Wisdom of Rich Dad

If you think playing the Cashflow game is just like playing another silly round of Monoploy, then you need to seriously think again.  Cashflow boardgame is not just like a game, it is a educational tool for you to sharpen your finanical acumen and you get to learn different lessons each time you play the game.  

The author of Rat Race Escapes (ratraceescapes.com) shares his learnings from his recently cashflow game:

Sue, Bob, Terry and I played Cashflow 101.

I played the teacher. Because the monthly cash flow is lower than occupations I normally play, it was much longer before I started taking big deals. Things moved pretty slowly for me for quite some time, buying 400 shares of MYT4U at a reasonable price of $10, even though I immediately landed on charity and in my next 3 roles I had for paychecks. Shortly thereafter, I partnered with Bob and Sue on a limited partnership with a doctor’s office and then immediately I was downsized.

Things were looking great when I bought a “great deal” for $35,000, a government owned home with a tenant, for $2000 down and $220 per month cash flow. Just before my next turn, a buyer appeared and I sold the house for $135,000, putting $102,000 in my pocket. I paid my bank loan plus my credit card and retail debt and still had $90,000 in cash!

On my next turn I drew a Big Deal and it was the 60 unit apartment building. Perhaps I should have passed on it. It was initially a net neutral deal for my monthly cash flow: with a down payment of $200,000, I borrowed $110,000 to make up the difference in the cash I had on hand but the $11,000 in monthly cash flow covered the loan. I still had a decent monthly cash flow of about $1600. Had I passed and taken a different big deal on a subsequent turn, I’d have retained cash, increased my cash flow and I may or may not have exited the Rat Race sooner.

After a couple more turns, and starting a software company in my basement, received a paycheck and borrowing more money from the bank, I got laid off again. My cash flow shrank to less than $100 and on a subsequent turn to about -$300. I survived and then sold the limited partnership, double the money for myself and partners and then sold the MYT4U stock for $40 after a split. After paying debt down, I was back to good cash flow and still had cash. In the mean time, Bob exited the Rat Race getting $600,000 as his initial Cash Flow Day.

Bingo, now there was a private lender offering better rates than the bank. I had a Big Deal Opportunity for a 8-Plex but didn’t have the cash for the down payment and there were no partners in sight. But with the private money rates from Bob, borrowing the amount I didn’t have the cash flow made the property cash flow. Bingo!

Now I refinanced my remaining bank debt with Bob increasing my loan from him to $127,000 but my monthly payment was only $6350! Adding the cash flow from the 8-Plex and refinancing the remaining $104,000 bank loan dropped that payment from $10,400 to $5200 and Bob had $6350 cash flow from me in the Fast Track. Great investment for him and such better financing for me that I was immediately out of the Rat Race with passive income of $12,700!

Ultimately I won because of a little luck. I loaned money to Sue in the Rat Race so she could buy a property that now made sense where it wouldn’t have before because the cost of the money would have been too high and I bought several businesses. But I won because the Russian Oil Deal paid off with $75,000 in cash flow.

So I learned two good lessons:

(1) I jumped on a huge deal that immediately netted me no extra income, took all of my cash and gave me a lot of debt. Had I waited for a less expensive big deal, I would have had more flexibility and cash. I don’t know if I would have exited the Rat Race sooner but I do know it wouldn’t have felt like a struggle. Ultimately, despite some financial pain, it still paid off handsomely, primarily when I got to the Fast Track with monthly cash flow of $1.3 Million. Maybe sometimes being circumspect pays off. Or not. It’s a matter of risk tolerance and while I still did the deal, I had less stomach for it than usual.

(2) Debt strategy and exit is a major component of success. Sometimes, paying a seemingly high rate for debt is okay (think hard money, borrowing downpayments, or even using credit cards on a daily basis while running a balance), IF you have exit strategies for this debt. For example, paying down to reduce what you pay monthly is a valid strategy and the only one that “stock” rules allow for. But life isn’t like that. Refinancing and restructuring of debt are real world examples of debt strategies that allow you to get cash or reduce the cost of debt.

Strategies change over time and debt should be no different. Say you bought a property with hard money for the purchase and rehab. You bought well and now the property is occupied and you have an appraisal that shows your debt is 65% of it value. Maybe you paid 5 points are paying 15% on the hard money. You’d want to refinance, right, especially if you could at Fanny Mae rates. You’d cut you debt payments in 1/2!

My strategy changed for debt when Bob got out of the Rat Race since I now could get a money backer that would help me along beautifully while giving him returns he was happy with. I call that WIN-WIN! He got a 60% yield and there’s only one business with that kind of yield in the Fast Track. Does he have risk? Sure, if I were to go bankrupt in the game on unsecured debt, he’d have a problem and lose his money. Would it kill him? Hardly but no one would like it. The bank takes the same risk on bank loans.

I went from struggling to being free because my strategy evolved and I had a new exit. So look for your options and act when conditions change.

As many as 1 out of every 5 people in the United States has a learning disability. Almost 3 million children (ages 6 through 21) have some form of a learning disability and receive special education in school.

Different types of learning disabilities have different effects on a child’s ability to perceive, comprehend, and interpret information, and these effects can last into adulthood. For example, dyslexia and dysnumeria can make financial calculations difficult, and temporal problems can lead to a tendency to pay bills late.

Arlyn Roffman, Ph.D. is an active psychologist who specializes in young adults with learning disabilities. She presents a number of suggestions for parents interacting with middle and high school-aged children to help overcome financial and consumer struggles due to learning disabilities.

• Establish a basic budget early in the teen years. Have your teen list all of her anticipated expenses, including school lunches, entertainment, clothing, and miscellaneous items (e.g., CDs or snacks) and establish a weekly budget to manage her allowance and earnings from any jobs she may have.
• Encourage her to use a “budget envelopes” book, an inexpensive and handy tool, available in most stationery stores, which has separate envelopes for each specific budget category. She should place enough cash for her various budget categories in each envelope at the beginning of every week and make a commitment to spend the allotted funds only for the stated purposes. This is a very concrete way to develop the concept of budgeting and is a highly recommended first step in the process of learning how to manage money.
• Toward the end of high school, teens need to learn how to manage a checkbook and pay bills. Opening her own checking account is the best vehicle for learning this skill. Many youth with LD and/or AD/HD prefer carbon checks, which help ensure that transactions are recorded. After teaching your teen how to write a check, slip an example of a completed check into her checkbook to remind her of how it’s done. Provide a “crib sheet” with correctly spelled numbers to be kept in her checkbook for easy reference when writing checks.
• Help your teen set up a home office at a desk table where she can keep all the items needed for successful money management and bill paying, including:
  • supplies — paper, pens and pencils, tape, a ruler, paper clips, a stapler; stamps, and a calculator
  • an accordion file, where important papers may be filed under separate headings, such as “bank statements” or “unpaid bills”
  • a budget book in which she may record expenditures and realistically estimate future expenses
  • a calendar, which can be used to note the receipt of monthly bills and to record when each is due (Posthill & Roffman, 1991).

“The only difference between a rich person and poor person is how they use their time,” says Kiyosaki.

“The poor, the unsuccessful, the unhappy, the unhealthy are the ones who use the word tomorrow the most.”

Kiyosaki’s favourite part of being in the U.S. Marine Corps was the aerial combat training sessions he got to take part in during flight school. Student pilots would routinely take off in their aircrafts and wait to be engaged in practice combat by an instructor pilot.

One beautiful, sunny day, Kiyosaki found himself day dreaming as he flew 8,000 feet over a nice patch of farmland. He lost track of why he was up in the skies in the first place. All of a sudden, his peaceful journey was interrupted by the loud sounds of shooting over his microphone.

For five minutes, Kiyosaki struggled to maneuver out of the range of his instructor when he finally heard, “Class is over. You’re dead.”

When Kiyosaki returned to the ground, his instructor gave him some words of wisdom that would stick with him to this very day.

“You know what’s bad about this job?” he said. “There’s no second place. Either you go home or we go home, but both of us aren’t going home.”

Those words changed the very way Kiyosaki saw his operations; he knew there was no choice but to be the best. Since that day, Kiyosaki flew every mission with a new mandate. “We flew to win,” he says. “Before every flight, I would remind my crew that our job was not to give our lives for our country.”

Kiyosaki attributes both his coming back alive from the Vietnam War and his success in business to his commitment to seizing the day and always striving to finish first. In the war, if you failed, there was no tomorrow; that was it. You only ever got one chance to prove your worth and achieve your mission or your life was over – literally. Losing was not an option. Kiyosaki took that mentality with him into the business world.

“Tomorrows only exist in the minds of dreamers and losers,” he says. “Do today what you want for your tomorrow.” When Kiyosaki had an idea, he immediately followed through; and, when he had a dream, he refused to put it off. Everything he did from that moment on was devoted to realizing that dream. Kiyosaki knew that what he did today would shape his future tomorrow.

“As entrepreneurs, it’s important to be winners,” he says. “If you aren’t practicing and playing to be first, then maybe you shouldn’t be an entrepreneur.” War, like business, is about survival of the fittest. That goes beyond the interpretation of physical strength and endurance. Surviving in business, for Kiyosaki, is about being flexible, being adaptive, and being ready – ready for whatever comes your way. And, the only way you can get to that ready state is by always playing for now and playing to win.

Jennie Bayliss 

Money makes the world go round – so the saying goes – yet people rarely seem to make their money go round very well for them.And this, by-the-way, is true no matter how much or little someone is earning.

I believe there are two main reasons for this: firstly, money management is not taught at school, so how we handle money is often influenced by what our parents taught us – intentionally or not; secondly people imbue money with all kinds of powers that it doesn’t have, so their decisions are influenced by what they believe about money.

Money is just a form of energy. It is a just a tool that helps you achieve what you want from life. But many people don’t see it like that. They believe that money can do all kinds of things – from making them happy, to believing that is they have too much, they won’t know who their real friends are!! But lets start with the more straightforward, nitty-gritty side of things.

MONEY MANAGEMENT

Good money management in it’s simplest terms means spending less than your income, planning for your bigger expenditures, saving regularly to create a reserve and, ideally, having a plan for financial independence. Sounds easy! And in principle it is! Lets look at this in more detail, so the hard part (putting it into practice) can start to become a reality. 

MANAGING EXPENDITURE

Most people know their monthly incomes, but few people know what their monthly expenditure is, nor what the breakdown is. So this is the first step. To find out where your money is going, start recording it.

Some of your expenditure will be regular monthly outgoings: mortgage (or rent), utilities, insurance etc. Write these down. For the everyday expenses, start vigilantly collecting receipts for everything, then recording these in a either a notebook or in a spreadsheet like Excel. Do this for at least one month – ideally for three. Doing it for this period of time will give you a good picture. This exercise is an eye-opener: you may be really surprised where your money goes.

BUDGETING

Now you know how your money is being spent, you can make a budget for yourself. If your expenditure is less than your income – great! Are you managing to save enough to create a reserve of money for yourself?

If you would like to increase your savings, look over your expenditures – what changes could you make? Are there some little luxuries that you could cut back on? Perhaps the sandwiches you buy whilst at work, or magazines, or DVDs, or…? If you currently don’t save could you set up a standing order for a small amount to go straight into some form of savings account?

CREDIT CARDS

If your expenditure is more than your income, then you’re probably playing the credit card game. Huge numbers of people are living in credit card hell. It’s so easy and so tempting to get credit.

“Buy NOW: pay later”. This is the message the credit card companies sell to us. But very few of us work out when we could truly pay back on our purchases and even fewer of us know the real cost our cards are costing us.

If you have a credit card with a balance of £2,000 on it and you opt to pay only the minimum amount, this debt could be costing you around £300 a year or worse still, if it’s a store card, it could be as much as £600 a year!

And you still owe the £2,000 or possibly more if your monthly repayments are less than the interest accumulating. For lots of people £2,000 on a card is nothing: 5, 10 or even 15,000 is not uncommon. At these levels, the cost of your credit card becomes excruciating.

If you are juggling credit cards, find out more about how to manage your debt, visit The Citizen’s Advice Bureau or seek professional advice, but please don’t just bury your head in the sand: you need to deal with it now as it will only become worse if you don’t.

BELIEFS ABOUT MONEY

Below are just a few commonly held beliefs about money:

• It’s hard to earn good money.

• Money doesn’t make you happy.

• The rich get richer: the poor get poorer.

• If I earn too much money, I won’t be able to pay my taxes.

• If you have a lot of money, you don’t know who your real friends are.

All of the above are completely false. Money is just a tool. It does not have the power to make you happy, or sad, or choose your friends. But as in the tip, “Steps to Make your Dreams come True”, what you believe about money, you will experience.

Trying to ditch your misheld beliefs about money is not always easy: but becoming aware of them is the first step to your transition. This little game might also help.

Take a piece of paper and write down 50 of your beliefs about money.

The first 15–20 will come to you easily. The next 15 will be quite hard and the last few might take several days to come into your mind: but these last few are often quite revealing.

Now take your paper into the garden and set fire to it. Watch the words on your paper turn brown and disappear as they curl-up into ash. Let this symbolise the releasing of these beliefs that are holding you back from having a financial reserve.

Make today the day, you started to take care of yourself regarding money.