LOUSE FAIRSAVE: E-investing
ROBERT KIYOSAKI with Sharon Lechter developed the Cashflow Quadrant, a model which shows two intersecting axes creating four quadrants labelled, starting at the top left-hand side and going anticlockwise: E for employee, S for self-employed,
B for business owner and I for Investor.
Each quadrant represents how a person earns cash or income: An ‘E’ earns his income mainly from being an employee. Today, we consider the characteristics of the e-investor. Just remember in reviewing this description that an e-investor may be a president or a janitor.
Over 60 per cent of all people are e-investors. Our education system prepares us to target e-investing. Our aim at school is to get a good education and consequently get good, secure, high-paying jobs.
We then expect financial success to follow.
The e-investor typically displays a mindset of risk avoidance. This investor finds great merit in education, employer loyalty, job security and hard work. They honour earning a steady pay cheque, and fringe benefits such as group life insurance, health insurance and pension schemes. They dislike uncertainty and change. They like to see commitments in writing.
E-investors typically consider their mortgage as their greatest asset. With a significant raise in pay, the e-investor often buys a better home or takes a second mortgage in order to enhance the facilities of his current home. The home is considered to be a demonstration of work status.
The e-investor works to pay the mortgage, the car loan, other consumer loans, the student loan, the credit card bill, and/or other bills. They often barely survive until the next payday. Climbing the debt trap is as natural as keeping up with the Joneses. Very little money is left for savings or for taking advantage of the tax breaks available for investing.
E-investors can be very committed to their jobs, spending long, dedicated hours. What little spare time they have may be spent studying to improve their job skills, watching TV, reading novels, playing sports or otherwise socializing.
The e-investor who invests tends to choose from pension schemes, fixed deposits, government bonds, mutual funds and relatively safe publicly-traded stock. Real estate is also a possible option for investing as well. The focus is security and limiting risks.
E-investors are truly not really interested in money. They are more interested in job security. They do not devote significant time to developing investing skills since they see investing as risky. If they do invest, they tend to depend on advisors and/or on relatively safe investments that have been tried and proven.
Based on this disposition, e-investing is actually one of the most risky types. In these days of rapid economic change, the over-dependence on any one employer is risky. Job security is not necessarily financial security. In any event, attaining financial security will depend more on how an employee handles his cash flow.
An employer cannot make you rich.
Most e-investors are highly dependent on the monthly cash flow from their jobs. If that cash flow stops, they will be in financial straits. There again are the risks. Because they want to avoid risks, these investors seek job security and can end up in the riskiest part of the quadrant.
The authors of the Cashflow Quadrant model point out that e-investors need to mind their own business. In other words, you are not a banker because you work at a bank. You are a banker when you own a bank. The next article will consider this advice to the e-investor.
Louise Fairsave is a personal financial management advisor, providing practical counsel on money and estate matters. Her advice is general in nature; readers should seek personal counsel about their specific circumstances.