Do we work hard and make other people rich? Or working for achieving your dreams? We are programmed in such a way that willingly or unwillingly; we are stuck with such a situation. When we make other people rich, we consider ourselves safe. When we consider ourselves safe ourself then we fall into the trap of our comfort zone, which makes us helpless to work for others’ dreams. We forget to pursue our dream.
Action plan
Fill your financial statement
Before we proceed, we must have to know that where we stand. And to know our status, we have to write down all income and expenses which helps us to see a clear picture.
Set financial goals
Without setting up goals, we cannot achieve what we want. So that we need to set five years, one-year goals to achieve financial freedom. Few examples and formats are given by the author.
Few examples and formats are given by the author
We need to be genuine with ourselves for filling our financial statement then only we can reach where we want to be. For better guidance, we should keep an auditor – a person who has achieved in real what we want to achieve. A mentor, who helps us to achieve our dreams, guides us to walk on a bumpy road.
When we start walking on this road, we faced lots of obstacles. And for overcoming those, we need a guide who is stronger enough to hold our hand to cross it.
The social loafing effect occurs when individual performance is not directly visible; it blends into the group effort. When there is an involvement of many people, individual performance will start reducing. Social loafing occurs when an individual is doing less when working in a group, as opposed to putting forth full effort if they were alone.
Social loafing has interesting implications. In groups, we tend to hold back not only in terms of participation but also in terms of accountability. Nobody wants to take the rap for the misdeeds or poor decisions of the whole group. If a team member feels their impact will not be worth much – especially in a large team – they may decide to back off and enjoy the ride at the expense of the others.
Investment – When a large group of people involves in the decision-making of an investment opportunity, and the decision goes wrong. Then no one will be ready to take responsibility. We should not involve large numbers of people in the decision-making process. And if large numbers of people get involved then we need to make sure that each person is accountable for their decision.
The disadvantages of groups can be mitigated by making individual performances as visible as possible. Reward and punishment for each member of a large group can help to reduce the effects of social loafing.
When we learn to run before it, we have to learn to stand up, to walk, to lift our weight. We cannot be directly born and start running from the very next day. It is like 1st day of the gym and the expectation of lifting 80kg of weight and coming out with 17 inches of biceps. Nature has created such a process of progress. We also have to keep it in mind. We started taking baby steps for shifting towards the B and I quadrant.
We have to remember that those who do something are much better than those who do nothing.
By looking at the financial statements of all three categories, we can understand what we should focus on and where we have to control.
The author has mentioned seven steps that help us to find our financial fast track and achieve our goal of the B and I quadrant. I will continue with those seven steps from my upcoming articles.
When We start with something, then we are getting sure of it and venture into unfamiliar territory from there. When we have a problem and we do not know the answer then we start thinking of what we know about the problem and then start moving towards the answer. By this, we can reach approximately nearer to answer.
If you consider how much you should pay for a house, you will be influenced by the asking price. The same house will appear more valuable if its listing price is high than if it is low, even if you are determined to resist the influence of this number.
Our mind makes some number or information as a base and makes further decisions. This effect is known as an anchoring effect. People adjust less (stay closer to the anchor) when their mental resources are depleted, either because their memory is loaded or because they are slightly drunk. Insufficient adjustment is a failure of a weak or lazy System 2.
When we go for a bargain while purchasing products/services then we got anchors with the initial listing price by the seller.
We also get anchored by numbers. When we have seen some product/service which values at Rs.10 and then if that things available below it then we rush to buy it by considering it has become cheaper.
The selective activation of compatible memories explains anchoring: the high and the low numbers activate different sets of ideas in memory.
The situation in which we are that priming to anchoring to specific numbers. For example, if someone asks us the average temperature of India and the answer is very with whether in which we are. Summer will tend to bring average temperature answers to higher temperatures and winter will bring down average temperature answers.
Investment – When we have seen the price of shares at some number then our mind gets attached to it. When the price moves lower from that previously seen price then we consider it as cheaper and buy it. Works with the stock market, when we intend to buy any equity, we got anchors with the previous prices and make decisions according to it rather than going for the absolute value of the stock which we want to own. We do not focus on the fundamental value. When we have seen stock price at Rs.100 and it has fallen to Rs.50, we tend to run for buying that stock as it has become 50% cheaper from what it tends to be. But we do not think that it may be possible that there may be any reason behind this fall in price. We easily get anchored with the numbers and then we start thinking around that numbers.
We just think of price, do not think of value or fundamentals of business. So that we should not focus on prices rather just have to focus on business, fundamentals, and value. We should keep adjusting the fundamental value of the company and does not keep anchoring with the stock price. If we cannot able to do it properly then we have to face a loss in the future also.
When the market is in a bull phase, people are ready to buy companies that are traded at higher valuation multiples. But opposite to it, when the bear phase comes, people want to pay lower valuation multiples.
