Wednesday, September 24, 2008

Cashflow 101

Cashflow 101 is an educational tool in board game format designed by Robert Kiyosaki (author of Rich Dad, Poor Dad), which aims to teach the players concepts of investing by having their money work for them in a risk free setting (play money) while simultaneously increasing their financial literacy and stressing the imperative nature of accountability.

There are two stages to the game. In the first, "the rat race", the player aims to raise his or her character's passive income level to where it exceeds the character's expenses. The winner is determined in the second stage, "the fast track". To win, a player must get his or her character to buy their "dream" or accumulate an additional $50,000 in monthly cash flow.

In place of “score cards”, there are financial statements. The game requires the players to fill out their own financial statements so that they can see more clearly what is happening with their money. It generally shows how assets generate income and demonstrates that liabilities and 'doodads' are expenses.

Robert Kiyosaki also designed two other Cashflow games: a children's version called Cashflow for Kids, and a follow-up game to Cashflow 101 for more advanced players, which he released as Cashflow 202.

The Cashflow games also have a computer game versions.

Cashflow 101 Game Questions

Q. How many people can play CASHFLOW ? Can I play on my own ? A. CASHFLOW® was designed to be played by more than one player. Better interaction occurs when 3 to 6 people are playing. By inviting your friends to join you in playing CASHFLOW®, your learning experience will be heightened by the interaction of your group.

Q. Do I have to watch the video and listen to the audio tapes that come with CASHFLOW® 101 before I play the game ? A. It is not necessary to watch the video or listen to the audio tapes before playing CASHFLOW® 101. However, the concepts that are presented in these materials can be applied to the game, as well as to real life, and may assist you in getting out of the rat race more quickly !

Q. When I purchase real estate, there is a cash flow amount stated on the card (plus or minus). Is this amount the net amount after the mortgage payment or do I have to calculate a mortgage loan payment ? Can I pay off a real estate mortgage on an investment property and then increase my passive income ? A. Real estate mortgages cannot be paid off on investment properties in CASHFLOW® 101. The mortgage payment is calculated in determining the ROI and the monthly cash flow. It is as if you have a property manager who handles the property for you, collects the rents, pays the expenses including the related mortgage and then sends you the balance each month (assuming it is +).

Q. If I land on the downsized square and I do not have enough cash on hand, can I sell my stock to the bank for the price at which it was purchased ? May I borrow the money from the bank ? A. You may not sell your stock to the bank. Stock is only available at the price indicated by an opportunity or market card when drawn by a player. You may, however, take a loan from the bank.

Q. If I don’t have enough cash, can I borrow money from the bank to make the down payment for an investment property ? A. Yes. You may borrow money from the bank to raise enough cash for the down payment on an investment property. BUT remember you must include the bank loan as a liability and 10% of the loan amount must be recorded as a monthly expense. This means that your cash flow is adjusted up by the cash flow generated by the property and down by the amount of your monthly loan payment.

Q. If I am almost out of the rat race, can I borrow money from the bank to raise enough cash to buy an investment that will give me enough passive income to get out of the rat race and onto the fast track ? A. If, through the loan, you are able to purchase enough passive income to get out of the rat race- congratulations ! Remember you must increase your expenses to include the amount you have to pay in loan payments before you calculate whether your new passive income exceeds your expenses.

Q. Some expenses in "doodads" are $75 (sunglasses), but there are no $5 bills in the game. Am I missing $5 bills ? A. No, you are not missing any of your currency. This was a misprint on the card. You should just round up the expense for the sunglasses to $80.

Q. When a market card is drawn that says "anyone can sell at this price" does that mean I can sell all my holdings that match the description on the card, or only one ? A. You may sell any or all of your holdings that match the description on the card.

Q. If I am downsized can I sell stock or real estate while I am missing my turns, when the cards are drawn by other players ? A. Yes. You may still take advantage of the opportunities presented by cards drawn by other players as long as the card specifies "anyone can...".

Q. When I am downsized, why can’t I still receive my passive income even though I am missing my turns ? A. When you are downsized, you are correct that you lose your earned income but not your passive income. However, you also continue to have to pay your monthly expenses. This means that you would owe the bank money (the amount your expenses exceed your passive income) for each turn until you find a new job. If you are one of the higher paid professions this could force you into bankruptcy early in the game. For ease of play we chose to have you miss two turns entirely instead of having to calculate the amount due the bank for each turn or face bankruptcy early in the game.

Q. When paying off debt do I have to do it before or after I roll the die ? A. Either is acceptable.

Q. Why don’t you reduce the mortgage liability on your home as you make monthly payments ? A. In real life, you would in fact do this. For ease of play in the game, we do not adjust the principal amount of the mortgage. Most mortgages are long term in nature and, for purposes of this game, a level monthly mortgage payment is assumed.

Q. Since my monthly expenses include credit card payments, shouldn’t I reduce the liability as each payment is made (at each pay day) ? A. Most people make monthly payments on their credit cards, but also charge new amounts on the credit card as well. Therefore, the game assumes a steady level of credit card debt that does not fluctuate from month to month. (Unless you choose to pay off the entire liability and therefore you would eliminate the monthly payment as well, in essence you have paid off your entire credit card bill and cut up your credit card so no new charges may be made.)

Q. If I am trying to reduce my monthly expenses by paying off my liabilities, may I pay them off in pieces ? A. We suggest that the entire amount of the liability (eg. Credit card debt) be paid off and then you can erase the entire related credit card expense. Your total expenses would then be reduced by the amount of your monthly credit card expense payment.

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