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.

Why Don’t you Get a Job? – Cashflow Quadrant

With the continuation of the “Rich Dad, Poor Dad” series, I am hereby starting a series from the book “Cashflow Quadrant” which help us identify our core competencies and which area is suitable for us. And help us to achieve our financial freedom.   

The author explains that when he was homeless, unemployed with his wife and living in the car. Both of them did not get any job but they tried to do some work so that they get money at least for food and fuel their car. It’s always been important for such situations to have job security, steady paycheck. They were graduated and have a good skill set, but they have decided to achieve financial freedom so that they don’t have to work for the rest of their life. The author has achieved the initial part of freedom in the 4 years and remaining in the further five years.

We feel that we need money to make more money but we can see that author got financially free from being homeless once upon a time (Rags to Riches). Then we might have a question in our mind that what is needed to become financially free? The answer is – we require to have a dream, determination, willingness, skill to learn quickly, ability to use our skillsets.

Where we fall under the quadrant, that will identify the way cash flow comes to us.

We have seen in series of rich dad poor dad that – What our schools and poor dad teach us is to get good employment or self-employed. They don’t teach us to do investment. While rich dad advises us to go to school, graduate, build a business and become an investor. This book is for those who are E or S and want to achieve B and I. This is not an easy journey to shift from steady paycheck to volatile paycheck of B and I.

Different quadrant requires a different skillset, different psychological requirements. Employees and self-employed are low with risk-taking behaviour whereas B & I are known for their risk-taking behaviour. B & I require to have a vision (not a Vision from WandaVision 😉) that enhance their future success. 

For example – a doctor can be work at a private hospital as an employee or start a private practice as self-employed or open a clinic & hire other doctors as an employee to become a business owner or make an investment in other businesses.

We can become a millionaire or go broken in any of the quadrants, no quadrant gives grantee of financial freedom. Many of us show off due to social fear that money is not at all important for them. But we are working a whole life for the money and then showing off that it’s not important then it’s a wrong thing to do.

Rich dad believed that life is more important than money, but money is important for supporting life. For doing many things in life, we require money. We cannot buy happiness through money but what we need to make us happy is bought through money so that money is important. The major thing upon this all is we have to learn that money work for us, rather we work for money.

For knowing which quadrant suitable for us, we need to work in all four quadrants. These help us to know our temperament, likes, dislikes, strengths, and weaknesses. So that we can choose our suitable quadrant.

If we try to understand that financial freedom is a freedom of time. Getting time available with family, for health, for well-being. Not anyone quadrant is better than others but it’s upon us which one suitable to us. But if we choose to opt for B or I then we need to put a huge effort because the skills required in B and I do not teach us during our school days.

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.

WHAT CAN BE A PROBABLE BOTTOM OF INDIAN STOCK MARKET?

We have seen a sharp fall in the market these days. Now, everyone has a question that what can be a probable bottom? where we should start buying? Bottom of the market already made? Should we buy or will we have missed out this opportunity? Yes, Nifty has reached to the fair value zone but pendulum never stayed at the middle zone it will go extreme to both the direction. So, we have seen upside extreme and now have to see downside extreme move.

Before starting answering the above questions, here, I am requesting you to read my old article which I had posted on 4th August 2019. In that article, I mentioned regarding market fall. Please first go through that article because the current article is a continuation of that article.

THE INTELLIGENT INVESTOR – 3 – A CENTURY OF STOCK-MARKET HISTORY

Now, if we analyze current fall then we can say that Indian corporate and GDP has witnessed a limited growth in the past. Also, Covid-19 virus has disrupted the entire world economy. Majority of the economy has started giving a revival package but if we look at the speed of the spreading of Covid-19 and death of the people then it is very painful for us as well as the economy.

Our PM has announced with the 21 days lockdown to fight against the Covid-19. We have taken this step well in advance so that we can able to control the situation, because if the situation will go out of control then we do not have a proper infrastructure for citizens to cure.

I have taken a few data from HDFC Bank India growth outlook 2020, cost of lockdown.

Health exp

By looking at the above data and havoc of Covid-19 in the world, it is essential to go for the not only lockdown but to declare an emergency in India. Now, let’s go to the economic impact of this mayhem. People can oppose that government of the majority of the economy has started announcing a revival package. But We have to think that it’s not a financial crisis where you pump liquidity into the system and things will start recovering. It’s taking the lives of people so what will change after the liquidity get infused. People try to save life rather use those liquidities. So, disruption can take time to revive. If this problem can worsen it will be led to a financial crisis which is still pending to come. It’s just my thoughts, don’t know what can happen but this thing looking worse than any financial crisis.

If the normal situation has come where growth remains subdued then the market can remain in range but here this difficult situation can hamper the earning badly.  we have to understand that our states of India are equivalent of the many of the country where corona has done huge damage. Here, the world economy gets hamper, trade around the world hamper, supply chain get disturbs, corporates have to fund fixed cost, they only can manage variable cost through the lockdown.

Many of the articles and reports indicating towards global recession and as intense as the recession of 1929. I don’t know that will happen or not but I only can pray that such will not happen because it will take many further issues with many of the lives. Let’s not getting into the debate and do some number crunching which is always my favourite.

Current, Nifty EPS is ~Rs.444 so proceed with the calculation based on that. I am assuming current EPS will remain same for FY20 and all degrowth will account in FY21 and FY22 (if the situation will not come to the control then FY22 will also go for a toss).

I have taken the bank rate as an SBI FD rate after the rate cut.

EYield by Bond rate01

Now, if we look at the earnings yield to bond yield ratio then it has reached at the 1.03x in the current period. If we take same EPS and take that ratio to the worst happen during the 2008 – financial crisis then it was 1.11x so nifty level come to the 8000 but Covid-19 will going to hamper earning growth and might be a new level of earning yield to bond yield ratio can come, which I have taken a range of 1.25 to 1.50 with a different scenario.

If things will be in control in coming few days then might be 5% degrowth can be possible and then market also maybe get stable at the old worst level of earning yield to bond yield ratio – 1.11x to 1.25x. But if things will get more worst then now and continue with coming 1-2 months then 10% degrowth in earning can be expected. I have made a study in S&P500 of USA and in that market earning yield to bond yield ratio has reached around 3x in worst level which I am not considering as of now. If we see that then past falls in the market have accounted for ~50% fall from the top so that that will also come to ~6215 level.

Now, another point is that earnings growth always essential for generating returns in the market. So that market can be remaining in the range till no sign comes for earning growth revival because, on the hope of earnings growth, the market has already run a lot.

I have posted an article on WHAT CAN BE A PROBABLE RETURN FROM SENSEX IN COMING 10 YEARS? a way back and where I have taken SENSEX level after 10 years on worst earning growth of 3.50% came at 43547 on P/E and 57678 on P/BV based. So, if earning growth cannot revive then the market can remain in range for a longer period. But from the current base, we can have a good chance of making a return in the range of 4-7% CAGR in the index overcoming 10 years. Tax cut reform will also aid in earning growth coming forward. We only have to pray that situation will not worsen from here and for that we have to stay at home, stay safe and fight against Corona.

#Stayhomestaysafe #Stayhomesavelives #Fightagainstcorona

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

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