7 Reasons Why Robert Kiyosaki Cashflow Quadrant Is Wrong

Robert-Kiyosaki-Cashflow-Quadrant

Robert Kiyosaki’s book, Cashflow Quadrant : Rich Dad’s Guide to Financial Freedom, is an inspirational and compelling guide to breaking free from the earnings “rat race”, by moving from the “left side of the quadrant” where most people work to the “right side” and ultimately financial freedom. Published in 2000, the book is the sequel to Rich Dad Poor Dad.

The book starts by introducing the Cashflow Quadrant(TM), an illustration of the four primary ways to earn money.  It’s shaped like a plus sign, with four letters in each corner, separated by the plus’s cross bars.

cashflow-quadrant

In the upper left, there’s an E (for employee), the lower left has an S (for self-employed), the upper right has a B (for business owner), and the lower right has an I (for investor).

Kiyosaki explains the quadrants this way: When an E needs money, they automatically look for a job. Their key word is ‘security’ and they believe a waged position provides this. An S person, on the other hand, will do something to make money on their own. Their key words are ‘perfectionism’ and ‘control’; they have to make sure things are done right, which means doing it their way. Thanks to this, their operations remain small.

In contrast, a B person will start or buy a system that generates money, and an I will put money into a system that will produce more money without them having to be directly involved.

Acknowledgement of the pros of the book

For over a decade, Robert change the way millions of people around the world think about wealth creation and financial freedom. Besides, I think the network marketing industry should be thankful to him. While I may disagree with some of the key highlights of the book, I can’t just walk by without pointing to the pros of the book.

  • Easy to Read: Kiyosaki is definitely good at creating a compelling narrative, and this book is no exception. You should have no problem reading and following along with the points he makes, as well as the diagrams he shares.
  • Actionable Advice: Particularly in the last set of seven chapters, Kiyosaki lays out a number of simple, easy to follow steps that make it possible to become wealthy using his methods. Particularly compared to Rich Dad, Poor Dad, having real, workable advice is a good step in the right direction.
  • More Inclusive Perspective: Again, compared to his first book, Cashflow Quadrant does much more to acknowledge alternate view points on wealth and money. Kiyosaki notes that people in all four quadrants can become rich, for example, and also points out that most of the millionaires in the US would be considered level 4 investors on his scale. All of this makes it much easier to get something out of the book, even if you don’t follow all his advice.
  • Emphasis on passive income. In fact, before the introduction ends, Kiyosaki notes that his ‘Poor Dad’ (his biological father) always recommended he stick to the left side of the quadrant (the E and S side) while his ‘Rich Dad’ (his friend’s father, who gave him advice on how to become rich) suggested that he should focus on the right side (the B and I side).

My Attempt to apply the Cashflow Quadrant

I was first introduced to a huge diagram and an explanation of the Cashflow Quadrant by a guy on stage at a Networking event some time ago, and it totally blew my mind because it was a brand new and exciting concept to me.

Robert recommend network marketing as one of the three ways to get in the business quadrant. Because I wanted to be wealthy by owing a big business, I ended up joining a network marketing company. I followed my upline advice in running the business. At the same time I was still going to my small business office and trying one or two internet jobs at home. After one year, I realize I was not making any progress. I was always spending money to improve my business but was not making any financial progress. So one day I started wondering.

Why do some people easily create wealth through business while others don’t? Why do some people work their business throughout their life time leaving no legacy behind while others leave a legacy for their unborn generation? Why do some people retire early from business to enjoy their labour while others work themselves to death? Why do some people run multiple businesses successfully while others can’t manage one? Why do some people quit their job to establish a big business while others fail?

To satisfy my curiosity, I decided I will review people who had succeeded in building big business and learn from what they do right. At last, I reviewed at least one thousand successful business people around the world across different industry, background and social status. It took me six months of painstaking research to come to an important discovery.

Eventually, I discover what I called the Business Quadrants Wealthflow Theory.

Business Quadrants Wealthflow Theory

I applied the idea of this theory to my business and life. In just few months my finances improve as well as my businesses. Before I knew it, I launched my first passive income business. My network marketing business has also taken a fortune turn. Besides, my life has taken a better shape for it.

7 Reasons Why Robert Kiyosaki Cashflow Quadrant Is Wrong

I must admit that Robert’s perspective in the Cashflow Quadrant book especially on passive income is noteworthy. However, there are several concept of the book I simply do not agree with. I have narrow it down to the seven most important. The Business Quadrants Wealthflow Theory I discovered open my eye to the flaw in some of these thinking and concept. Here I present to you seven reasons why Robert Kiyosaki Cashflow Quadrant is wrong.

  1. Denigration of Employee. One of the key takeaway from the book is to move from an employee quadrant to the right quadrant. From the Robert’s perspective, it appears being an employee is a crime and will leave people financially poor. But of course, there are many people who are employees and are leaving large. I do agree that it is important to move to the right side of the quadrant, however, earning active income as an employee should be a means to achieve that. That is what I realize and that is what the Business Quadrants golden rule of wealth is based on.
  2. Self-Employed Can’t  Achieve Financial Freedom. Robert suggested in his book that self-employed earn active income and as such need to move to the right side of the cashflow quadrant. I stand to disagree on this. The internet has opened up a lot of opportunity for people to work from home and earn passive income without hiring workers. Many first generation self-employed millionaires have emerged in the past decade. Many of them have been able to build passive income and move on to create more asset. In fact many of them are now experiencing financial freedom.
  3. Denigration of Education. A continuing theme in Kiyosaki’s writing is the relative unimportance of education.  From calling his highly educated father ‘Poor Dad’ to maintaining that street smarts are much more important to success than book smarts to sharing a list of anti-education quotations in the middle of a chapter (sent to him by Poor Dad, no less), he has no fondness for education, and seems to delight in denigrating it. There is no denying the importance of education. Even though most schools do not teach how to be wealthy, the exposure one gain from education can prepare one for success in life. Education may not be the key to financial freedom but it’s one of the path to discover that key. Those who take this path only need guidance to turn their strength into wealth opportunity. This thought is well expressed in the Business Quadrants Wealthflow Theory.
  4. Attributing Traits of Fear and Perfectionism to Self-employed and Emplyees. Kiyosaki doesn’t show enough respect for those in E and S quadrants.  Some of his comments are unfounded and bias such as attributing traits of fear or perfectionism onto those who are self-employed or work for someone else. Perfectionism is a personality trait and is not limited to self-employed or employees. Even, some big business owners who are perfectionist demand perfection from their workers. Many employees who are excellent at what they do are not afraid to lose their job as they know that they will not be short of options.Meanwhile many big business owners and investors are always afraid of what may become of their business or investment in the face of disaster and economic recession.
  5. Concept of Network Marketing As Passive Income Only. Kiyosaki discuss network marketing as one of the three ways of moving to the business quarter. He portrays network marketing as a one-way income source that is, it produces passive income. Many who belief his concept join network marketing with the hope of making it to the top and earning passive income. But as statistics shows, only 5% make it to the top. Personally, I was a victim when I first join network marketing. However, network marketing feature in all quarters of the Business Quadrants Wealthflow Theory. As explained in chapter nine of my book, network marketing can produce active or passive income. It can also be worked from home or an office. Whether network marketing produce passive income depends on the company compensation plan and culture, your approach, products and other factors. So, don’t just hide under your upline to expect to earn passive income with network marketing as portrayed by Robert.
  6. Investment as Passive Income. Kiyosaki listed investment in the fourth quarter of his cashflow quadrant. His book suggest that investment produce passive income but that is not always the case. Investment discussed in his book fall under portfolio income. Portfolio income is considered passive income by some analysts, in which case dividends and interest would be considered passive. However, in this Business Quadrants Wealthflow Theory, I do not consider portfolio income as passive income. The type of earnings people usually associate with this are gains on stocks, interest, retirement pay, lottery winnings, and capital gains. While these activities fit the popular definition of passive income, they don’t fit the technical definition as outlined by the IRS. Passive income, when being used as a technical term, is defined as either ‘net rental income or income from a business in which the taxpayer does not materially participate’, and in some cases can include self-charged interest.
  7. His Concept that Financial Freedom Only Come Through Investment. Financial freedom is the state of having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income and/or cash flow from dipping into the assets that is at least as great as their expenses. According to Robert, to acquire financial freedom, you must move from the employee and self-employ quadrant through the business quadrant and finally to the investment quadrant. He argue that unless a person is in the investment quadrant, the person cannot acquire financial freedom. I also disagree with him on this. Many self-employed millionaires today are financially independent despite not earning portfolio income. The internet has opened up a lot of opportunities for people to build passive income business without having to invest their money in portfolio income.

Final Thoughts

The Cashflow Quadrant teaches the steps one must take to become financially free. While it doesn’t offer instruction in any particular skill, it will guide you to the skills you must learn and the obstacles you will likely face to your ultimate goal.

Some people complain there is not enough hard information in his books on how to move from an employee to a business-minded person. Kiyosaki explains that he doesn’t write how-to books, but rather provides the mental framework that’s necessary for gaining great wealth. He calls it the BE-DO-HAVE approach: “strengthen your thoughts (being) so that you can take the action (doing) that will enable you to become financially free (having).”

Cashflow Quadrant includes many caveats about hard work and not rushing into anything too quickly. The key, he repeatedly says, is education, which can cost little but bring you millions.

If you can forgive minor annoyances including typographical errors and plugs for network marketing, this is a fascinating book, a valuable financial education that may inspire you to think more about which quadrant you wish to exist in.

As Kiyosaki notes, it is fine to remain a wage earner as long as you are receiving money from investments as well, but to be only a wage earner is, in today’s world, a risky path.

For over ten years, I tried to follow his ideas but never had the chance to move to the big business or investment quadrant.

It was the frustration that led me to search for my own path. I realized that since Robert shared his ideas, a lot have changed. My quest for the right path led me to study closely over 1000 successful business people. It was in the course of this study I discover what I called the Business Quadrants Wealthflow Theory.

You can read more about the theory by visiting introduction to the Business Quadrants Wealthflow Theory.

Do you have any questions or feedback you would like to discuss on the Cashflow Quadrant or the Business Quadrants Wealthflow Theory? Please leave me your comments below as I would love to read and reply to your thoughts.

Jetro Olowole
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Jetro Olowole

Life Coach & Business Development Manager at Jetro Olowole
I Want To Show People How To Build Passive Income Business And Live A Comfortable Lifestyle By Helping Them Turn Their Active Income To Passive Income Using The Business Quadrants Wealthflow Theory. I Likes To Talk About The Business Quadrants Golden Rule Of Wealth Every Chance I Got Because I Loves It! Like my official Facebook Page and Follow me on Twitter for updates.
Jetro Olowole
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  • Alan Bennett

    That sounds okay Jetro but you and Robert avoid or do not know the one thing you must possess to become rich.
    You must have success mentality.
    95% of people do not possess it and stay poor. And it doesn’t matter which quadrant we are in.
    On the other hand, if you have success mentality, you can make money in either quadrant.
    And if you want an active income where you go to work each day or a passive income, which starts off active and transits to passive over time, a success mentality will give you success.
    We all have limiting believes anout money, love, health, etc.
    We learned these at a very early age, up to 6 years old.
    If we learned then that money is bad, causes problems or anyother bad belief, we will carry that onto adulthood and that will cause us to remain poor.
    Of course rich and poor are subjective.
    We must clear out blocks, our limiting beliefs first.
    Jetro, you managed to do that when you analysed Kiyosaki’s book and the light switch came on.
    Your book may not do it for everyone. Probably only 5% of people.
    Just because it worked for you, doesn’t mean ot will work for others.
    There are great ways out there to clear your nlock, your limiting beliefs.

    Alan Bennett
    Amway distributor and success advocate

    • Thank Alan for your objective analysis. My book actually focus on building wealth through business. Of course success mentality is very important and like you pointed, one can make money in all the quadrant but the different is that you can not build passive income in all the business quadrant.

      My book will not do magic for anyone unless the person apply the information in it.

    • Thank Alan for your objective analysis. My book actually focus on building wealth through business. Of course success mentality is very important and like you pointed out, someone can make money in all the quadrants but the different is that you can not build passive income in all the business quadrants.

      My book will not do magic for anyone unless the person apply the information in it.