Cashflow Quadrant
As you can see on the diagram it consists of four boxes. E – Employee This is where most people are. They are employed by an organization or company and you are trading your time for money. If you want to make more money you have to spend more time working. Sure you can get a higher salary or find a better job, but the money does not scale. You only earn money when you work, if you get sick, go on a vacation or go into retirement your cashflow typically stop. S – Self employed This is where a lot of people start out. You work by yourself but also for yourself. Freelancers typically belong to this category. While you have more freedom and can typically charge more, there is still the issue that if you don’t work you don’t earn any money. It is typically the first step for people because you can continue to do what you did as as employee but at a higher salary and with a better boss B – Business owner Business owners own a system and typically have people working for him/her. It is no longer your hours that bring you income, but a system that you have setup. This could be selling other’s hours or selling a product. If you have built a good system, then it will run even if you get sick or decide to take a mini-retirement for six months. I – Investor
This is where investors are. Just like the Business owner they do not get paid by the hour, but have money working for them. This can be investment in any kind of assets like real estate, stocks, businesses etc. Often you see people move to this category when they have made money as business owner.