The wealthiest individuals in the world typically own B quadrant businesses. Unlike the S quadrant where a plumber, for example, might own and work in his own plumbing business, a B quadrant business owner might create a plumbing company and hire 500 or more plumbers, administrators, managers, and other staff to run the systems in the company. The systems and employees who work for the business can run successfully without the business owner’s daily involvement. In this quadrant, the business often has 500 or more employees. Those in the B quadrant own a business system and they lead other people. Please seek professional, licensed tax advice from a CPA for more information. Below is a simple illustration for educational purposes only. Additionally, an S quadrant individual often earns more income compared to an employee and therefore can be in a higher tax bracket. Kiyosaki points out that the reason why most S quadrant workers pay the highest taxes, around 60% of their income (as shown in the diagram above) is that Social Security and Medicare Taxes are paid 100% by the self-employed individual (they are not split by the employer as is the case with an employee). Over time, this can lead to burn out and fatigue as I also experienced first-hand in 2015 when I was actively investing in real estate with fix and flips and vacation rentals. As a result, success usually means working harder and working longer hours. Self-employed workers have more control compared to an employee, but more often than not, they also have more responsibility. It is possible as a self-employed individual to earn a large income, but like an employee in the E quadrant, when they stop working, so does their income. A self-employed individual still exchanges time for money, but they “own” their job.Ĭommon examples of the S quadrant workers include dentists, doctors, insurance agents, realtors, handymen, among many other skilled trades.

Many employees eventually get tired of the lack of control over their pay and schedule and choose to work for themselves instead. Medicare Tax Rate: 1.45% (half paid by the employer) Social Security Tax Rate: 6.2% (half paid by the employer) You can’t, for example, deduct the expense of your personal car from your taxable income. Kiyosaki points out that the reason as to why most E quadrant workers pay around 40% of their income in taxes (as shown in the diagram above) is simply because most personal expenses aren’t deductible.

An employee’s financial freedom is dependent upon the success of the employer and the ability to show up to work and exchange time for money. The lack of control over income is a serious consideration of the E quadrant and something I became intimately aware of when I worked in the oil industry and layoffs began to occur around 2015. The employee exchanges his or her time, energy, and skills to an employer in exchange for a paycheck and often other benefits such as healthcare coverage and/or a retirement account match.Įmployees can make a little or a lot of money, but when an employee stops working, or if the business goes under, the income stops. The job itself is owned by a business, which could be a single person or a large corporation. This is the quadrant where most people earn their income. Let’s Explore Each of The Four Quadrants: E – EmployeeĪn employee earns income via a job. If you haven’t checked out this book, it’s a worthwhile read. The majority of the Cashflow Quadrant book is about the unique skills and mindsets required to succeed on this path. The two quadrants on the right side (B and I) are the primary paths to financial freedom. There are advantages and disadvantages to each quadrant. Some people earn money in only one of the quadrants, while some earn money in multiple quadrants. As you can see in the diagram above, each quadrant (E, S, B and I) represents a different way to generate income.

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