I love how simply Robert Kiyosaki (author of “Rich Dad Poor Dad”) classifies investors into different levels.
I like it for several reasons:
-It helps you understand where you are as an investor and what your next step is.
-It helps you understand the process of building wealth and the mindset required to progress through each level.
-He makes it a point to say that you cannot skip a step. You have to progress step-wise. So you can’t go from level 1 to 5 without going through levels 2, 3 and 4.
Level 1: The Novice
Approximately 50% of adults fall under this category. The Novice has little-to-no knowledge about money and investing. They spend everything (or more) that they earn, and buy liabilities rather than assets. They look rich, but are one bad event away from being bankrupt. Because they have zero financial intelligence, they also have no money to invest.
Level 2: The Saver
These people believe that being financially responsible means being a saver. They don’t like being in debt and are not willing to take any financial risks. Savers have to continue to work for their money, rather than money working for them. Saving is often a strategy for people who don’t want to learn about investing because saving requires no financial knowledge.
Saving money was once a good strategy, when money was actually money. When the dollar was taken off the gold standard by President Nixon in 1971, and thanks to inflation, money actually lose its value over time. Interest rates today are so low (almost insulting) that it rarely keeps up with inflation. So by saving, you’re actually losing money.
Level 3: The Amateur
The Amateur is often highly-educated and intelligent. But when it come to investing, they are often uneducated. Most physicians and highly-paid professionals fall into this category. They understand that they need to invest, but they don’t really know where or how to invest.
They’re often too busy with their careers or family, and have no time for financial development. They prefer to remain financially naive and seek the advice of financial advisors to manage their money. Because they depend on someone else to make investment decisions for them, they often don’t understand what they’re investing in.
Level 4: The Professional
The Professional has solid financial knowledge, and seeks to learn to manage their own money. Rather than passively dumping money into 401ks or mutual funds, professional investors seek the advice of tax professionals, attorneys, advisors and coaches to help them learn. They are continuously seeking more information.
Level 5: The Capitalist
Capitalist investors look for problems and create solutions for these problems. They are typically business owners and professional investors, and have a strong financial foundation. They keep their money working hard for them.
Level 5 investors can be distinguished from level 4 investors by the following:
-Level 4 investors generally use their own money, whereas Level 5 capitalists use other people’s money (OPM).
-Level 4 investors are often solo investors. Level 5 capitalists invest with a team.
-Level 4 investors tend to be selfish. Level 5 capitalists are generous. The more generous they are, the more money they make.
Which level of investor are you? Which level do you want to be at?
