the_cashflow_quadrant

Ricb

Dad Poor Dad, which should make this and the next few chapters easier to understand.

The C4SHFLOW Quadrant

THREE C4 SH FL 0 W PA TrERATS

As stated in Rich Dad Poor Dad, there are three basic cash flow patterns:

one

for the rich, one for the poor, and one for the middle class. This is the cash flow

pattern of the poor:

Income Statement

A&Wft

Balance Sheet

Liabilitl

lite thot

The C4SHFLOW Quadrant

This is the cash flow pattern of the middle class.

Income Statement

Income

job

]E:xpense

Assets

This cash flow pattern is considered "normal" and "intelligent" by our

society.

After all, the people who have this pattern probably have good high-paying jobs,

nice homes, cars and credit cards. This is what my rich dad called the "working-

class dream."

When I play my educational board game, CASHFLOW, with adults they

usually

struggle mentally. Why? Because they are being introduced to financial

literacy,

which means understanding the numbers and words of money. The game takes several hours to play, not because the game is long, but because the

players are

learning a completely new subject. It is almost like learning a foreign language.

But the good news is that this new literacy can be learned quickly, and then the

game picks up speed. it picks up speed because the players are smarter...

and the

more they play the game, the smarter and faster they become, all the while having

fun.

Something else also happens. Because they are now becoming financially literate, many begin to realize that they are personally in financial

trouble, even

though the rest of society thinks they are "financially normal." You see, to have a

middle class cash flow pattern was normal in the Industrial Age, but it could be

disastrous in the Information Age.

Many people, once they successfully learn and understand the game, begin to The CASHFLOW Quadrant

seek new answers. it becomes a financial wake-up call about their personal financial health, just as a mild heart attack is an alert about a person's medical

health.

At that moment of understanding, many people begin thinking like a rich person instead of a hard-working middle class person. After playing CASHFLOW several times, some people begin to change their thinking pattern to that

of the

rich, and they begin to seek a cash flow pattern that looks like this.

Income Statement

Income

Expense

Balance Sheet

Liabilities

Assets

This is the mental thought pattern my rich dad wanted his son and me to

have

as young children, which is why he took away our paychecks and refused to give

us raises. He never wanted us to become addicted to the idea of a high-paying job,

He wanted us to develop the thought pattern of thinking only in assets and inconie

in the form of capital gains, dividends, rental income, residual income from businesses, and royalties.

For people who want to be successful in the Information Age, the faster

they

begin to develop their financial intelligence and emotional intelligence to think in

this pattern, the faster they will feel more financially secure and find financial

freedom. In a world of less and less job security, this cash flow pattern makes

much more sense to me. And to achieve this pattern a person needs to see the world from the T" and "I" quadrants, not just the T" and "S" quadrants.

I also call this an Information Age financial statement because the income is

I

71je CASHFLOWOuadrant

generated strictly from information, not hard work. in the information Age, the

idea of hard work does not mean the same th ng as t n e Agrarian Age an the Industrial Age. In the Information Age, the people who work physically the

hardest will be paid the least. It is already true today and has been true through

history.

However, today when people say, "Don't work hard, work smart," they do not

mean work smart in the "E" or "S" quadrants. They actually mean work smart in

the "B" or "I" quadrants. That is Information Age thinking which is why financial

intelligence and emotional intelligence are vital today and will be vital in the

future.

have give g job.

income

r they ink in ial

es the me is

SO WILA T IS THE ANSWER?

Obviously my answer is to re-educate yourself to think like a rich person, not

a po r or middle class person. In other words, to think and look at the world from

the "B" or "I" quadrant. However, the solution is not as simple as going back to

school and taking a few courses. To be successful in the "B" or "I" quadrant requires financial intelligence, systems intelligence and emotional intelligence

These things cannot be learned in school

The reason these intelligences are hard to learn is because most adults are ~vired" to the "hard work and spend" mode of life. They feel financial anxiety, so

they hurry off to work and work hard. They come home and hear about the stock

market going up and down. The anxiety grows, so they go shopping for a new

se or car, or they go and play golf to avoid the anxiety.

j, I The problem is that the anxiety returns on Monday morning.

9OW DO YOU START THINKIX LIKE A RICH PERSON?

People often ask me how to get started thinking like a rich person. I alw ~ecornnietid starting small and seeking education, rather than running out

and

M. ply huying a mutual fund

~ard game, CASHFLOW

or a rental property. If people are serious about

I created the game to help people improve their financial intelligence. It

gives

pple the mental, physical and emotional training required to allow them to make

tk gradual change from thinking like a poor or middle class person to thinking

ic a rich person. It teaches people to think about what my rich dad said was The CASHFLOW Quadrant

C4SH FLOW, NOT MONEY, RELIEVES ANX1E2-Y

Financial struggle and poverty are really financial anxiety problems. They

are

mental and emotional loops that keep people stuck in what I call the "rat race."

Unless the mental and emotional hooks are broken, the pattern remains intact.

I worked with a banker a few months ago on breaking his pattern of

financial

struggle. I am not a therapist, but I have had experience in breaking my own financial habits instilled by my family.

This banker makes more than $120,000 a year, but is always in some sort

of

financial trouble. He has a beautiful family, three cars, a big house, a vacation

home, and he looks the part of a prosperous banker. When I looked at his financial statement however, I found he had a financial cancer that would be terminal in a few years if he did not change his ways.

The first time he and his wife played CASHFLOW, he struggled and

fidgeted

almost uncontrollably. His mind was wandering, and he could not seem to grasp

the game. After four hours of play, he was still stuck. Everyone else had completed

the game, but he was still in the "Rat Race".

So I asked him, as we put the game away, what was going on. His only

answer was that the game was too hard, too slow and too boring. I then reminded

him of what I had told him before the game started: that all games are reflections

of the people playing. In other words, a game is like a miffor that allows you to

look at yourself.

That statement angered him, so I backed off, and asked if he was still committed to getting his financial life in order. He said he was still

committed

invited him and his wife, who loved the game, to come play again with an investment group I was coaching.

A week later, he showed up reluctantly. This time, a few lights began to

go on

inside his head. For him, the accounting part was easy, so he was naturally neat

and tidy with his numbers, which is important for the game to be valuable. But

now he was beginning to understand the world of business and investin He could finally "see" with his mind his own life's patterns and what he was doing to

cause his own financial struggle. He still did not finish the game after four hours,

but he was beginning to learn. As he left this time, he invited himself back.

By the third meeting, he was a new man. He was now in control of the

game, his accounting and his investments. His confidence soared, and this time he

successfully exited the "Rat Race" and was on the "Fast Track." This time as he left,

he purchased a game and said, "I'm going to teach mv kids "

By the fourth meeting, he told me his own personal expenses were down, he

had changed his spending habits and cut up several credit cards, anc The C4SHFLOW Quadrant

taking an active interest in learning to invest and build his asset column. His

thinking was now on track to make him an Information Age thinker.

At the fifth meeting, he beta tested CASHFLOW202, which isthe

advanced

STEP 1.

its lime To M0

ind Your Own Business

Have you been working hard and making everyone else rich? Early in life, most people are programmed to mind other people's businesses and make other people rich. It begins innocently enough with words of advice such as these:

1, "Go to school and get good grades, so you can find a safe, secure job with

good pay and excellent benefits."

2."Work hard so you can buy the home of your dreams. After all, your home is an asset and it is your most important investment."

3."Having a large mortgage is good because the government gives you a tax deduction for your interest payments."

4."Buy now , pay later," or "Low down, easy monthly payments." Or, "Come in and save money."

People who blindly follow these words of advice often become:

1.Employees, making their bosses and owners rich.

2.Debtors, making banks and money lenders rich.

199

Income Statement

Income

1. You mind your boss's business.

I

The CASHFLOW Quadrant

3.Taxpayers, making the government rich.

4.Consumers, making many other businesses rich.

instead of finding their own financial fast track, they help everyone else find theirs. Instead of minding their own business, they work all their lives minding everyone else's.

By looking at the Income Statement and Balance Sheet, you can easily

begin

to see how we have been programmed from an early age to mind everyone else's

business, and ignore our own business.

Expense

2. You n3kind the government's business via taxes. with every other line item expense, you mind a lot of other people's businesses.

Balance Sheet

Assets

4. This is your business.

Lia ilities

3. You mind your bank4 s business. s

201

The CASHR 0 W Quadrant

TAKE ACTION

In my classes, I often ask people to fill out their financial statements.

For many

eople, their financial statements are not a pretty picture simply because they've

een misled into minding everyone else's business instead of minding their own

usiness.

1) YOUR FIRST STEP:

Fill out your own personal financial statement. I have included a sample income statement and balance sheet as shown in the game, CASHHOW

in order to get where you want to go you need to know where you are. This is your first step to take control of your life and spend more time minding your own business.

2) SET FINANCIAL GOALS:

Set a long-term financial goal for where you want to be in 5 years and a smaller, short-term financial goal for where you want to be in 12 months. (The smaller financial goal is a stepping stone along the way to your 5-year goal.) Set goals that are realistic and attainable.

A) Within the next twelve months:

1.1 want to decrease my debt by

2.1 want to increase my cash flow from my assets, or passive income, (passive income is income you earn without you working for it) to

B) My 5-year financial goals are:

1) increase my cash flow from my assets to $ per month.

2) Have these investment vehicles in my asset column (i.e. real estate, stocks, businesses, etc.)

Q Use your 5-year goals to develop your income statement and balance sheet for 5 years from today.

4ow that you know where you are financially today and have set your goals, p~need to get control of your cash flow so that you can achieve your goals. The G4SHROWQuadrant

mmmm_

Qed: To so ow of the Rba Race mW onto the Fast Tmck by buMng up ymr Passm Incame to be greater than ywr ToW E#~

Income Statement

Real Estate:

Cash Flow

Taxes:

Homo Mortgage:

School Loan Payimt.

Car Payment.

Credit Cord Payment

Retail Payment

DOW Eqm~:

Child Expenses:

Bank Umn Payment

Person on your right