{"id":55308,"date":"2021-12-11T16:24:00","date_gmt":"2021-12-11T20:24:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=55308"},"modified":"2021-12-20T11:52:03","modified_gmt":"2021-12-20T15:52:03","slug":"esbi-quadrant","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/esbi-quadrant\/","title":{"rendered":"Robert Kiyosaki’s ESBI Quadrant Explained"},"content":{"rendered":"\n

What does the ESBI quadrant represent? What does each letter stand for? Can you be in more than one income quadrant<\/a> simultaneously? <\/p>\n\n\n\n

Robert Kiyosaki’s ESBI quadrant represents four ways of generating income: E (as an employee), S (as a self-employed or a small-business owner), B (as a big-business owner), and I (as an investor). The way you generate income defines your quadrant, not what you do to earn it. You can, and in many cases should, generate income in multiple categories.\u00a0<\/p>\n\n\n\n

Keep reading to learn about the key characteristics of each quadrant. <\/p>\n\n\n\n\n\n\n\n

Robert Kiyosaki: ESBI Quadrant Explained<\/h2>\n\n\n\n

Most people believe that the key to wealth<\/a> is getting a \u201cgood,\u201d high-paying job. But according to Kiyosaki, the type of income<\/em> you generate is more important than the type of work <\/em>you do. <\/strong>His ESBI quadrant represents the four types of income<\/a>: <\/p>\n\n\n\n

  1. Employees (E)<\/li>
  2. The self-employed and small business owners (S)<\/li>
  3. Big business owners (B)<\/li>
  4. Investors (I)<\/li><\/ol>\n\n\n\n

    According to Kiyosaki, the first two income categories, employees (E) and the self-employed and small business owners (S), are usually dead-ends on the road to wealth. The other two categories, big business owners (B) and investors (I), are the most conducive to accumulating wealth because those are the categories in which you can develop passive income in the form of assets<\/strong>. <\/p>\n\n\n\n

    The E and S Categories: The Traditional Path<\/strong><\/h3>\n\n\n\n

    Traditional wisdom tells us to go to college to get a stable \u201cgood job\u201d that will pay enough for a comfortable life and provide retirement benefits. That job is usually in the E<\/strong>mployee (E) or S<\/strong>elf-employed (S) category. <\/p>\n\n\n\n

    In the E category, employees generate income by agreeing to do work in exchange for a salary.<\/strong> They have a boss and a paycheck. Kiyosaki says employees choose the E category because they value security and certainty. Traditional thinking says E category jobs are stable because they offer steady income and a clear job description<\/a>. But there are downsides\u2014Kiyosaki says the biggest disadvantage of an E category job is lack of control over your own work.<\/p>\n\n\n\n

    (Shortform note: While Kiyosaki is quick to point out the downsides of being an employee, many people seek out E category jobs because they enjoy work<\/a> they can only<\/em> do in the E category. Professors, researchers, chefs, and teachers, for example, all make a salary and often attract people interested in the particular kind of work offered in the E category.) <\/p>\n\n\n\n

    In the S category, small business owners and the self employed <\/strong>are <\/em><\/strong>their business. <\/strong>They are their own boss, and they can also be the boss of other people, but without their labor, expertise, and management, their businesses can\u2019t run. Their income is the profit from their business. <\/strong>Kiyosaki says people choose the S category because they value security and excellence in their work. According to Kiyosaki, people in the S category see it as the most stable way to generate income because they have the most control. The biggest disadvantage to trying to make a living in the S category is that most small businesses fail. <\/p>\n\n\n\n

    (Shortform note: Kiyosaki doesn\u2019t mention that one of the biggest dangers of self-employment or owning a small business is not being able to fully plan for the amount of money you\u2019ll make within a given period<\/a>. E category workers are subject to job insecurity, like a round of layoffs because of trouble at the company or an economic downturn, but an S category worker\u2019s job is also inherently at least a little insecure because they are not in a long-term contract with an employer.) <\/p>\n\n\n\n

    Kiyosaki notes that in the E and S categories, the harder you work, the more you have to work. <\/strong>As you work hard and become more successful in the E and S categories, you gain responsibility, which translates to more work. Even though your pay may jump, you\u2019ll have less time to enjoy yourself spending it. <\/p>\n\n\n\n

    While these categories offered security in the 20th century, Kiyosaki argues that changes in the economy mean that they\u2019re anything but secure in the 21st century. Kiyosaki lists five reasons the E and S category job trajectory no longer provides the \u201cgood jobs\u201d of the past and is instead now a trap for job dependency. <\/strong><\/p>\n\n\n\n

    The B and I Categories: The Way to Wealth <\/strong><\/h3>\n\n\n\n

    Kiyosaki says that while lower-, middle-, and even upper-middle-class parents teach their kids the out-of-date financial path we just outlined, rich parents teach their kids the income generation strategy of the B<\/strong>usiness owner (B) and I<\/strong>nvestor (I) categories. <\/p>\n\n\n\n

    While in the E and S categories you generate income in exchange for the work you do<\/em>, in the B and I categories income comes primarily from <\/strong>assets you own. <\/em><\/strong>According to Kiyosaki, this is the surer path to financial freedom.<\/strong><\/p>\n\n\n\n

    People in the B category control not only a business, but a business system<\/strong>. If they leave, the work still gets done. People in the B category own their business and generate income by its profit, though they no longer do the day-to-day labor of making it function. A B\u2019s income is the profit from their business, and their business is considered an asset. <\/strong>B\u2019s need to be skilled in delegation and leadership, as well as have a high degree of financial literacy<\/a>. <\/p>\n\n\n\n

    The B Category vs. the S Category<\/strong>

    The distinction between S\u2019s (small business owners) and B\u2019s (big business owners) is subtle, in part because B\u2019s often start off as S\u2019s. For example, when a tutor sells her expertise and teaching abilities, she is her own product and her own business, which puts her in the S category. However, when the tutor becomes the owner of a tutoring company, she owns the system <\/em>that finds and trains tutors, connects students to tutors, markets the service, and takes care of logistics. The tutoring company owner profits from the work and time of the E category tutors she hires. She\u2019s now in the B category.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

    In the I category, investors commit money (called capital) to something <\/em>and expect to make a profit. Beyond the initial investment, they don\u2019t have to work day to day like those in the other categories do. Instead, their livelihood comes in the form of assets that generate passive income.<\/strong> Examples of passive income include dividends from stocks, interest on bonds, and rental income. I\u2019s need to be comfortable with risk<\/strong>, since managing risk is the foundation of investing. <\/p>\n\n\n\n

    Kiyosaki says the best path to wealth is to make a significant amount of money in the B category and then use that capital as an investor in the I category. The kind of wealth that provides financial freedom is almost always generated in the I category, where it compounds without your labor. <\/strong><\/p>\n\n\n\n

    (Shortform note: You only need to generate B category-level capital in order to invest if you\u2019re aiming to be a capitalist. While Kiyosaki devotes a lot of space to advocating readers set their sight on that kind of wealth, you don\u2019t need to own a B-category business to invest at a smaller scale, even if you\u2019re aiming to \u201ccross over\u201d to living on passive income<\/a>. The central function of investing remains the same whether you\u2019re a high-flying B or a worker in the E or S categories investing for retirement<\/a>.) <\/p>\n\n\n\n

    The reason B and I income is a much surer bet for generating wealth than E and S income is, as we previewed, the fact that assets are the way to compound your money<\/a> without your labor<\/strong>. The income you generate from assets is called passive income<\/strong>. While in the E and S categories, your income minus your expenses and liabilities equals the money you have to live on, in the B and I categories, your income equals passive income from your ever-compounding assets minus your expenses and liabilities. <\/strong><\/p>\n\n\n\n

    Success in the B and I categories requires understanding a different kind of logic and adopting a different value system than the logic and value system of the E and S categories. In the B and I categories, you: <\/p>\n\n\n\n