Over the weekend, we had some friends round, who are interested in getting out of the Rate 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 including some finance tips.
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.