Think back to the Time Management Matrix. Consider how appropriately the four quadrants identify the way we spend money as well as time:
THE MONEY MANAGEMENT MATRIX
As you consider the Money Management Matrix, think about your current spending habits. Where do you spend most of your money now?
As with time, many people spend their financial lives in Quadrants I and III—in this case, paying bills, meeting immediate needs, and buying on impulse. And when their wants exceed their resources, they buy on credit. They accumulate debts. They pay interest. They get frustrated. They think the way out is to increase income. So, if they’re married, both spouses will work, or one takes on a second job. They make more. They buy more. They get a bigger house, another car. They spend more money on babysitters, work clothes, and fast foods. They get further into debt. They pay more interest. They pay more taxes. They never get ahead. And if some unexpected event comes up causing them to miss a paycheck or two, they’re in deep trouble.
Once again, Quadrant II is the key. Quadrant II is not only the quadrant of importance, it’s also the quadrant of investment. It’s the quadrant of Financial Freedom. And this is where the truly wealthy people have put their money. As Stanley and Danko point out, most Americans who become “millionaires” invest an average of nearly 20 percent of their taxable income yearly in assets that create wealth. In doing this, they create an “artificial scarcity.” Then they practice principles of industry and thrift to live on what’s left. As a result, they earn interest instead of pay it.
And what kind of difference does that make? Just contrast the feeling of Quadrant II freedom with the feeling you get when you read former Undersecretary of State J. Reuben Clarke’s description of the interest you pay when you’re in Quadrant III:
Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours; it never has short crops nor droughts; it never pays taxes; it buys no food; it wears no clothes; it is unhoused and without home and so has no repairs, no replacements, no shingling, plumbing, painting, or whitewashing; it has neither wife, children, father, mother, nor kinfolk to watch over and care for; it has no expense of living; it has neither weddings nor births nor deaths; it has no love, no sympathy; it is as hard and soulless as a granite cliff. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.
So which would you rather be doing—paying interest in Quadrant III or gaining interest in Quadrant II?
Bottom line, the Quadrant II financial management approach is to invest money in things that create growth. When we use the term invest, we’re not talking about investment in the stock market or any other specific instrument of investment. We’re talking about the principle of investment—of using the resources you have to create more. Investments that increase financial resources are typically in assets such as your own business, real estate, savings accounts, CDs, stocks, bonds, mutual funds, IRAs, or 401(k)s. Investments that increase human (and, in some cases, long-term financial) resources are typically in things such as education, talent or skill development, or humanitarian efforts. With both kinds of investments, the focus is on creating instead of merely consuming.
Where should you invest? With a fluctuating economy, it pays to get good, up-to-date financial counsel. Some investments that would have been considered wise five years ago would not be wise today.
How much should you invest? It depends on your situation. Again, most people who have accumulated wealth invest about 20 percent of their taxable yearly income. However, even if you begin by living the “Five Percent Rule” (like the “Five Minute Rule” we suggested in “Time Matters)—investing just 5 percent of your income in interest-creating assets—you’ll start to catch the spirit of Quadrant II investment . . . from the first statement that arrives showing interest you earned instead of interest you have to pay. Month after month, seeing the cumulative interest will encourage you to figure out ways to invest more.
As with time, the best place to get resources to invest in Quadrant II is from Quadrant III, which is filled with high consumption spending. Marketing, advertising agencies, and credit card companies make it feel urgent as they use sensory, social, psychological, and economic enticements to urge you to spend. But most high consumption spending is not important—it doesn’t help you accomplish what matters most. As we noted earlier, Quadrant III is also filled with the interest you pay on borrowed money. This interest is urgent—as bills and every day’s accumulation of interest attest—but it certainly doesn’t contribute in any way toward your goals, and in fact drains resources from them.
Again, the key principles are importance and investment. Put your money where it will help you accomplish what matters most to you. And stick to other time-proven principles such as thrift, industry, and deferred gratification. Unfortunately, those words are not “in” now; what is “in” are words like quick, easy, and buy now, pay later. But there’s no way those words will ever empower us to get the results—the balance, the peace, the freedom—we want in our lives.
The reality is, most of us will never have enough money to do all the things we might like to do or could think of to do. So we have to choose.The key is to spend and invest in the things that will bring the greatest returns. With both money and time, it’s when we learn to invest instead of merely consume that we generate true wealth— more abundant resources, personal integrity, and rich relationships with the important people in our lives. Over time, this approach makes an enormous difference—not only in our ability to weather the unexpected storms of life, but also in our ability to create balance in daily living.
Stanley, Thomas J., and Danko, William D. The Millionaire Next Door. Longstreet Press, Atlanta, 1996, p. 10.
Clarke, J. Reuben. One Hundred Eighth Annual Conference,The Church of Jesus Christ of Latter-day Saints, Salt Lake City, UT, April 1938, p. 103.