Wisdom of Rich Dad

In the Cashflow game, there are 2 tracks – the Rat Race and the Fast Track.  We should get out of the Rat Race and go into the Fast Track in order to win the game.

Robert Kiyosaki, in this video, explained how you can get out of the Rat Race and go into the Fast Track in the Cashflow 101 game.

From the “Rich Dad, Poor Dad” by Robert Kiyosaki, I learnt that to be financially free, I need to generate sufficient income to cover the monthly expenses of my lifestyle.  And it is not just income, but passive income so that I can still survive without having to work.  And to generate passive income, Robert Kiyosaki and his Rich Dad advise that we should let money work hard for us. 

There are many ways to generate passive income.  We can generate passive income by investing into stocks and bonds, mutual funds, real estate, commodities and also investing in businesses.  Robert Kiyosaki in particularly love using real estate to generate passive income.

What best work for Robert Kiyosaki might not be the best for you.  Before deciding which is the best passive income generating investment methods for you, here are 5 major factors which you might want to consider:

1) What is the initial cash outlay?

Obviously, the first question is what is the initial cash outlay, if any, for your investment instruments.
Is it a one-time cash outlay?  Or is it a recurring investing scheme, where you need to continue to invest more money into this instrument to maintain generating the level of passive income that you need? 

How long do you need to maintain this recurring investment?  Is the recurring investment amount constant or will it increase or decrease or even fluctuate over time?  Does the fluctuation depend on other factors?

Is there any other fees like maintenance charges or yearly renewal charges? 

2) What is the real net rate of return?

What is the rate of return of your investments?  Is it a net rate of return?
What is the return frequency?  2% per year?  2% in 5 years?  2% in 10 years?
What are some of the major factors which can affect the rate of return?
Can the return be compounded upon the themselves?

3) What are the risks involved?

What is the risk exposure of your investment instruments?  Is it classified as high risk, medium risk or low risk.
Could you lose your initial investment and/or your earnings if you are not vigilant?

One point to note is your own risk profile and your financial goals.  Usually the return are higher as the risk level goes up.  So if your financial objective is to aggreesively building up your wealth quickly, you might opt to go for high risk investment in view of the higher return.

The bottom line however, is to be fully aware of the risk involved and then make a judgement call based on the risk and reward involved.

4) Is the return easily accessible?

Can you get hold of the earning generated when you need it? 
Or is the earning generated only accessible in certain frequency or period?  Monthly?  Quarterly?  Year?  Only at the first month of the year?  Only at the 1st week of the month?
How is the earning returned to you?  Via physical checks?  Fund transfer?  What is the lead time for delivery?
Is there any other fees involved?  Like fund transfer charges, withdrawal charges?

5) Are your investments truly passive?

Do your investments require constant monitoring?  Do you need to constantly watch the markets in order to avoid losing potential earning and/or capital sum? Do you need continuous effort to manage and/or maintain your investments? 

For example, if you have real estate, you might need some effort/time or money to maintain it.  I remembered that Robert Kiyosaki had to deal with toilet problem in his first few real estate investments.

All these question will hopefully help you to determine the viability of your investment instruments to generate enough passive income to fund your lifestyle which you want.
 

“I will be rich if I strike the top prize in this week lottery!”  That seems to be the most usual exclamation from fellow workers looking for a quick way to escape the rat race.

Thinking back, is wealth really measured by how much money you have in the bank?

A lot of us usually think that wealthy is signified by the possession of a lot of money or owning a lot of luxurious items.  We have often associated wealthy people with the luxury house, big car, expensive jewellery they owned or the posh restaurant which they dine in etc.

For Robert Kiyosaki however, the concept of wealth is defined simply as “The number of days you can survive forward if you stop working today”.  It is not measured in dollars and cents, but by the number of days which you do not have to work!  It is not your conventional definition which you might have expected but I must say that this is very logical and common sense!

Based on my understanding of Robert Kiyosaki’s definition of wealth and the concept of income and expenses, I see the amount of money one has, formed just part of the wealth equation.  We also need to look at the other part of the equation, which is the outflow of money, ie, expenses.  The number of days we can survive if we don’t work is dependent on the amount of money we have and the amount of we spent.

Take a simple example, you have accumulated $1 Millions in the bank and you stop working.

You live in the luxury house, drive a big car, dine in posh restaurants and spent lavishly on designer’s fashion wear and jewelleries.  Basically, you are living a lifestyle of the rich and famous and your monthly expenses totalled $10K.  This can only last you 100 months. 

Compare with if you live a reasonable house, drive a reasonable car, do not splurge on expensive items, which Robert Kiyosaki called doodads, and your total monthly expenses is $5K.  You will last twice longer.

By Robert Kiyosaki’s wealth definition, you are twice as wealthy in the second scenario than in the first.
 
Our goal of financial freedom is therefore to ensure that we can survive as long as possible without working.  Financial freedom is not just about what amount of money we have accumulated now.  In simple layman’s term, it is about your means and ability to fund the kind of lifestyle you have or wish to have, when you stop working. 

Besides using accumulated wealth to fund your lifestyle, you should also look into creating income generating instruments, or what Robert Kiyosaki called assets, to help in achieving your financial freedom.

It is essential to understand Robert Kiyosaki’s concept of wealth to able to achieve and as well as to sustain your finance freedom!

By Fabien Ponson

The basics of finance are becoming more important to more and more people. As people seek to avoid the “rat race”, they are realizing that their major limitation is that they don’t have much in the way of financial education. The cashflow 101 game, a financial education game created by Robert Kiyosaki, is attempting to change that.

The game description and the goal

Cashflow 101 teaches people how to use a balance sheet, while at the same time imparting other basic financial knowledge. Players begin on an inner track called the “rat race” where they pull in an income based on a randomly chosen career, such as airplane pilot, secretary, etc. They receive their pay each time that they pass “Payday”, and, the higher their income, the higher their monthly expenses. Total income is recorded on balance statements and account statements, and dice determines moves. While moving around the board, they can be hit by random events, such as “Children” or “Doodads” that require them to pay, as well as options to invest in businesses and rental property, which increase the player’s passive income. While on the “rat race” track, their goal is to find a way to make their income exceed their expenses by creating a substantial passive income, and by lowering their expenses as much as possible.

This is Robert Kiyosaki’s definition of wealth; when passive income exceeds expenses, and he feels by playing the board game and transferring this principal to real life, people can achieve wealth.

While playing the game, you are learning about assets and liabilities. Whereas “doodads” are fun to get, and children are important, their effect on your income is a “liability”, or a negative effect. Too many liabilities, and your income will be quickly eaten away. At the same time, investments are “assets” that increase you income.

When the player’s income has reached a greater amount than their expenses, they move to the “Fast Track.” On the Fast Track, players win by either having $50,000 in income or buying their dream. In order to do so, they must buy options to boost their income. Once the goal of the dream or the income has been realized, the player wins the games.

Part of the game’s fun is to watch the strategies of other players, as they try strategies ranging from conservative to risky, and see how they pay off. As there is a wide range of potential strategies that can work, and it is a game environment, they will try a few different strategies in order to determine what works the best. In the end, most players have fun, especially when they realize that the game teaches them extremely useful lessons that they can use in their real life financial choices.

Like in your own life

Another aspect of playing the game is that your own real life financial problems, which have been created by your own choices, become high lighted. When it comes to dealing with money, do you let your emotions rule your decisions? Are your strategies too conservative or risky? You might learn some things about yourself when you realize that the way you react during the game mirrors the way you react to situations in your own life.

One criticism of the game is that investments play too major a role in the game, as Robert Kiyosaki, on whose theories the game is based, generally dislikes investments, calling them too unpredictable. Otherwise, the game is good for learning financial theory, as it covers most aspects of creating personal wealth.

The different flavors

Cashflow 101 comes in three basic varieties. There are two board games, one designed for children and one for adults. There is also a Cashflow E-Game that allows players to play against each other no matter where the two of them are. The E-Cashflow is more complicated than the board game, as it has more options, including investing in stock. Although the game is somewhat expensive, at almost $200, the game is arguably worth it, as playing even once will peak your interest in financial theory. The cost could be worth it for anyone itching to escape the rat race.

Robert Kiyosaki sees it as the fundamental cause of people struggling through life and not able to lead a life of their dream – the lack of financial knowledge.  It is this concern of people getting caught run in circles all their life in the Rat Race, without knowing how exactly they could get out it, which led Robert Kiyosaki to write his “Rich Dad” books and to create his “Cashflow” game.

Why do we lack financial knowledge?  Is it because the knowledge is not easily accessible or the knowledge is scare?  Is the knowledge considered as “specialized” knowledge, which only a handful of bright people can understand?

All no!  Whereas in previous centuries, you might be able to argue that education is not commonly available and accessible for all, in last century or so, there is no longer much barrier for all, regardless of gender, to be educated.  Financial knowledge is tightly related to our everyday live, so it can hardly be classified as “specialized” knowledge.  Remember that Robert Kiyosaki learnt financial knowledge from his “Rich Dad” who hardly had much education.  So finanical knowledge can be acquired by anyone. 

Even so, we have seen, years after years, bright students who have good domain knowledge ranging from sciences to engineering to medicine, but yet, stumbled and fell when it comes to their own personal finance. 

I was reading the ”About me” page on a blog (gradmoneymatters.com) , and the author of the blog was frank enough to make his confession:

I recently completed my Ph.D and started to work. I realised one thing right away – I needed to do some serious research on this thing called “Personal Finance”. And I needed to do it fast. While my domain knowledge was no less than anyone else in my field, I have to admit (with my head hanging in shame), that my knowledge of finance related matters is at an elemenatary level, at best. My financial IQ would qualify me to the “moron” status. So, as I browse through the cyber space and engage in stimulating discussion with the enlightened souls that my co-workers are, I realise, I have a lot to learn. And I have lost a lot of time. I wish someone had got me interested in these matters sooner ! I wish I had realised the power of “compound interest” before I became the poster child for why NOT to delay starting a nestegg.

It is therefore not that the financial knowledge is not accessible or it is too complex to understand.  It is becasue we made a choice not to understand them.  We made the choice perhaps our parents have made the choice not to and we followed them.  Perhaps we are not told that financial knowledge is important.  Perhaps we are too busy running what Robert Kiyosaki termed as the rat race to see that financial knowledge is the key to get out of the rat race.

No matter what is the reason, perhaps it’s time for us to start realizing the importance of financial knowledge and start acquiring them!  Robert Kiyosaki might have started learning financial matters at a young age, but I guess it is still never too late for me to get started.

And yes, if you are wondering, I too, has a good domain knowledge in my own field but low in financial literacy.  I am guilty too!

In this video on Cashflow game, Robert Kiyosaki explained that there are 2 tracks in the Cashflow game.  The Rat Race and the Fast Track.  The objective is to get out of the Rat Race and go into the Fast Track.