What the Cashflow Quadrant Can Teach Us About Environmental Responsibility

How to make an accurate Cash Flow Forecast

 

There’s no shortage of books in the market that claim to teach financial discipline. However, more often than not these books tend to contain a lot of fluff and little information that’s useful. Some authors and the books they’ve written have reached cult status largely due to the concepts expounded within. Robert Kiyosaki is one such author. Known far and wide for his best-selling book Rich Dad Poor Dad, Kiyosaki later penned what has come to be known as the “sequel” to this book, Cashflow Quadrant.

Kiyosaki’s book reveals how some people can work less than their peers while making more money and having to pay fewer taxes. Setting themselves up like this helps them become financially free.

But how do you maintain financial freedom and stability while also adhering to your own sense of environmental ethics? We’ll try to answer that question.

What is the cashflow quadrant?

The Cashflow Quadrant consists of the four approaches Kiyosaki describes for building wealth. It highlights how people find themselves in one of the four quadrants and how they can go about becoming a part of the quadrant that presents the best possible path to financial freedom.

In simple terms, the Cashflow Quadrant is the explanation of the various methods that can be used to generate income. People require different levels of technical skill and knowledge to generate income from each of these different paths.

People don’t have to earn money in only one quadrant. Instead, Kiyosaki contends that most people only make money in one quadrant, while others earn money in all four. Some may even be able to achieve financial freedom by making money in the one quadrant that’s really in a league of its own.

What are the four quadrants?

ESBI is how Kiyosaki describes the four quadrants that make up his system. E (Employee) is the quadrant in which the vast majority of people find themselves. They have a paying job but no control over their salary. 

They’re only going to receive a set paycheck at the end of every month. This means that the person’s income remains capped until they receive an increment or a raise, and thereafter, their income is capped again at the new, higher level.

The S (Self-employed) quadrant refers to those that run their businesses. These include freelancers and even small businesses that may have a few employees on the payroll. While self-employment may seem like the dream to some people, it’s not the simplest path to financial freedom. 

Such a business is entirely dependent on the business owner’s time. If they stop investing time in the business and aren’t able to dedicate much attention to it, their income from that business is likely going to end fairly quickly.

B (Business owner) is one of the two quadrants that Kiyosaki highlights as having the potential to provide you with the opportunity to obtain financial freedom. You’ll find entrepreneurs in this quadrant, people who create products and design systems with detailed processes handled by qualified people to make profits.

The primary difference between the S and B quadrants is that the owner doesn’t necessarily have to be there in the latter. They would have created a well-oiled machine that’s capable of growing further even when the business owner isn’t present. However, a self-employed person will need to continuously invest their time in the business to generate income.

Lastly, the I (Investor) quadrant is an explanation of how the rich get richer. It’s a measure of passive income, in that it’s income that doesn’t require you to actively work. In this situation, it’s your money that’s doing the work for you. 

This could either be through royalty payments on good investments, cashflow-generating assets, and even investment products like stocks and bonds.

How to use these quadrants to make sound financial decisions

These quadrants help break down otherwise complex concepts into four easy-to-understand sections. It becomes evident even from a glance what people who seek financial independence need to do. 

For some, this is nothing short of an epiphany. They begin to see what they’ve been doing wrong all their lives and make the required adjustments to achieve their own goal. 

Whether that’s a push they needed to leave the comfort of a salaried job to start something of their own or the realization that self-employment isn’t necessarily the best option for their financial goals, people can utilize these quadrants to make sound financial decisions.

Active vs. passive income

Active income is the money generated through the performance of a service. Examples of active income include salaries, commissions, tips, hourly wages. It’s the income that you actively have to work for as the money would stop coming in as soon as you stop working.

Passive income is the complete opposite. It’s income from investments or any work done in the past that continues to pay dividends, so to speak. Passive income runs on autopilot almost, bringing in a regular stream of income without requiring any active work. 

Many people consider passive income as the holy grail of making a living. After all, it’s essentially a way for you to earn money while you’re asleep. 

However, that doesn’t diminish the importance of active income. People need to build enough resources to fully take advantage of passive income. Without such resources, it’s difficult to get your money to make you more money.

How the cashflow quadrants reveal the basics of income inequality

If anything, the Cashflow quadrants reveal how the rich can keep getting richer. They rely heavily on passive income to grow their assets and maintain healthy cash flow for their needs and wants. The rich don’t need to hold down a job that pays the minimum hourly wait. 

They don’t have to wait for decades before they’re in a stable enough position financially to be able to invest in something that helps them make money from the money that they’ve invested. 

This isn’t a limitation that the rich have. They can own multiple cashflow-generating assets in a heartbeat. The amount of money that they can make grows exponentially in line with the growth in their assets.

Is the cashflow quadrant system compatible with environmental responsibility?

The Cashflow quadrant system already nudges you to think with an open mind, to be open to the positions and arguments of both sides. 

This change in mindset that it promotes helps a lot of people ponder over the impact of some of the most minor tasks they do and their ways to ensure environmental responsibility. The quadrant system is compatible with environmental responsibility as it encourages mindfulness in their activities. 

How to save money and save the planet

Aspiration is a great option for those who are looking to both save money and the future of our planet. What’s great about Aspiration is the fact that it’s 100% committed to clean money. It doesn’t use any of its customer’s deposits to fund fossil fuel projects like oil pipelines, coal mining, etc that actively damage our environment.

Many people are surprised to learn that the four biggest banks in the United States lend out more than $240 billion of their customers’ money to fossil fuel projects every year. Aspiration works with leading reforestation partners across the globe to plant a climate change-fighting tree with every purchase that customers make by rounding it up to the nearest dollar.

Customers who opt for the Aspiration Plus account can also offset their carbon footprint. Aspiration will automatically offset the carbon dioxide from every gallon of gas that they purchase.

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