Wisdom of Rich Dad

Over the weekend, I got five of my friends together to play this game that’s like Monopoly.  The game Cashflow was developed by Robert Kiyosaki, author of Rich Dad Poor Dad.  It teaches people financial intelligence. 

How can anyone learn financial IQ from a board game right?  I was skeptical in the beginning also.  But I was a fan of his book so I wanted to see what it was about.  It’s now my fourth time playing and I definitely picked up a thing or two.

At my first time playing, I did not land on an opportunity square for the last hour and half of playing.  I was getting shorted even though the odds of my landing on an opportunity is extremely high.  It’s every other spot!  But in life, that happens.  But you can either decide that’s your fate or you can just keep fighting. 

By the fourth time playing, I realized you could BUY other people’s opportunities.  This meant that whenever someone landed on one, they could either use it themselves or sell it to someone else.  Sometimes, that person can’t afford it because they don’t have the necessary capital.  The analogy in real life is like having a really good financial adviser who can suggest opportunities for you.  All you have to do is shell out the money.

More People Knowing The Market = More opportunities for you

Because the Market card came up so rarely, it helped when there were more players in the game.  And the Market card was the only one that can shake things up both good and bad.  So for us in real life, we need to surround ourselves with people that know the market very well.  Only then we will be able to make the right decision to make a gain or to avert a lost.

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Robert Kiyosaki, says he went from bankrupt homeless person at 38 to retired multimillionaire at 47. His story has inspired me to start writing a paperback telling fatties they should eat more chocolate and watch more TV if they want to look like supermodels.

The success of the Rich Dad, Poor Dad franchise shows that a book titled Making Money Is Extremely Hard Work just won’t sell. This may be why most of the books I recommended have to be ordered while you’re bound to find Kiyosaki’s paperbacks in your CNA.

Kiyosaki – now 63 and still scribbling away suspiciously much for a supposedly retired tycoon – tells stories about how his hard-working university graduate dad ended up poor while the high school drop-out dad of the kid next door became rich.

It is enjoyable fiction, unfortunately pretending to be fact. Much of Kiyosaki’s advice is extremely dangerous, especially for the lazy, uneducated market at which it is pitched.

Wall Street Journal personal finance writer Jonathan Clements kicked off his review Rich Men, Poor Advice: Their Book Is Hot, But Their Financial Tips Aren’t: “My entire career has been a pathetic waste of time. Or so Igather from Robert Kiyosaki and Donald Trump.

“You know all those articles I have written about saving diligently and buying mutual funds? This ‘may be good advice for the poor and middle class, it is not good advice for people who want to become rich,’ according to Why We Want You to Be Rich, the new book from Messrs Kiyosaki and Trump.

Clements concludes: “Don’t rush to dump your funds quite yet.”

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People are very entertaining if you just take time to listen to what they say and observe how they act. After all, that’s why reality television shows are so popular. Now you can watch people from the comfort of your living room chair.

The things they do and say are so highly entertaining because people so often react based on emotion. Often, that emotion is fear. Throw in a little laziness and a willingness to believe whatever they hear that justifies their fear and there you have them-the two most wealth-preventing myths about real estate investing that were ever conceived. And those two are the parents of the third.

Those myths are, of course, fear-based. They are also myths that would not exist if it were human nature to educate themselves about a thing before making up their minds about it.

What are those myths?

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Independent investor and author Kim Kiyosaki bought a single rental home in 1989 and has 2,000 today. Here’s how she did it.

1. Prepare well

Invest in an area you’re familiar with, where you know the market. Also, read about real estate investing so you understand the numbers and know how to perform due diligence on every property. If you use a broker, ask if they also invest. There’s a different mindset between someone just making a commission and someone who understands investing.

2. Start small

Kiyosaki started with one house in Portland, Ore., which she bought for $45,000. She rented it and had $50 at the end of each month. “That was my cash flow,” she says. “Know beforehand if you’re doing it for capital gains or cash flow. I invest for cash flow.” Often rental properties aren’t hit as hard when the market turns, but it is still best to look first for a stable or growing area.

3. Repeat what works

“I just keep buying more and more,” Kiyosaki says. “Now the cash flow pays for the house I live in, my vacation house in Hawaii and all my luxuries.”

4. Trust yourself

“The biggest investing mistake I’ve made was when I didn’t trust myself,” Kiyosaki says. “One investment was bigger than I had done before, and my fear made me look at everything wrong with it. I am risk averse and one of the killers was having negative people around saying, ‘Oh, this is risky.’” Surround yourself with like-minded people and make clear agreements with any partners.

5. Self-management

When you’re starting, manage it yourself. Management fees can make the difference between monthly profit and loss. You’ll also understand the property and learn about it – like how to spend money most effectively to increase the value and manage the expenses.

Robert Kiyosaki doesn’t hesitate to rock the boat.

To the best-selling author of Rich Dad, Poor Dad, the worst thing you can do with your money is to stash it away in a 401(k).

“The worst advice most people take is that they go to school, they get a job and then they get a 401(k),” said Kiyosaki.

Take that, conventional wisdom!

For Kiyosaki and his team, the financial boogeyman is income taxes.

“Taxes are going up, and taxes are your single largest expense throughout your life,” Kiyosaki said.

And the 401(k) is one of the biggest offenders, said Tom Wheelwright, Kiyosaki’s tax specialist.

“All a 401(k) does is defer or postpone your taxes to a later date,” he said. “A 401(k) really presumes that when you retire, you’re going to be poor. It presumes that you’re going to be in a lower tax bracket than you are today.”

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Over the weekend, we had some friends round, who are interested in getting out of the Rat Race and sorting out their finances. They have read my book, and we have gone through their budgets and spending habits and had a good old sort out already – but they are now interested in the next step.

So – we played Cashflow. This is a board game based around the Rich Dad, Poor Dad books by Robert Kiyosaki. In it, you are given a profession, with an income after expenses, and with that – you invest in order to get out of the rat race and fulfil your dream.

The four of us picked our profession cards: I ended up as an airline pilot with a Cashflow of $2,600. One of my friends picked the Janitor Card, with a Cashflow of just $650 a month. This is the lowest earning card in the pack. I predicted that the mild mannered Janitor would win the game: and he did.

In fact – no only did he win the game, the rest of us hadn’t even got out of the Rat Race and onto the Fast Track when he did it.

So – why is that predictable? Why do you not have to have a high income to be wealthy?

Because you do not need a high passive income to live on if your expenses are low! The Janitor may have a low income, but he has low expenses: a small mortgage, not many other debts, and when he has a child, the expenses for the child are relatively low (that game seems to assume that the high income earners clothe their children in Baby Gap and send then to private prep schools).

The janitor needed to get a passive income of just $950 to get out of the Rat Race. I needed a passive income of $6,900 to cover my expenses. So basically – if you can cut your expenses; you can retire on your investments quicker.

Not only does the game show that a High Income is not necessary in order to become wealthy – it also shows you how cutting your expenses can affect your outcome. Some expenses in the game – you cannot alter, but you can choose to pay down things like car loans, credit cards and retail debt. Doing that increases your monthly Cashflow and can have quite a positive impact on your game. It also means of course, that you do not need such a high passive income.

If you are thinking of going into investing in any way seriously – I really recommend playing this game. It’s obviously a highly simplified version of real life, but it does teach you a lot about how things work. You can buy and sell shares, property and businesses; you can get downsized; you can have (expensive) children; you get to waste money on Doodads (Rich Dad’s name for anything that wastes your money – like coffee). It is a fun way to learn the basics and to get your head round what you look for in an investment.

Cashflow is a pretty expensive game, so look around for people running games nights in your area. If you can’t find one – contact me and ill see if I can put your in touch with someone running a game.