the_cashflow_quadrant

always do well financially in the real world. His answer is that Emotional 1~01ts.

more powerful than Academic IQ. That is why people who take risks, make

142 S

rent

f

ith ink is

d you ns

The CASHFLOW Quadrant

mistakes and recover often do better than people who learned not to make mistakes because they were afraid of risk. Too many people leave school with passing grades, yet are not emotionally prepared to take risks...

especially financial

risks. The reason so many teachers are not rich is because they operate in a ,'punish people who make mistakes environment," and they themselves are often

people who are emotionally afraid of making mistakes. Instead, to be financially

he, we need to learn how to make mistakes and manage risk.

if people spend their life terrified of losing money, afraid of doing things erently from what the crowd does, then getting rich is almost impossible, even

it's as simple as buying four green houses and trading them in for one large red

hotel.

EMOTIONAL IQ IS STRONGER

After reading Goleman's book, I came to realize that Financial IQ is 90

percent

Emotional IQ and only 10 percent technical information about finance or money.

Golernan quotes 16th century humanist Erasmus of Rotterdam, who wrote a satirical vein of the perennial tension between reason and emotion. In his writing,

he uses the ratio of 24:1 in comparing the power of the emotional brain to the

~rational brain. In other words, when emotions are in high gear, emotions are 24

ger than the rational mind. Now I do not know if the ratio is valid, but it some usefulness as a reference to the power of emotional thinking vs. inking.

24 : 1

Emotional Brain: Rational Brain

All of us, if we are human, have experienced events in our lives when our motions overtook our rational thoughts. I am certain most of us have:

1, Said something out of anger that we later wish we had not said.

2.Been attracted to someone we knew was not good for us... but still went out with them or, worse, married them.

3.Have cried, or seen someone cry uncontrollably, because of the loss

of a loved one.

4.Did something intentionally to hurt someone we love because we were hurt.

5.Had our heart broken and not gotten over it for a long time.

Those are just a few examples of emotions being stronger than rational thought.

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The C.ASzYz-z"_

There are times when emotions are more than 24: 1, and these are often ca

1.Addictions, such as compulsive eating, smoking, sex,

2.Phobias, such as fear of snakes, heights, tight spaces,

shopping, drugs the dark, strang

These and other behaviors are often 100 percent emotionally driven. Th little power that rational thought has over the emotional

as strong as addictions and phobias are involved.

SNAKES PHOBIA

thought when somethi

When 1 was in flight school, I had a friend who had a phobia about snakes., During a class on how to survive in the wild after being shot down, the teach I

brought out a harmless garden snake to show us how to eat it. My friend, a

man, jumped up, screamed and ran out of the room. He could not control h Not only was his phobia of snakes strong, but the idea of eating a snake was j

too much for his emotions to bear.

MONEYPHOBIA

When it comes to risking money, I have seen people do the sa thi Instead of finding out about the investment, they also jump up, scream and

ru

of the room.

When it comes to the subject of money, there are many deep emotional phobias... too many to list. I have them. You have them. We all have them,

WhV

Because like it or not, money is an emotional subject. And because it's an emotional subject, most people cannot think logically about money. if you don't

think money is emotional, just watch the stock market. in most markets, there is I

logic... only the emotions of greed and fear. Or just watch people climb into a

new car and have them smell the leather interior. All the salesperson has to do is

whisper these magic words in their ear, "Low down, easy monthly payments," and

all logic goes out the window.

EMOTIONAL THOUGHTS SOUND LOGIC4L

The problem with core emotional thoughts is that they sound logical. To someone in the "E" quadrant, when the emotion of fear is present,

the-logical

thought is: "Play it safe, don't take risks." To someone in the "I" quadrant,

however, this thought does not sound logical.

For people in the "S" quadrant, when the issue of trusting other people good job comes up, their logical thought may go like this: "I'll just do it

MYS

144

The CASHFLOW Quadrant

called:

S.

g,ers.

6ere- )s iething

,iakes.

'actier a grown

I himself. xas just

nd run out

,Lnal

Why'

ou don't there is no i into a

to do is nents," and

:al. To Jogical I

~ntl

ople to do a t myself

145

That is a reason why so many "S" type businesses are often family

businesses.

There is a greater sense of trust. For them, "Blood is definitely thicker than water."

So different quadrants ... different logic... different thoughts...

different

actIons... different haves ... same emotions. Therefore, emotions make us human

beings, and recognizing that we have emotions is a large part of being human.

What determines what we do is how we individually respond to those

emotions.

I DONT FEEL LIKE IT

One way to know if you're thinking emotionally and not rationally is when you use the word "feel" in conversation. For example, many people who are

run

by their emotions or their feelings will say things like: "I don't feel like exercising

today." Logically they know they should exercise.

Many people who struggle financially are not able to control how they

feel, or

they let their feelings dictate their thoughts. I hear them say:

"I don't feel like learning about investing. It's too much trouble." "Investing doesn't feel right for me."

"I don't feel like telling my friends about my business." "I hate the feeling of being rejected."

PARENT-CHILD-ADULT

Those are thoughts generated from emotions, more than rationality. In pop psychology, it's the battle between the parent and child. The parent

usually speaks

~ "should's." For example, a parent might say, "You should be doing your homework," while the child speaks in "feeling." In response to homework, a child

would say, "But I don't feel like doing it."

Financially, the parent in you would say silently, "You should save more money." But the child in you would reply, "But I really feel like taking a

vacation.

I'll just put the vacation on my credit card."

WHENARE YOUANADULY?

In going from left quadrant to right quadrant, we need to be adults. We all to grow up financially. instead of being parent or child, we need to look at

ney, work, and investing as adults. And what being an adult means is

knowing

what you have to do and doing it, even though you may not feel like doing it.

The CASHFLOW Quadrant

CONVERSATIONS W[THIN YOU

For people contemplating making the crossing from one quadrant to

another.

an important part of the process is to be aware of your internal dialogue... or

conversations within you. Always remember the importance of the book Tbink

and Grow Ricb. A significant part of the process is to be constantly vigilant

regarding your silent thoughts, your internal dialogue, and always remember that

what sounds logical in one quadrant does not make sense in another quadrant. The process of going from job or financial security to financial freedom is primarily

a process of changing your thinking. It is a process of doing your best to kn

which thoughts are emotion-based and which thoughts are logic-based. If keep your emotions in check and go for what you know to be logical, you have a

good chance of making the journey. No matter what anyone is saying to you frorg

the outside, the most important conversation is the one you are having with yourself on the inside.

When Kim and I were temporarily homeless and financially unstable, our emotions were out of control. Many times, what sounded logical was pure

emotions talking. Our emotions were saying the same thing our friends were saying: "Play it safe. just get a safe, secure job and enjoy life."

Yet, logically, we both agreed that freedom made more sense to us than security. In going for financial freedom, we knew we could find a sense of

seeuri

that job security could never give us. That made sense to us. The only things in

our way were our emotionally driven thoughts. Thoughts that sounded logical but

in the long term made no sense. The good news is that once we made it across,

the old thoughts stopped screaming and the new thoughts we desired became our

reality... the thoughts of the "B" and "I" quadrants.

Today, I understand the emotions when a person says:

"I can't take risks. I have a family to think about. I must have a secure

job

Or "It takes money to make money. That is why I can't invest." Or "I'll do it on my own."

I feel their thoughts, for I have had those thoughts myself. But looking

across

the Quadrant and having achieved financial freedom from the "B" and "I" quadrants, I can faithfully say that having financial freedom is a much more peaceful and secure way of thinking.

DIFFERENCES BETWEEN "E"AND "B"

Core emotional values cause different points of view. The struggle in

communication between owners of a business and the employees of a business is husl

often caused by differences in emotional values. There has always been a struge

146

The CASHFLOW Quadrant

between the "E" and the "B" because one wants more pay and the other wants more work. That is why we often hear, "I'm overworked and underpaid."

And from the other side we often hear, "What can we do to motivate them

to

York harder and be more loyal without paying them any more?"

DIFFERENCES BETWEEN "B"AND "I"

Another is the constant tension between business operators and the

investors

in that business, often called the shareholders, the "B" and the "U' One wants more

money to operate with and the other wants greater dividends. A conversation at a shareholders meeting may sound like this:

Company managers: "We need a private jet so our executives can get to

their

meetings faster."

Investors: "We need fewer executives. Then, we won't need a private jet."

DIFFERENCES BETWEEN "S"AND "B"

In business transactions, I have often seen a bright "S," such as an attorney,

ut a multimillion-dollar deal together for a "B", business owner, and when the

nsaction is completed, the attorney becomes silently disturbed because the

"B"

makes millions and the "S" earns an hourly wage. Their words may sound like this:

Attorney: "We did all the work, and he made all the money."

The "B": "How many hours did those guys bill us for? We could have

bought

dae whole law firm for what they charged us."

DIFFERENCES BETWEEN "E AND "I

ess is

ggle

14

Another example is a bank manager who gives an investor a loan to buy

some

ieal estate. The investor makes hundreds of thousands of dollars, tax free, and the

banker gets a paycheck that is taxed heavily. That would be an example of an "E"

dealing with an "I" that often causes a mild emotional reaction.

The "E" might say: "I give that guy a loan, and he doesn't even say 'Thank you.'I don't think he knows how hard we worked for him."

The "I" might say: "Boy, those guys are picky. Look at all this useless paperwork we have to do just to get a lousy loan."

EMOTIONALLY DISTURBED JIARRIAGE

The most emotionally disturbed marriage I ever witnessed was a couple

where

the wife was a hard core "E" who believed in job and financial security. The husband, on the other hand, fancied himself as a high-flying 'J." He

thought he

was a future Warren Buffet, but in reality he was an "S," a commission-only salesman by profession, but he was a chronic gambler at heart. He was always looking for the investment that would help him "Get rich quick." He was ali ears

for any new stock offering, or off-shore investment scheme that promised ultra-

high returns, or a real estate deal he could take an option on. This couple is still

together, yet I really do not know why. Each drives the other nuts. One person

thrives on risk; the other hates risk. Different quadrants, different core values.

IF YOU ARE MARRIED OR INA

PRIJL4RYRELATIONSHIP

If you are married or 'in a primary relationship, circle the quadrant you generate the majority of your income from and then circle the quadrant your

TM

spouse or partner generates income from.

The reason I ask you to do this is because the discussion between partn S

is

often difficult if one partner does not understand where the other is coming fillm.

THE BATTLE BETWEEN THE R.ICH

AND THE EDUCATED

There is another unspoken battlefield I have noticed, and that is the differences in points of view between the educated and the rich.

In my years of researching the differences between the different

quadranAs,

have often heard bankers, attorneys, accountants and others like them grumble

148 nly alwaYs all ears ultra- e is still person values.

nt you ant your

The CASHFLOWOuadrant

*r6y that they are the educated ones, and it's often the so-called less-educated

po who makes the "big bucks." This is what I label the battle between the ,)n(J th~ rich urhif-h iq ore often the difference between people on the

kk We of the Quadrant and people on the right side of the Quadrant... or the

T-W vs. the "B-Fs." It's not that people in the "B" and "I" quadrant are

cated... because many are highly educated; it's just that many "B's" and "I's"

_64~ 1-;r1c in cphnni 3nrl -pre not trained in v duate schools

allomeys, accountants and MBAs were.

Foi those of you who read my book Ricb Dad Poor Dad, you know it is about Moe between the educated and the rich. My highly educated but poor dad

toliveat nride in the fact that he had done vears of advanced studies in

*Oous schools such as Stanford University and The University of Chicago. My il ~d was a man who dropped out of school to run his family's business when

. so he never finished high school, yet he acquired tremendous

1~ I Wew older and seemed to be more influenced by my rich but uneducated 51 educated dad was occasionall defensive of his station in life One day

I was about 16 years of age, my educated dad blurted out 2dvanrPd rlparpp, from n stiaion, -,chnni.,; Whnt does vour friend's and replied quietly, "Money and free time'

.d MAN A MENTAL CHANGE

~ .40vM pirlipr tn Pinti ri1rr,-zQ in the "B" nr "I" mincimnt rf-quires more than

-#Iudernic or technical knowledge. It often requires a change in core feelings, beliefs and attitude Remember the

WV, cc"' parLIK-1-1~ er is cOm"19 floto'

that is the

rich.

different quadran", 'BE - DO - HAVE.

'We fich do Tisr"ielativeiv simt)le. It's the "Be" that is different. The

'44 ~ found in their thoughts and, more specifically, their internal dialogue

".1ves Thqt is why rfiv rich dad forbade me from saving: you fail and never recover?"

ia,,- them me from saving those words because he truly believed that words