The Cash Flow Quadrants
Your business, Your career
So you’ve been working hard for years, climbing the ladder. Maybe you’re still near the bottom of the ladder, or maybe you even got near the top. Where you are on the ladder doesn’t really matter. What matters is the question that you may have forgotten to stop and ask before putting in all that time and effort climbing: Where is this ladder planted?
As Stephen R. Covey points out, it doesn’t matter how fast or high you climb on the ladder if it’s leaning against the wrong wall. The purpose of this piece is for you to stop climbing for a minute and see where your ladder is planted. And, if you’re not happy where it is, find out where you might want to move it.
How Do You Make the Money You Make?
Most people assume that their financial standing is defined by how much they earn, how much they’re worth, or some combination of both. And there’s no doubt that this has some bearing. Forbes magazine defines “rich” as a person who earns in excess of $1 million per year (about $83,333 per month, or just under $20,000 a week), and “poor” as someone who earns less than $25,000 a year.
But even more important than the quantity of money you make is the quality of money you make. In other words, not just how much you make, but how you make it—where it comes from. There are actually four distinct sources of cashflow. Each is quite different from the other, and each defines and determines a very different lifestyle, regardless of the amount of cash you earn.
The cashflow quadrant represents the different methods by which a cash income is generated. For example, an employee earns money by holding a job and working for someone else or a company. The self-employed are people who earn money working for themselves through their own small business. A business owner owns a large business (typically defined as 500 employees or more) that generates money. Investors earn money from their various investments—in other words, money generating more money.
E = Employee
S = Self-employed or Small-business owner
B = Business owner
I = Investor
Which quadrant do you live in? In other words, from which quadrant do you receive the majority of the income on which you live?
The E Quadrant
The overwhelming majority of us learn, live, love, and leave this life entirely within the E quadrant. Our educational system and culture train us, from the cradle to the grave, in how to live in the world of the E quadrant.
The operating philosophy for this world is what our educational system taught us, and what you probably learned, too, when you were growing up: Go to school, study hard and get good grades, and get a good job with benefits at a great company.
RELATED: A Start-Up Business
The S Quadrant
Driven by the urge for more freedom and self-determination, a lot of people migrate from the E quadrant to the S quadrant. This is the place where people go to “strike out on their own”.
The S quadrant includes a huge range of earning power, all the way from the teenage freelance baby sitter or landscaper just starting out in life to the highly paid private-practice lawyer, consultant, or public speaker.
But whether you’re earning $8 an hour or $80,000 a year, the S quadrant is typically a trap. You may have thought you were “firing your boss,” but what really happened is that you just changed bosses. You are still an employee. The only difference is that when you want to blame your boss for your problems, that boss is you.
The S quadrant can be a thankless and difficult place to live. Everyone picks on you here. Thegovernment picks on you—you spend one full day a week just in tax compliance. Your employees pick on you, your customers pick on you, and your family picks on you because you never take any time off. How can you? If you do, you lose ground. You have no free time because if you take time off, the business doesn’t earn money. In a very real way, the S stands for slavery: You don’t really own your business; your business owns you.
The B Quadrant
The B quadrant is where people go to create big businesses. The difference between an S business and a B business is that you work for your S business, but your B business works for you.
Those who live and work in the B quadrant make themselves recession-proof, because they control the source of their own income.
The I Quadrant
This is not rocket science. The rich teach their kids to live in the I quadrant by playing Monopoly, and we all know how that works: four green houses, one red hotel; four green houses, one red hotel.
Changing Jobs Is Not Changing Quadrants
Now let me explain why it’s so important to understand these different quadrants. How often have you heard someone complain about their job, then decide to make a change, only to end up a few years later with the same old complaints?
I keep working harder and harder, but I’m just not getting ahead. Every time I get a raise, it gets eaten up by taxes and higher expenses.
I’d rather be doing [fill in the blank], but I can’t afford to go back to school and learn a whole new profession at this stage of my life.
This job stinks! My boss stinks! Life stinks! (etc.)
These and dozens of others like them are all statements that reveal a person who is trapped—trapped not in a certain job, but in an entire quadrant. The problem is, most of the time when people do get up the initiative to actually make a change in their lives, all they do is change jobs. What they need to do is change quadrants.
RELATED: 21 ways to boost your business bank account
The E and S quadrants—are where most people live. The E quadrant is especially where we are brought up and trained to live. “Get good grades, so you can get a good job,” we’re told. But your grades don’t matter in the B quadrant. Your banker doesn’t ask to see your report card; he wants to see your financial statement.
Breaking away from those typical job structures and creating your own stream of income puts you in the best position to weather an economic storm, simply because you are no longer dependent on a boss or on the economy to determine your annual income. Now you determine it.
At least 80 percent of the population lives in the E quadrant, especially, is where we are taught we will find safety and security. On the other hand, the B and I quadrants—is where freedom resides. If you want to live on that side, then you can make it happen. But if you want the relative safety of the E quadrant then maybe what I have to share here is not for you. That’s a decision only you can make.
Which quadrant do you live in?
Which quadrant do you want to live in?
Only You can decide on your life and career.
So you’ve been working hard for years, climbing the ladder. Maybe you’re still near the bottom of the ladder, or maybe you even got near the top. Where you are on the ladder doesn’t really matter. What matters is the question that you may have forgotten to stop and ask before putting in all that time and effort climbing: Where is this ladder planted?
As Stephen R. Covey points out, it doesn’t matter how fast or high you climb on the ladder if it’s leaning against the wrong wall. The purpose of this piece is for you to stop climbing for a minute and see where your ladder is planted. And, if you’re not happy where it is, find out where you might want to move it.
How Do You Make the Money You Make?
Most people assume that their financial standing is defined by how much they earn, how much they’re worth, or some combination of both. And there’s no doubt that this has some bearing. Forbes magazine defines “rich” as a person who earns in excess of $1 million per year (about $83,333 per month, or just under $20,000 a week), and “poor” as someone who earns less than $25,000 a year.
But even more important than the quantity of money you make is the quality of money you make. In other words, not just how much you make, but how you make it—where it comes from. There are actually four distinct sources of cashflow. Each is quite different from the other, and each defines and determines a very different lifestyle, regardless of the amount of cash you earn.
The cashflow quadrant represents the different methods by which a cash income is generated. For example, an employee earns money by holding a job and working for someone else or a company. The self-employed are people who earn money working for themselves through their own small business. A business owner owns a large business (typically defined as 500 employees or more) that generates money. Investors earn money from their various investments—in other words, money generating more money.
E = Employee
S = Self-employed or Small-business owner
B = Business owner
I = Investor
Which quadrant do you live in? In other words, from which quadrant do you receive the majority of the income on which you live?
The E Quadrant
The overwhelming majority of us learn, live, love, and leave this life entirely within the E quadrant. Our educational system and culture train us, from the cradle to the grave, in how to live in the world of the E quadrant.
The operating philosophy for this world is what our educational system taught us, and what you probably learned, too, when you were growing up: Go to school, study hard and get good grades, and get a good job with benefits at a great company.
RELATED: A Start-Up Business
The S Quadrant
Driven by the urge for more freedom and self-determination, a lot of people migrate from the E quadrant to the S quadrant. This is the place where people go to “strike out on their own”.
The S quadrant includes a huge range of earning power, all the way from the teenage freelance baby sitter or landscaper just starting out in life to the highly paid private-practice lawyer, consultant, or public speaker.
But whether you’re earning $8 an hour or $80,000 a year, the S quadrant is typically a trap. You may have thought you were “firing your boss,” but what really happened is that you just changed bosses. You are still an employee. The only difference is that when you want to blame your boss for your problems, that boss is you.
The S quadrant can be a thankless and difficult place to live. Everyone picks on you here. Thegovernment picks on you—you spend one full day a week just in tax compliance. Your employees pick on you, your customers pick on you, and your family picks on you because you never take any time off. How can you? If you do, you lose ground. You have no free time because if you take time off, the business doesn’t earn money. In a very real way, the S stands for slavery: You don’t really own your business; your business owns you.
The B Quadrant
The B quadrant is where people go to create big businesses. The difference between an S business and a B business is that you work for your S business, but your B business works for you.
Those who live and work in the B quadrant make themselves recession-proof, because they control the source of their own income.
The I Quadrant
This is not rocket science. The rich teach their kids to live in the I quadrant by playing Monopoly, and we all know how that works: four green houses, one red hotel; four green houses, one red hotel.
Changing Jobs Is Not Changing Quadrants
Now let me explain why it’s so important to understand these different quadrants. How often have you heard someone complain about their job, then decide to make a change, only to end up a few years later with the same old complaints?
I keep working harder and harder, but I’m just not getting ahead. Every time I get a raise, it gets eaten up by taxes and higher expenses.
I’d rather be doing [fill in the blank], but I can’t afford to go back to school and learn a whole new profession at this stage of my life.
This job stinks! My boss stinks! Life stinks! (etc.)
These and dozens of others like them are all statements that reveal a person who is trapped—trapped not in a certain job, but in an entire quadrant. The problem is, most of the time when people do get up the initiative to actually make a change in their lives, all they do is change jobs. What they need to do is change quadrants.
RELATED: 21 ways to boost your business bank account
The E and S quadrants—are where most people live. The E quadrant is especially where we are brought up and trained to live. “Get good grades, so you can get a good job,” we’re told. But your grades don’t matter in the B quadrant. Your banker doesn’t ask to see your report card; he wants to see your financial statement.
Breaking away from those typical job structures and creating your own stream of income puts you in the best position to weather an economic storm, simply because you are no longer dependent on a boss or on the economy to determine your annual income. Now you determine it.
At least 80 percent of the population lives in the E quadrant, especially, is where we are taught we will find safety and security. On the other hand, the B and I quadrants—is where freedom resides. If you want to live on that side, then you can make it happen. But if you want the relative safety of the E quadrant then maybe what I have to share here is not for you. That’s a decision only you can make.
Which quadrant do you live in?
Which quadrant do you want to live in?
Only You can decide on your life and career.
No comments