WHY PEOPLE CHOOSE SECURITY OVER FREEDOM

Why we seek job security over freedom? Because we taught in such a way at school as well as at home. Our mindset has to get developed in a similar way where we seek security first. So, E & S quadrant people are motivated by security whereas B & I quadrant people are motivated by freedom.

Similar to the debt trap, there is a very interesting success trap. When B quadrant person gets success, they expand their system, then hire new talent, they work hard. B quadrant person also invests and when it meets succeed, they reinvest it. So that as time passes, they attract more success and which results in the freedom of time. They have time for family, for their hobby, etc.

Financial intelligence does not mean by how much money we make but it’s how much money we keep and that work for us. Also, money keeps working for how many of our generations.

Rather than this, what middle-class people do it. They work hard for a paycheck then they make a plan to save tax, take a home loan to write off interest to save tax. So, they again work hard to pay bills. When people get a job with a high paycheck and benefits, they work hard more to pay bills and increase more liabilities which increases more bills. They jump from one job to other to get a higher amount of paycheck with job security.

S quadrant is the riskiest and needed huge efforts. As they have to do it by themselves so for achieving success and keeping it, they have to work harder.

Many of the E quadrant people start a business by deploying their lifelong savings, borrowing from friend’s family to start a business. And after 2-3 years when the business starts generating cash flow then they have to pay debt first. ~99% of the business getting disappeared in the first 10 years of establishment.

B and I quadrant person also legally take tax advantages compared to the E and S quadrant person. Most people do not focus on the asset column to generate more income but they focus on income and increase in liabilities. Knowledge is a power which used by B and I quadrant people to grab opportunities when it arises. This also gives them confidence. So, if we are into an E quadrant and simultaneously learn about the I quadrant then it will help us to get financially free, also make us confident. Few people are good with both the side of a quadrant, they get a good paycheck, security as an employee and also invest to create more wealth. People those do not have investment knowledge, then they tend to park money in FD or other deposit which is good compare to people who do not save or invest. But this investment does not help us to fight against inflation. If we rely on our employers that they will make us rich then it’s not to be their responsibility. Their responsibility is to provide a steady paycheck to us. It’s our responsibility to create investment to become rich. When we have an abundance of money and time then we directly jump to the I quadrant. But if we do not have time and money then we have to follow the safer path.

Investing is also an investment into the business so it’s advisable to understand businesses. Investing is capital and knowledge-intensive so we have to ready with both for being successful in it.

Read for more detail: Rich Dad’s Cashflow Quadrant: Guide to Financial Freedom

I am grateful to Mr.Meihol Jhaveri (Founder of Gatisofttech) for development of Lucky Idiot website.

Different Quadrants, Different People

People of different quadrants have fear, doubts, beliefs, strengths, and weaknesses, but all people respond to them differently.

We all have acquired technical skills but we have to learn emotional abilities as well. Also, when we faced difficulties then how we respond to them, will decide our future. When we face difficulties then either we go back to our comfortable quadrant or face it and choose to be free. This ability is much needed to become successful in our life.

Even though we’re all human beings. when it comes to money and the emotions attached to money, we all respond differently. And it’s how we respond to those emotions that often determines from which quadrant we choose to generate our income.

Changing quadrants is often a change at the core of who you are—how you think and how you look at the world. The change is easier for some people than for others simply because some people welcome change and others fight it. And changing quadrants is most often a life-changing experience.

When we belong from the E quadrant then we talk about safety, security, good paycheck, etc. E quadrant people prefer to get a certainty, extra benefits. They have security is more important rather than money.

S talks about their commission on an hourly basis or percentage of the entire project etc. These people prefer to be their boss, like to do their work, like independent rather than money. In many respects, they are true artists with their style and methods of doing things.

B quadrant people talk about hiring new talent, new president etc. for business. They are the opposite of S; they hire people rather than do work themselves. They like to delegate works; they keep thinking to produce better growth. Business requires leadership skills that help us to bring out the best from people.

And I quadrant people talk about the rate of return, risk-adjusted return etc. For the understanding core of the people, we need to be a listener. This helps us to understand the core of people and we can lead them.

People think that they only get financial security by establishing a business. So, for that many starts from Employees to self-employed and then transfer to business. Many from self-employed to business. And many employees to business but not all can achieve success because each quadrant requires a different type of human and mental skills. When S goes for a B then first has to learn to prepare the system and hire competent staff. As he as a system in S quadrant.

When people try to shift from E or S quadrant to the B quadrant then they have such thoughts in the mind. The people who try to shift from E or S to B then they think to have a better product or services compared to XYZ but the B quadrant requires a better system.

I quadrant is the last quadrant where we can able to convert our money to wealth.

For creating wealth, we require Other People’s Time and Other People’s Money. So, E and S quadrant people are other people and B and I use their time & money to creating wealth.

When we compared the cash flow of rich person and middle class than rich have the majority of ~80% income from investment and ~20% as wages. Whereas the middle class have reversed to it, their ~80% of income comes as wages or commission and ~20% from investment. And for becoming wealthy, we need to get passive cash flow from different assets.

The definition of wealth is the number of days you can survive without physically working (or anyone else in your household physically working) and still maintain your standard of living.

When we do not focus on this part then when we have an extra income, we buy liability from it and liabilities will result in the expense. This is a wrong practice. We also make some wrong practice of making an investment which generates income after completion of our working years. We need to focus on making an investment that generates income during our working years and help us to becomes Financially free.

People avoid investment due to risk but there are possibilities to earn a decent return by lowering risk. We have to learn it. Those who want a safe return, avoid taking a risk but rather to avoid taking a risk, we need to learn to manage it. When we able to learn such skills then the “I” quadrant always welcome us.

Read for more detail: Rich Dad’s Cashflow Quadrant: Guide to Financial Freedom

I am grateful to Mr.Meihol Jhaveri (Founder of Gatisofttech) for development of Lucky Idiot website.

07 – THE PENDULUM OF INVESTOR PSYCHOLOGY – MASTERING THE MARKET CYCLE

Psychology/emotions affect corporate profits and investment cycles as well. We have seen the pendulum swings in both the extreme and investment world also moves in the same way.

Between euphoria and depression, between celebrating positive developments and obsessing over negatives, and thus between being overpriced and underpriced.

And few other observations of the pendulum – between greed and fear, between optimism and pessimism, between risk tolerance and risk aversion, between credence and scepticism, between faith in value in the future and insistence of concrete value in the present, and between the urgency to buy and panic to sell.

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Above is average return but what about good and bad cycle?

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When people feel good about the investment, Optimistic about it then they are in the greed and buy more which resulted in the increase of assets prices. On the other hand, when they do not feel good about the investment, pessimistic about it then sell their assets which reduces the prices of assets. Sometimes market plays between a range where greed and fear both having a stronghold.

When investors do not feel fear then prices of assets keep on raising up. Similarly happens during the tech boom 1999-2000, subprime in 2003-2007 and current scenario.

Somehow the greed evaporated and fear took over. “Buy before you miss out” was replaced by “Sell before it goes to zero.” When greed is high then people find for next Infosys, top-performing private sector banks but when fear is higher than seeing each as a next Yes bank, DHFL.

Other factors such as euphoria and depression are an extension of greed and fear. Continuing greed translated into the euphoria and fear into the depression.

When prices of assets raise then people believe in any stories prevailing in the market but reversely when prices falling then cheap assets does not get the attention of investors.

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Superior investors are wise enough and they buy assets when it available at the discount from intrinsic value and there will be a potential to increase in intrinsic value.

For making such investment decisions, they need to keep a balance between greed and fear. Very few investors remain cool and unemotional to stay at the midpoint of fear & greed. Else, the majority of people remains greedy when everyone is optimistic and fearful when everyone is pessimistic. The pendulum moves from one extreme to the other and remains quiet for midpoint. For becoming a superior investor, we need to be unemotional to such swings. Emotional people will require a great deal of self-awareness and self-restraint for becoming a successful investor.

People generally remains biased with their emotions to reach any conclusion.

INTEREST RATE CUTS: DOES IT PROVIDE LONG-TERM BENEFITS?

Many times, it has been noticed that news over both extreme – positive and negative but market keep on rising.

So that, Interpretation of the data has importance. During the depression time, positive news getting ignored and negative news only getting rewarded. Reversely, during the euphoric situation, negative news getting ignored and positive news only getting rewarded. Saving ourselves from such traps results in the superior investment returns and long-term survival of our wealth.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

Read for more detail: Mastering The Market Cycle: Getting the odds on your side by Mr.Howard Marks

03 – THE REGULARITY OF CYCLES – Mastering The Market Cycle

The world is full of randomness and people behave differently at different times so that it is difficult to predict the exact future. If we study the science and mathematics cycles then those have predictable sets of rules and moves in a regular way. But economics, companies, and participants are relying on the psychological influences so that they do not behave in a regular way. When emotions have an involvement then things become more difficult to predict.

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So that Greed and Fear of the investors remain regular in every cycle. This affects the prices of the assets.

As per the Cambridge dictionary, the definition of cycle “a group of events that happen in a particular order, one following the other, and are often repeated.”

We can see that many factors affect the occurrence of the events and that makes it difficult to predict the exact for the future. Current global scenario, we have an ample number of factors that can affect the cycle such as crude, the decision of the USA, domestic economic conditions, etc.

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Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation. 

Read for more detail: Mastering The Market Cycle: Getting the odds on your side by Mr.Howard Marks

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