in life is determined only 20% by IQ and 80% by other factors. Emotional intelligence, which he defines as the ability to understand and govern your emotions, counts for part of that other 80% and is an important business skill.)
Before you can make any change to your financial situation, Kiyosaki emphasizes that you need to have a healthy relationship with money. Kiyosaki says fear of money—fear that you don’t understand it, fear that you won’t have enough, fear of taking financial risks, or a thousand other worries related to money—makes sense. Money is core to survival, impacts virtually every part of our lives, and is the difference between freedom and freefall.
But Kiyosaki says fear of money impairs our journey in two ways:
Strategies for Overcoming Fear of Money
In Your Money or Your Life, Vicki Robin agrees that a core part of financial freedom is freedom from fear and worry about money. She argues that by consciously connecting money to your values, purpose, and dreams, you can diffuse some of your financial anxiety.
Sethi offers three ways to overcome financial anxiety:
Trust your own judgment. Not every financial risk or spending decision is a slippery slope to financial ruin.
Know you can earn your money back. Instead of thinking of your money as a stockpile you can’t dip into, remember that you often need to spend money to earn money, and that you should be spending some of your money on things you enjoy.
Don’t be over-afraid of wasting money. Not every decision you make will be the most economical, and not everything you spend money on will be worth it. While you need to be conscious of waste, if you’re living a full and curious life and taking appropriate risks with money, you will have to waste some money in the process.
Learning to succeed in the B and I categories is a long process. But you’ll never learn, and never succeed, if you don’t try. In fact, Kiyosaki says on-the-job experience and especially mistakes are the best learning.
Break It Down
Kiyosaki emphasizes that the journey to financial security and freedom is a marathon, not a sprint. James Clear’s concept of “atomic habits” from his book by the same name is useful for breaking down a big undertaking into smaller parts. Atomic habits are small (atom-sized) adjustments that are easier to start and will eventually compound into changed behavior. Clear identifies three types of motivation that create different habits, which can all be useful when working up to big financial changes.
Outcome-driven habits form around a goal. While it’s crucial to set a goal, whether it be financial security, financial independence, or financial freedom, just working toward one large goal doesn’t necessarily integrate it into your everyday behaviors, or your sense of self.
Process-based habits form around a system. Thinking about your habits as a network of actions that are inherently a part of the goal elevates the work and makes you more likely to stick with it. Instead of narrowly focusing on financial independence and how much you have left to earn and save before you achieve it, you could try to consider financial research, networking, and managing your investments as a core part of the process.
Identity-based habits form around your self-conception. Combined with process-based habits, this is perhaps the most effective kind of habit because it taps into your sense of self. You’re most likely to stick with habits like reading investment newsletters and taking on increasing amounts of managed risk if you decide those activities are part of who you are.
Earlier in this guide, we discussed the importance of understanding the logic of the B and I categories; of thinking like a B/I category earner. Kiyosaki puts equal emphasis on cultivating the emotional constitution to succeed in the B and I categories; on feeling like a B/I category earner.
1. Attitude and affirmations matter. If you think you’ll be poor, you’re more likely to be. Set yourself up for success by expecting to be successful in the long run. At the same time, expect disappointment. If you’re not making a mistake or failing at least once and a while (and probably a lot more), you’re probably not taking enough action or enough risk.
(Shortform note: In The Power of Positive Thinking, Norman Vincent Peale says you need to cultivate belief in the face of a difficult undertaking, even if you have doubt. To cultivate belief, he says you need to genuinely want what you’re trying to accomplish, have a clear goal, and visualize the best outcome, not just a good one.)
2. Have determination. Succeeding in the B and I categories is a marathon, not a sprint. Your ability to succeed depends on your ability to respond to challenges without being knocked off your path. At the same time, cut yourself some slack and practice self-care. Because it is a marathon and not a sprint, you won’t make it to the finish line if you’re completely worn out.
(Shortform note: In her book Grit, Angela Duckworth argues that between two people with equal ability, the grittier person will achieve more success, and that grit is a skill that can be honed with practice.)
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?
What kind of investor do you aim to be? Depending on your existing knowledge of investing, identify two baby steps you can take in the next two weeks to get started.
Of Kiyosaki’s soft skills, which do you feel you naturally possess? Which are qualities you need to build up in yourself?