Cashflow 101: Using the Game to Define Your Investing Strategy

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“The greatest mistake you can make in life is to be continually fearing you will make one.”

Elbert Hubbard

My father worked in construction and did contract work on the side.

I remember being with him on some of the job sites when I was a kid.  He would give me simple tasks to do, but not tell me how to do them.  Instead, he would let me try to figure it out for a while on my own.  I almost never got it right the first time, but the process of making mistakes and trying to figure it out on my own before having his guidance has always made me remember the lesson.

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Cashflow 101: The Game

As the introductory quote to this blog states, one can’t be afraid to make mistakes.  I agree wholeheartedly with this and believe that making mistakes is one of the best ways to learn.  With that said, I also believe that mitigating risk is an important concept to understand as well, especially when it comes to investing.  So the key question becomes “how can one make mistakes so they can learn while at the same time reducing the impact of those mistakes?”  Introducing Cashflow 101.

Click Here to Buy Cashflow 101 From Amazon

Cashflow 101, created by Rich Dad Poor Dad author Robert Kiyosaki, is an educational board game aimed at teaching investors concepts of accounting, finance and investing.  Each person is given a profession cards that defines their income, expenses, assets and liabilities.  The objective of the game is to “get out of the rat race” by accumulating enough passive income that exceeds your expenses.  This is accomplished by doing “Small Deals” (buying/selling stock, single family homes, land and starting small businesses) as well as “Big Deals” (buying multi-units, businesses and franchises).

Occasionally “The Market” will shift and your investments will be worth more or less than you initially paid.  You may also have to purchase “Doodads” (shopping trips, lottery and the ever popular boat.

Once your passive income exceeds your expenses, you move on to the second phase of the game called the “Fast Track”.  This phase is comprised of “Dreams” (Pro Team Box Seats, Cruise the Mediterranean on a Private Yacht, Golfing Around the World) and “Really Big Deals” (franchises, large apartment buildings, IPOs).  To win the second phase, a person needs to either land on their dream or accumulate $50,000/month in cashflow.

Learning in a Safe Environment

So at this point you may be saying, “That’s all great Tom, but how can playing monopoly on steroids help me make money in real estate?”  Great question, and the answer is that playing the games vicariously provides you the experience of investing in real estate without having to actually invest in real estate.

A game of Cashflow takes between 1-3 hours to play and can be played over and over.  In one game you may be “The Doctor” who makes $13,200 each paycheck but also has a $200,000 mortgage, $150,000 school loans and $9,650 in expenses.  In another game you may be “The Janitor” who only makes $1,600 each paycheck but who only has a $20,000 and only $950 a month in expenses.  Some games you may try to go after some “Big Deals” right away and be very successful, but in others “The Market” may change and leave you bankrupt because you do not have cash reserves.

You may decide that you want to go a more traditional route of investing in stocks and avoiding real estate, or maybe you start with paying down some debt and doing small deals.  Each time you play, you get the opportunity to look at the game from the perspective of a different role (profession) and try out various strategies.  This allows you to try the make mistakes in a short period of time (1-3 hours), explore different strategies and practice analyzing potential opportunities each time you play.

The impact of winning or losing in the game is far less than if you were investing in real life, which means trying out different strategies to see what works is encouraged.

Lessons Learned by Playing Cashflow 101

There are a lot of great things that can be learned by playing Cashflow 101.  Here are just a few that I have found.

  1.  There Are Various Investing Strategies
    Many people do not realize that there are various strategies for investing.  The game provides a portion of the available strategies that allow people to start to realize how many different strategies there are, such as stock, mutual funds, bonds, real estate, small businesses and large businesses.
  2. The Market Changes
    Anyone that was investing in real estate around 2008 probably learned this first hand.  After years of appreciation and property values going up, the bubble burst and property values fell a lot in some areas.  The game shows changing markets and their impacts on the investing strategy that you are using.
  3. Financial Freedom Can Mean Different Things
    A lot of people think that being financially free means being rich.  The game shows a different approach, which is financial freedom by having more passive income than expenses.
  4. More Income Does Not Always Make Financial Freedom Easier
    The first time I played Cashflow I was disappointed that I was the teacher when others were doctors and lawyers.  The light bulb moment I had that game was that I was able to get out of the rat race much faster than them because my expenses were much lower as the teacher.
  5. Your Risk Tolerance
    It is very important to understand how much risk you are comfortable with.  As you play the game, you will be able to understand your personal risk tolerance and that of the people you play with.
  6. The Impact of Your Risk Tolerance
    Different risk levels carry different rewards in downsides.  The riskier investor may score big one game, but go bankrupt the next.  The risk-adverse player may not get out of the rat race, or may take a longer time.  Understanding the impact of your risk tolerance will assist you in setting realistic expectations and goals.
  7. What Income Statements & Balance Sheets Are
    It is important for everyone to understand their personal finances and how they are calculated, but it is especially important for investors.  The game provides an introductory way to learn about 2 two important reports, how to generate them and what they mean.
  8. Paying Down Debt vs. Investing
    There are different schools of thought on whether it is better to pay down debt or invest.  In general, you want to pursue what has the highest return, but you can try out both strategies in the game.
  9. Partner Thoughts
    Many people invest in real estate with a spouse or other partner.  Playing this game with your partner will allow you and them to understand each other’s risk tolerance, investing thoughts and strategies.  After the game, you can review the game and discuss the impacts to your real life investing.
  10. Your Ability to Partner
    Many people see real estate as a cut-throat industry where other investors are your competition.  In reality, there are a lot of benefits to partnering with others, especially in a situation where you have a good deal but don’t have the means to complete it alone.
  11. Impacts of Life Events
    The game contains life events such as losing a job, having children or getting divorced.  This allows you to be aware of these events and figure out how to handle them when they occur.

My Real Life Investing Strategy

I first played Cashflow 101 in a 3 day guru seminar.  I had previously read Rich Dad Poor Dad and it changed my life and how I viewed money.  Playing Cashflow 101 again changed my life.  Since playing the game the first time, I have played it over 50 times.  As a result of playing the game and testing out various scenarios, my real life investing strategy emerged.

Start with Stocks

I wanted to start investing in real estate right after college, so I did not have a lot of money saved.  I took money each week from my paycheck and purchased stocks.  I spent time learning and researching the stock market.  I could have lost money given that I was only investing for 1-2 years, but in my case I made a little bit of money from the stock market and had enough for my first deal.

Move On To Small Deals

I decided that I was somewhere in the middle with risk tolerance.  I wanted to invest, but did not want to grow too big too quick.  I was more comfortable with the slow and steady approach.  So I picked up a series of duplexes and single family homes.  I also started an IT company part time (no profits during startup, long hours, no extra pay).  I decided that there were better uses of my time, so I sold the startup to my partner to focus on real estate and other business opportunities.

Transition To Large Deals

After purchasing a bunch of small deals, I decided that I had enough in reserves and knew what I was doing to step up my game.  I purchased a 4-plex containing 2 residential units and 2 commercial units.  I then decided to diversify and start a retail business.  I opened a wine and liquor store and put it in one of the commercial spaces of the 4-plex.  I plan to continue to purchase larger multiplexes and have a few other potential business ideas.

Some Long Shots

Although my risk tolerance is somewhere in the middle, I do like to take a small percentage of my portfolio and make some riskier investments.  Back around 2005 when we had the war in Iraq I purchased several hundred dollars of Iraqi Dinar.  The currency was valued very low and had/has the potential of revalued.  Currency trading is high risk, so I only put a little money into this.  I am also looking into some other items that I deem riskier, such as purchasing some raw land.  Some of these investments may not pay off, but if they do the return could be sizable.

Conclusion

Many new investors get caught in analysis paralysis.  They read books, read blogs, listen to podcasts and talk to investors, but for one reason or another they struggle to jump into that first deal.  Being able to “practice” investing in a safe environment like playing a board game is a great opportunity for new investors to try experiment with different strategies with little risk.  Investors should understand that Cashflow 101 is just a game and therefore it can’t cover all of the situations that may occur in the real world, but it will provide a great transition step from education to actually investing.

If you have played Cashflow, what have your experiences been?  Were you able to transition from the game to real life?

Photo: svet

About Author

Tom Sylvester

Tom is a serial entrepreneur and real estate investor from Rochester, NY. His real estate investments primarily target multi-unit properties. Along with his wife Ariana, they run a blog called Entreprenewlyweds, which helps couples understand how to manage being real estate investors/entrepreneurs while also maintaining a great relationship and family life.

17 Comments

  1. As a Cashflow game facilitator I have three points to add.
    1. You should have suggested that people search out a local cashflow club or REIA sponsored regular game, we play once a month in a Coco’s near Palm Desert CA (CVREIA.com). Playing regularly with interested investors will help you learn and observe the effectiveness of many strategies, also we have had quite a number of real world partnerships created in our club.
    2. The point where you will find you learn exponentially with Cashflow comes after your third or fourth game when you start teaching the newbies how the game functions. The best way to learn is to teach.
    3. I think you left out one of the best things you can learn from Cashflow play. In the game you can have all the credit you can afford by borrowing from the “Bank”. Of course, the “Bank” charges you 10% a paycheck or 120% a year interest. After playing the game and using that 120% money when it makes sense, borrowing money at 12%, 20% or 23% in the real world might not seem as crazy as it once did.
    Andy
    PS a hint to speed game play I stole from the old NR multi level group, don’t use the phoney cash, just issue each player long strips of paper and use them like a check register to keep track of cash on hand.

  2. I love the game. It is an amazing game for novice to expert investors. It definitely has thoughts me quite a few tricks.

    Also, there is a free online version of Cashflow 101 game now. It is on the Rich Dad website.

    • Tony – I agree in that all levels can play it. I don’t play it as often anymore, but once in a while I will pull it out when introducing someone to real estate. I always find something new that I can take back to my business from playing. Plus I really enjoy helping others to get started.

  3. Its a great game. When I can’t convince my girlfriend to play with me I’ll set up various players with different strategies in mind. I always am amazed how one situation can put you so far ahead so suddenly, or exactly the opposite by tearing you down. Its been a great method for experimentation and I’ve learned a ton from those various strategies.

  4. I played it once during a 3 day seminar with a guru this year, and haven’t touched it since… I was told that the game costs $100 so that deterred me from playing again. I agree, it provides a good learning lesson in investing as you role play with different professions.

  5. I’ve always enjoyed the game and was actually a member of a monthly “Cash Flow Club” for a little over a year a while back.
    I will say it did seem that most times the person that “won” got there by buying a stock for $1-2 and then having it go to $30-40. They then cashed out and got into big deals and got out of the Rat Race fast at that point. While buying undervalued assets is part of the philosophy I don’t think the dependence on making a huge score in the market with price appreciation really is.

    Also don’t think I have ever played where someone having a kid didn’t elicit an F-Bomb. 🙂

    • Tom Sylvester

      Shaun – Valid points. When I play, I know that it is not likely that that $1 stock will turn into a $40 stock in real life, so I often won’t utilize that strategy. I want to play the game like I would in real life and get the scenarios as close as possible.

  6. I’ve been playing Cashflow 101 for about a year now. I’d say it’s one of the best simulations of real estate investing in real life. I have used buy low/sell high with stock, but I don’t count on it. More often my opportunity to “go massive” comes when I get a chance to sell one of my cashflowing assets for capital gains. Once I acquire greater sums of cash I can go for the Big Deals and often enough get out of the Rat Race in one turn.

    To those bent on “winning” the game this strategy works well enough, but “winning” isn’t the point of the game. I recommend going to as many Cashflow clubs as one can. It’s a good place to network and, better, to learn the investor’s mindset. Winning is this game is learning.

    For those who cannot find a local Cashflow club the next best thing is playing the online version on http://www.richdad.com. It’s FREE to register and play. You can play against computer players or other humans over the internet. While it is not as good as playing face to face over a game board, for those unable or unwilling to kick down $200 for the board game, the price is right (remember, FREE!)

    Often the lesson one receives is just to be patient. Continue to play out your strategy, remain focused until you succeed. I’ve played several games where I lagged every other player until I found the right opportunity.

    I can always tell who the Monopoly players are by the F-bombs they drop and their “crush the competition” attitude. Cashflow 101 is NOT Monopoly. I’ve shown many people how to structure a deal with other players for mutual benefit that would otherwise be over the player’s head. It’s just like real life; everybody comes out ahead.

    I’d be interested in any questions or comments on or about Cashflow 101.

  7. Our family really likes this game, though I have to admit that trying to get other people to play it can be quite challenging. The moment you mention balance sheet and income statement, they look at you like you are crazy 🙂

    There are a couple of things that bother me about the game; for example the whole $1 stock strategy is practically cheating. The moment someone gets that card, they borrow as much as feasible from the bank and buy the stock, then just sit on it for a few turns until that stock is in the $20-40 range.

    We’ve been trying to come up with a way to make it more realistic, perhaps by introducing the possibility for that stock/company to go bankrupt.

    Any thoughts?

    • Tom Sylvester

      Oleg – We typically only play with people interested in getting into real estate investing as it is not so much a game but instead a learning tool. If a person doesn’t want to play the game, then they definitely don’t want to invest in real estate.

      For the $1 stock cards, you could add a rule that you can’t buy at the $1 stock price. I have another blog coming up in a few weeks with some ways to tweak the game to make it more realistic. Stay on the lookout.

  8. Tom, Thank you for the Blog. This is actually the first time I have ever heard of a cash flow club. I think I heard about the cash flow game on BiggerPockets but never realized it can be played online. My initial entry into real estate was simply that my dad often had bad things happen financially, but real estate he had bought, usually a dump he bought and we fixed up, bailed him out. I figured buying a property cheap and having someone else pay for it was a no brainer. I never even stopped and figured cash flow, just will it make payments and taxes and insurance. I have changed my philosophy since then. I am impressed by those who write to educate and help others. thanks again.

  9. It seems to me that if you want to make a rule that buying stocks for $1 is cheating, go through the Small Deal cards before the game and remove the opportunities to buy at that price. I’ve personally experienced the frustration of buying big a $1 then never getting the opportunity to sell. Real life is like that too. Usually I avoid buying stocks at any price in the game. Stocks are not really the biggest part of 101. If you want to play with stocks move on to Cashflow 202. They are a BIG part of that game.
    The main thing is to learn and practice investing strategies and mindset. If parts of the game seem unfair, relax. Life is not fair. That make the game a reasonable model of real life.
    Should you find yourself taking advantage of the opportunities to “crush the competition”, then carefully place all the pieces of Cashflow 101 back into the box and go play Monopoly. Cashflow is all about cooperation, but competition. Everyone gets out of the rat race and everone learns something, thus everyone wins!

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