| Real Life Strategies for Building Wealth

cashflow

We all know that children learn best through games and play. We all suspect that there is no reason why this would change for grownups but at the same time most people forget how to play (and learn) sometime in their early to mid teens.

Recently, John and I have come to realise that we have started taking life far too seriously and as Elbert Hubbard said ‘Do not take life too seriously. You will never get out of it alive.’ Add to the equation our youngest son who still wants and needs to play with us and, of course, ought to be learning life skills, and our choice will hopefully make sense.

Yes, we recently bought Cashflow, the game invented by Robert Kiyosaki and, reputedly, based on his experience of ‘getting out of the rat race’.

Whilst rather excited by the cash flow game, I have to admit that my expectations were limited on two counts. First, I am not big on board games and I most certainly am not very keen on, or good at, playing Monopoly; particularly after John explained the statistical probabilities of the dice. And second, reading the rules, Cashflow appeared rather complicated so I doubted whether our youngest son could play. How wrong I was on both: playing Cashflow is highly enjoyable and our son learned to understand the game of money, both on the board and in life.

The rules of the game

After choosing a card with their occupation, salary, savings and expenses on it each player’s aim is to get out of the rat race. One gets out when their monthly expenses are lower than their monthly passive income; or when they have become ‘financially independent’. Getting out the rat race places you on the ‘fast track’ and the game is won by either landing on your dream (which players select at the beginning) or by generating $50,000 passive income on top of the starting amount (starting for the fast track which is 100 times your passive income that got you out of the rat race).

How did it go?

In the first game we played, John was a truck driver, our son was a lawyer and I was a teacher. We had different incomes where son’s was highest and John’s lowest and corresponding levels of expenses. I won; largely because of luck since I landed on my dream and had enough money to buy it. John was the first to get out of the rat race, though.

What did we learn?

Playing Cashflow is an opportunity to test different scenarios and options for getting out of the rat race. Here are three messages that are immediately apparent.

Get rid of liabilities

Winning the game at the first stage is dependent on having enough passive income to cover one’s expenses. Getting rid of liabilities (loans, bad investments etc.) and not acquiring them (houses that take money out of your pocket, new cars, boats etc.) is the way to reduce expenses and speed up the process.

It really helps if one tries their hardest to keep emotion and feeling out of this. The first game I didn’t manage to do it – when I got some cash from flipping a property and selling shares I paid my mortgage off because, in the game just like in life, this makes me feel secure. Practically, this meant that I didn’t have enough cash to buy a very good deal which generated three times the money needed to pay my mortgage. Consequently, I borrowed from the bank at 10% when my mortgage was at a fraction of this interest.

John, on the other hand, didn’t pay his mortgage off and got out of the rat race much faster than me; in the first game that is.

Lesson: Get rid of liabilities but the sequence is important; don’t make paying your mortgage off a priority but build up an investment portfolio – its time will come.

One benefit of the game is that it may have made my marriage easier – one of the points of contention between us for some time now has been paying the mortgage off.

Build up your stash

Winning the Cashflow game depends on one’s ability to ‘build up a stash’. What is also clear is that the available strategies for doing this are different at different stages of the game. At early stages, for instance, building up financial resources is mainly done by saving. Once there is a neat little sum one can start investing in shares and bonds and risk taking has a big role: it can speed you up considerably. Buying real estate, both to ‘flip’ and for rental income, is the next building block. However, the big money is in buying businesses.

These stages are overlapping but sequential.

Lesson: Build up your stash; be patient; keep informed and do not get emotionally attached – all is for sell and all is fair game.

Buy assets

Buying assets is the third crucial element for winning the game. Again, different strategies are appropriate at different stages of the process. Early on, there is a clear element of gambling and luck plays an important role. At the later stages of the game planning is possible. Buying businesses, even at an early stage, is usually more profitable (generates more passive income) than buying property. Most importantly, money is made when you buy not when you sell.

Lesson: Buy or grow businesses; focus on developing an eye for buying.

As you can see good time was had playing the game and some learning has occurred. As to applying some of these strategies in life…well it is not so straight forward. Whilst the broad rules may be the same, there are two substantive differences: one, there is a very steep learning curve and knowledge has to be maintained; and two, our capacity to take risk, even calculated one, is restricted by the fear ‘of losing it all’.

What do you think and is there a game that has helped you develop strategies for life?