1. Simplify and get out of the rat race faster
I noticed that whenever I played the cashflow 101 game and was able to choose a “simple” profession like a truck driver for example, I was able to get out of the rat race faster.
As a truck driver, although my salary was low, my monthly expenses were also very low. Because I had low monthly expenses, I already had a positive cashflow and all I needed to do was just get those passive income generating deals.
After each payday, I had more money to invest, and with just a few passive income generating deals, I had enough passive income that exceeded my monthly expenses, and I was able to get out of the rat race faster.
In real life, I am applying the same strategy by reducing my monthly expenses by leading a simple life. This was also described by Bo Sanchez in his book “Simplify and Live the Good Life ” and T. Harv Eker in his book “Secrets of the Millionaire Mind”.
My family and I lead simple lives, which explains my very low target monthlypassive income which is why I know I am going to get out of the rat race in real life very soon!
2. Start with small deals first, and the big deals will follow
In the beginning of the game, I always chose small deals even if they produced little cashflow. Later on, when the market presents good opportunities, I was able to sell or “flip” these small deals and then I used the profit to buy the bigger deals that produced greater cashflow, allowing me to get out of the rat race.
In real life, I am also following the same path. I focus on single family homes or properties which may produce little cashflow at the very least, but can actually generate significant profits if “flipped” or sold through “rent-to-own”. I can then use the profit later when they are enough to get bigger deals that can produce bigger positive cashflow.
3. Over-leverage often leads to bankruptcy
During the game, we often encounter great deals that produce a lot of positive cashflow but require a big downpayment and it is tempting to borrow money from the bank just to be able to buy those great deals. However, there is such a thing as becoming over-leveraged which can produce negative cashflow situations because of the high monthly payments for those loans.
Even if one’spassive income is enough to cover the monthly payments for those loans, imagine if something happened and the monthly income of one’s investment properties were affected, suddenly the monthly payments for the loans cause a negative cashflow and can lead to bankruptcy. The same can also happen when one is downsized. This is the reason why one should avoid deals that lead to too much exposure or over-leverage.
Applying this is real life is a no brainer. I would not dare buy those multi-unit apartments unless they were in the same price range as the single family homes I focus on. As mentioned in lesson number 2 above, I can go for those bigger deals later when profits from my small deals are enough.
4. It is better to wait for a good opportunity than settle for those not so good deals
In the game, good opportunities come in the form of deals that have big ROI potential, and can be bought with little or no downpayment, while producing positive cashflow. If any of these elements are missing, I consider a deal as “not so good” and I pass them up and just wait for the good deals.
In real life, I do the same and patiently wait for good opportunities. If a not so good deal comes my way, I can either look for ways to make it into a good deal, or I just pass it up and wait for another more worthwhile deal to pursue.
5. Learn how to spot a good deal and grab it
One of the biggest challenges one faces in the game is how to spot those good deals so that you can grab them. Sometimes a good deal is right under your nose and it slips away because you didn’t realize soon enough that it was a good deal.
I believe spotting good deals is a skill and you can only learn this skill by continuously analyzing deals. Once you get the hang of it, you will start seeing those good deals more often. Normally those deals would have normally slipped away without you knowing it. If you see good deals often, it’s just logical that you will eventually grab one of those deals right?!
6. Learn how to protect your investments
I distinctly remember games where apartment buildings getting toppled by mud and all the cashflow generated by these properties are gone, unless I am covered by insurance.
Does Ondoy and Pepeng ring a bell? Who would have thought that a game like cashflow 101 actually teaches us to protect our investments from such disasters and calamities. Better get your investments insured with “Acts of God” coverage pronto!
7. Net worth is worth less, cashflow is king
Once you play cashflow 101, you will notice its emphasis on the importance of cashflow over one’s net worth. You will see that it really is more important to have positive cashflow frompassive income. What is the use of having a big net worth if you don’t have any positive cashflow?
In real life, we should apply this by focusing on building our positive cashflow with income generating assets. Even if we have to use leverage to buy these assets, it really is okay. We call this good debt. Don’t be afraid to have good debts that buy real assets that produce the cashflow we need to get out of the rat race for real!
Get out of the rat race in the game, and in real life!
So you got out of the rat race when you played cashflow 101. So what?! That’s useless if you don’t take action and apply the lessons you have learned from the game in real life. But playing a game is one thing, doing it in real life is an entirely different thing… or is it?
I can truly say that Robert Kiyosaki’s Cashflow 101 game is a “life changing” game because my life has really changed ever since I decided to apply in real life the lessons I have learned from it. Take note that I only listed the top 7 lessons I have learned and I can assure all of you that there are more lessons one can learn from this game.
People may find it hard to believe that one can learn so much from a game and can have such a huge impact in life. I guess you just have to play the game and experience it for yourselves.
How about you, have you played Rich Dad’s cashflow 101 game? What did you learn? Are you applying them in real life?
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Top 7 lessons I learned from playing Rich Dad’s Cashflow 101 game
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Kim Kiyosaki on KITV 4 / ABC News
Life is like a game of chances. You can win or you can lose. Everyday, we are faced with challenges, which can either lead us to become a winner or a loser. Learning financial literacy is essential to increase your chances of winning the game of life. Consequently, it is best to play the cash flow game to gauge how well did you grasp the concepts in winning the game of money.
Recently, I watched another video again of Robert Kiyosaki as now he talks about the so-called Game of Money where he described the four quarters of financial life dividing it into 10-year horizons and asked, “at which age will you win the game of money?â€
Let’s view the four quarters of life with some inputs so that we know how will we win the game of money and retire as young as we can be.
1st Quarter (25-35 years old) – By this age, you’re probably done with your college education. Most of us start our careers when we land on our first quarter of life. We want a high-paying job, buy a car, have our credit cards and enjoy life. While many of us just want to enjoy life after graduation, it is advisable for us to:
Savings should be our top priority. When you receive your paycheck, take out a certain amount and deposit it in a savings account. Once you accumulated enough savings, transfer the bulk of it into a higher yielding deposit account. Compound interest will help it to earn more interest.
Get Insurance. Get insurance especially if you now have family and kids to support with at this age. The higher and the healthier you are, the cheaper insurance costs will be.
Learn Investment Options. Think of investment options where you can invest your extra cash. You can invest it in stocks, mutual funds, real estate, bonds, etc. Start to educate yourself financially.
2nd Quarter (35-45 years old) – By this age, you are probably at the top of your career and definitely earning much more. But this quarter may also be the time when you’re starting to have your own family so that also means higher expenses. It is advisable to:
Plan for children’s future. You are now working not just for yourself but also for your children. Plan for your children’s future by getting an educational plan or open a time deposit that’s under your children’s name and deposit an amount into it regularly.
Make sure you have enough for your emergency fund. Emergency fund is amount totally dedicated to emergency expenses such as health problems, etc. A good amount would be equal to six months up to 1 year of your monthly income. Place it in an easy accessible type of investment so that when your need arises, you can easily withdraw it.
Have a business. By this age, you could have probably known a lot of networks from friends, colleagues, acquaintances, etc. And since you’re earning much higher, then you could start your own business. Gauge yourself on what business you should start. Examine your passions and skills in choosing the right business for you.
Half Time – Kiyosaki referred after the 2nd Quarter as half time because you are in the middle before retirement. It’s also called as “mid-life crisisâ€. It is now time to examine yourself. You are not getting any younger anymore. Have you had enough savings to cover for your future? What did you accomplished in your life?
3rd Quarter (45-55 years old) – By this age, you are probably on top of you career, possibly a manager or vice president of the company. You could be earning more and your children may be in their college years or are already working. Retirement is just around the corner waiting for you. In this quarter of life, it is advisable to:
Allocate much of your income to investment capital. Review your investment portfolio and ask yourself if you need to transfer your funds into a higher earning investment scheme. Just be sure to have a through due diligence before you transfer your funds.
4th Quarter (55-65 years old) – By this age, your children may well be on their own now with their respective families already. You are now at the age where you can retire. You may choose to still be employed but it should not be on stressful work as you are now prone to health problems brought about by old age, which means higher health care expenses. In this age, it is advisable to:
Protect your capital. Try to preserve your capital so that you can live with on its interest. And make sure to make your last will in order.
Over Time – Kiyosaki referred after the 4th quarter as over time. If you haven’t had any accomplished things when it comes to your financial future, then that would be a great problem because sooner or later you would be “out of time†and the game of money will be “game overâ€.
We don’t want to retire old. As much as we could, we want to retire young so that we can still enjoy the things that we want. How could we enjoy it if we are already old with a lot of health problems associated with old age?
Personally, just like what Kiyosaki did retiring at the age of 47, I also want to win the game of money and retire on the second quarter of life. I want to enjoy life as early as I could without having to worry on going or having to work. And that is the very essence of financial freedom.
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Game of Money – Four Quarters of Life
I am still reading Kim Kiyosaki’s Rich Woman and in the true Kiyosaki style she offers some incredible common sense “objection handling†to the common issues thrown up when it comes to why so few women have succeeded in obtaining financial independence either within a relationship or on their own.
1. I don’t have the time.
2. I am not smart enough.
3. I haven’t got the money.
Now as a mother myself, I can fully relate to the time factor involved with bringing up children, however I take on board Kim Kiyosaki’s viewpoint that if my life depended upon finding the time, I’d have found it somehow.
I concur with the viewpoint that men are not born smarter than women when it comes to finances, in fact biologically women are better equipped for investing than men. ( Kim goes on to show this .) I began studying investing over 12 years ago, when on regular trips to the USA & Canada I was amazed at the extent of personal finance books, business and self help books available everywhere compared to the extremely limited selection in the UK. ( So I bought several on every trip & changed my course.)
I have been guilty of waiting to hit the big deal, then start investing, and with money to invest too much too soon without first practising, I have set myself a small challenge this week of finding an asset ( something that pays me a positive cashflow ) this week for around £100. I am a massive believer in learn by doing, I have come through all the money management levels required in order to be free to invest in passive income so I will research what is available and do my due diligence.
If you ever come across the chance to play the Cashflow 101 game by Robert Kiyosaki then jump at the chance, you play the part of a Rat, trying to get out of the Rat Race. You collect your “Monthly Cashflow†payment and decide which small deals provide you with a positive Cashflow, when to convert those samll deals to capital gains to clear liabilities and when to purchase a big deal.
The object of the game ( and is highlighted throughout Kim Kiyosaki’s book ) is Financial Freedom is achieved when your Passive Income pays for your Total Expenses.
Source: http://witoo.wordpress.com/2008/04/05/financial-freedom-is-achieved-through-passive-income/
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Financial Freedom is Achieved Through Passive Income
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. Â
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.
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Cashflow game – lessons learnt
