Skip to content

Money 3: Creating Wealth

    creating wealth

    Creating wealth requires the financial intelligence gleaned from curiosity and a willingness to explore new ideas about money.

    When I was growing up it was considered impolite to talk about money, so we didn’t.

    And because I’m a girl, growing up in the fifties and sixties, the assumption was that I didn’t need to know about money because I would marry and my husband would take care of it.

    School didn’t offer any financial education either, other than learning basic math.

    I remember, when I was about 11 or 12, my Mom taking me to open a bank account, then showing me how to use my little bank book for deposits and withdrawals and later, how to write a cheque. But other than that, my knowledge of managing money was non-existent.

    My parents, it turns out, were very good with money, probably because they had learned from their parents who survived the Great Depression. They knew how to curb spending, save money and eventually, how to make wise investments.

    In other words, all the skills you need to become, if not wealthy, then at least financially secure.

    Sadly, for a number of cultural and personal reasons, they didn’t pass that valuable knowledge on to me. So money remained a mystery to me well into my adult years.

    As it happens though, this has been a blessing because it forced me to seek out the best sources I could find to develop my understanding of money.

    Developing Your Financial Intelligence

    I’ve since read many books on money and business, but I believe that Robert Kiyosaki’s  Cashflow Quadrant: Rich Dad’s Guide to Financial Freedom was the real entree to my financial education.

    I had already been inspired by Kiyosaki’s first book, Rich Dad Poor Dad: What The Rich Teach Their Kids About Money – That The Poor And Middle Class Do Not!, but Cashflow really kickstarted my engines.

    I saw my world through a new lens. I began paying attention to different things and I started acting very differently with money.

    I’ve read (and listened to) this book a dozen or so times and I learn something new each time. It’s definitely not a read-once kind of book.

    I recommend both of these books to anyone who genuinely wants to develop their financial intelligence.

    Here are the highlights of what I learned from Cashlow.

    My Book Notes

    The Fundamentals

    I think you’ll agree that creating wealth requires that we consistently generate more income than we spend. And in our current money paradigm, there are essentially 4 routes we can take to generate income.

    In Cashflow Quadrant, Kiyosaki illustrates these 4 revenue pathways with a simple, yet brilliant meme that his ‘Rich Dad’ taught him.

    cashflow quadrant

    Each quadrant represents a way of generating income, and the motivations, beliefs, behaviours and skills required for success in that quadrant.

    Cashflow Quadrant Meme

    The 4 quadrants are:

    • E – Employee
    • S – Self Employed or Specialist
    • B – Business Owner
    • I – Investor

    Each of us draws our income from one or more of these quadrants, but we tend to be attracted to the quadrant that most reflects our motivations, our beliefs, our education and our skills.

    We can generate income in all 4 quadrants, and we can be rich or poor in any of the 4. The quadrant itself doesn’t guarantee wealth, but you’ll see that the quadrants on the right side facilitate wealth while the quadrants on the left, thwart it.

    Changing the quadrants you draw income from will require that you allow a paradigm shift in your thoughts and actions, and you be diligent and have patience through your learning curve.

    Here are the quadrants.



    Income Type – Transactional

    Es generate their income by working for someone else. They have a job and get paid either an hourly rate or a monthly salary.

    They can be employed at either end of the pay scale – a CEO or a janitor – as both have a contractual arrangement with an employer.

    What motivates Es

    People in this quadrant are motivated by security. For them, security is more important than wealth or freedom. They want a good job with benefits and a regular paycheque.

    Given the choice between taking the risks involved in an entrepreneurial endeavour that could net them a huge return, and a regular and reliable paycheque, they will choose the latter.

    E Beliefs

    Es believe that if they go to school and find a good job with good benefits, they’ll have “job security” and be set for life.

    Many Es count on a pension in their retirement years, although some will also put money into savings, or invest in mutual funds.

    E Behaviour

    Es trade time for money. Their employer determines what they do, how much their effort is worth and how much time they have for vacation.

    They work whatever hours the job requires, and sometimes more than required whenever it’s a very competitive job market. Es have to keep proving that they are worth more than their cost to their employer in order to keep their job.

    Usually there is a financial ceiling for Es, especially in a union environment.


    • A regular paycheque
    • Health & dental benefits (sometimes)
    • Pension fund (sometimes)



    • Es are the most highly taxed of the 4 quadrants
    • The government takes tax directly off their paycheque before they get paid.
    • Taxes from this quadrant are largely responsible for paying for our infrastructure and government programs.

    Trading time for money

    • Because Es trade time for money, if they get sick and can’t work, they’re in trouble. Even if they have health benefits, their coverage is finite.
    • If they’re on salary, they’re being paid a flat rate, no matter how many hours they work. In today’s market most companies have to “do more with less” so many employees end up with additional responsibilities but no pay increase.

    No real security

    • Because the employee is the only one responsible for their income, if they lose their job or their employer goes out of business, they’re in trouble.

    Barriers to wealth

    Even at the upper end of the pay scale, there is very little chance of creating wealth in this quadrant because there’s usually very little disposable income left after tax to save or invest.

    One reason this is the case is that often with an increase in income, there’s an increase in expenses (usually for liabilities). If you’re the CEO, there is an expectation that you’ll have the right house, car, boat, cottage, golf membership etc. You could be broke, but you have to keep up appearances.

    In the E quadrant, the only way to generate wealth is to also be drawing income from other quadrants.

    Interesting Side Note
    In Money Is My Friend, Phil Laut describes a study that showed that the people who were most unhappy in their job, tended to be the biggest consumers because they had to reward themselves every payday.

    self employed


    Income Type – Transactional

    This quadrant includes anyone who works for themselves.

    Some examples:

    • professionals (doctors, lawyers, accountants, dentists…)
    • contractors
    • consultants
    • creatives
    • healers
    • solopreneurs

    It also includes small businesses with a few employees. The distinctive feature being that the owner of the business has to be present for the business to deliver its product or service.

    What motivates Ss

    Ss are motivated by independence and social esteem. They want to make their own rules, and they want to be acknowledged for their accomplishments.

    S Beliefs

    Ss usually have an emotional connection between their work and their identity.

    They also believe that money and effort are linked. If they work hard, they expect to be paid well. Conversely, if they don’t work hard, they believe they don’t deserve to be paid well.

    S Behaviour

    Ss don’t like having their monetary worth decided by someone else. They set their own rates.

    They prefer to keep their earnings and pay their taxes at the end of the year, and take advantage of the tax deductions which aren’t available to Es.

    This quadrant tends to house the perfectionists and controllers. “If you want it done right, do it yourself” is a familiar refrain. This mindset makes delegation challenging for Ss.

    Hiring can also be challenging because Ss fear sharing their trade secrets and training their potential future competition. Understandable as their livelihood is solely dependent on them.

    Ss often invest in further training and education to increase their skill and credibility. They tend to work long hours and wear many hats in their businesses.

    They must consistently generate more transactions to increase their revenue, but they can only increase them so much because there are only so many hours in a day.

    This means that greater success for an S means more work and longer hours.


    • You are your own boss; you decide your hours, your tasks and your worth
    • You can take pride in your work



    Ss are the 2nd highest taxed, and tax advantages come and go depending on current government policies.

    Unreliable income

    • Transactional income means no transaction – no income
    • Ss alone are responsible for their income, which means if they get sick and can’t generate more work, they’re in trouble.
    • Their income is capped by the number of hours they can work.

    Barriers to wealth

    Because an S’s business is solely dependent on them generating more transactions, they are tied to it. Their business can’t function without them.

    And the link between transactions and work load often creates an unconscious psychological barrier to success. How many hours can you work without negative consequences?

    T. Harv Ekker, creator of the Millionaire Mind Intensive Seminar says, “If you’re the major cog in the wheel, you’re the major clog in the wheel.”

    business owner


    Income Type – Residual and Passive

    Kiyosaki describes the Bs as owners of large businesses with 500 or more employees.

    But I believe times have changed significantly since he wrote his book and now there are more and more hugely successful businesses, especially in the digital space, with less than 10 employees.

    So I’m refining his definition to include anyone who owns an “automated business system.” In other words, a business that can run without them.

    What motivates Bs

    Bs are motivated by achievement. They like solving big problems and building big things.

    But they also want freedom. They want to build a system that will run without them, so they get paid over and over again for work they did once. This is called residual income.

    B Beliefs

    Unlike the SsBs love to delegate. They would rather hire a team of people who are smarter than them, to work for them.

    “Why do it yourself, when you can hire someone who can do it better?”

    Bs believe in the power of LEVERAGE. Leverage is using other people’s time, money, effort and ideas.

    For example: When Ray Croc started the McDonalds chain, he didn’t invent the hamburger, he didn’t flip a million burgers and he didn’t use his own money to start the franchise. He used other people’s idea, other people’s effort and other people’s money to create what is considered to be one of the most successful business systems.

    B Behaviour

    Bs focus on developing specific business and financial skills including;

    • Understanding financial reports
    • Developing marketing and sales strategies
    • Creating production processes
    • Managing people and operations
    • Negotiating with stakeholders
    • Generating a long term vision

    Bs create systems that can be easily duplicated, which allow a business to “scale” or easily multiply its processes and thus its profit.

    Bs are willing to take calculated risks, and “fail” in order to gain experience.

    They look for the right management team to run their business.

    Bs are largely responsible for building our infrastructures (material and digital), and for job creation.


    • There are big tax advantages for Bs.
    • They own their time because their system can run without them.
    • They get paid multiple times for their initial effort. (Such as licensing their intellectual property)
    • If their business grows, they just have to expand the system and hire more people.
    • Lots of people are responsible for their income.


    • In traditional businesses, there is a high failure rate, usually due to lack of business education and/or resources.
    • Some business models require a big investment to get started. This creates a “barrier to entry” to those without access to long term savings, inheritance or venture capital.
    • To be successful requires a willingness to invest time, money and effort to develop financial and business literacy.
    • Creativity, time and effort (often unpaid) are also needed initially to build a self-sustaining system.

    A Word on Our Perception of Big Corp

    There is a growing negative perception of “the corporation” and sadly, too often it’s legitimate.

    The archetype of the big business magnate, who focuses only on creating obscene profits for shareholders without a care for his employees or the global environment is often the focus of our media coverage. And rightly so.

    I believe the current model of “shareholder capitalism” where focusing on keeping shareholders happy trumps community responsibility and the ethical treatment of employees is a broken one.

    But the core idea of creating business systems that can run by themselves AND deliver quality products and services WHILE protecting the environment AND treating employees appropriately is a viable one.

    We CAN build these kinds of systems if we focus on the fundamental principles while holding on to our moral and ethical standards. There are examples of these kinds of businesses, we just have to look for them, then reward them with our patronage.

    In our digital age becoming a B is easier than in the past. Without a huge financial investment, it’s possible to create an effective and lucrative business system by creating something (intellectual property), then selling it online, over and over again (creating residual income).

    (More on intellectual property business systems in a future post.)



    Income Type – Passive

    • Investors generate their income from investments.
    • They are the stewards of money.
    • They are highly influential in our lives – often more than we are aware.

    HINT: If you really want to change the world in a big way, this is who you need to be.

    What motivates Is

    Is are motivated by freedom: Time and money freedom.

    They often have big “WHYs” and want resources to support their philanthropic goals.

    I Beliefs

    Is believe money should work for you, rather than you working for money.

    I Behaviour

    Is develop their financial literacy. They take calculated risks and learn from their mistakes.

    Often they share their expertise with others through mentorship, teaching or writing.

    They often fund major projects. They are the philanthropists who support our non-profits, or they may be angel investors in business start-ups.

    They focus on buying assets that will pay them, so they can buy more assets that will pay them, creating what is called passive income.

    Passive Income

    Passive income is when your revenue exceeds your expenses month after month, year after year. This is also known as “making money while you sleep.”

    If Is are “self-made” (i.e. not rich by inheritance or winning the lottery), they will often start as Bs who use residual income vehicles (like businesses) to create passive income, while they develop their skills as investors.


    • They own their time
    • They are paid whether they work or not
    • They are the least taxed
    • Their wealth allows them to contribute much to the greater good.


    • They must develop their financial literacy skills
    • They have to be willing to take risks and embrace failure
    • It takes time, money, persistence and self discipline to be successful in this quadrant.

    Access to Wealth

    This is the quadrant where money is converted to real wealth. Instead of accumulating liabilities, Is accumulate assets that produce cash flow.

    Ideally we’d all like to live in the I quadrant.

    And no matter which quadrant you’re currently drawing income from, you should be investing in this quadrant. Even if, at first, that investment is taking time to further your financial education.

    To be a successful I, you’re going to need to change how you think and act around money. How you generate it and how you spend it. Even if you inherit money or win the lottery, you still need to learn how to think like an if you’re going to create sustainable wealth.

    I love this quote from Les Brown:

    You must be willing to do the things today that others won’t do
    in order to have the things tomorrow that others won’t have.

    In other words, if you’re ever going to have real financial freedom, and have the resources to make the kind of difference that you’re here to make, you’re going to have to shift from the E and S mindset, to the B and I mindset.

    What about you?

    I’d love to hear your thoughts. Which quadrant(s) are you generating income in now? Is it working for you? Which quadrant(s) would you like to explore? How will you do that?

    Read the previous posts in this series:

    Coming soon: The final post in this series… Money 4: Business Models

    Leave a Reply

    Your email address will not be published. Required fields are marked *

    eighteen + six =