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Updated Monopoly: The Cashflow game (part 1)

 


This is the Cashflow Board game created by Robert Kiyosaki 

If you have read my previous blog on Monopoly and understood what I was trying to say, Cashflow is the next game you should be playing. While Monopoly is about understanding how to acquire and leverage assets in the gameplay, Cashflow is much deeper than just acquiring the asset. 

Just a small introduction to this game…

The outer circle is about having a big goal in life, like owning a stock market, creating a forest, etc. Along that way, you will find plenty of business deals like, buying a food chain, taking the risk of losing money while exploring for oil, etc.

The inner circle is where you are in a Rat Race, having a job 9–5 and earning paycheck to paycheck. Throughout the game, you devise a strategy to deploy with whatever job you might get. For instance, you might get a job as a janitor for which the pay scale is small, or you could get a job as a lawyer with a high pay scale. But to make it a fair game, the rule is, that you should generate a passive income that exceeds two times the expenses.

Passive income is an income generated from assets that are floated as deals. All you have to do is acquire the right assets and increase the passive income. Everyone can deploy a different strategy, someone might invest in stocks wait for some time, and then sell to re-invest the capital gains in the income paying deals like apartment buildings, 3 bed-2 bath apartments, etc. Very often you might want to borrow money. But all it has to do is with the cashflow statement. “How much positive cashflow will a deal generate?” is the question you want to ask yourself every time. 

Difference between Monopoly and Cashflow game.

Monopoly is about understanding the leverage that debt can bring to the table provided you are careful, and strategic gameplay to win and probably own everything. The problem here is, that there is no way you can estimate the income from the deals you make, the only way you earn money is when people just by sheer luck land on properties you own. But this is not the case in the Cashflow board game, there are periodic income and expenses. This game is all about understanding financial statements. 

Types of Financial Statements:

  1. Balance Sheet: What is an asset and what is a liability?
  2. Income Statement: How much is the income and what are the expenses? (Excess cash = Income-Expense)
  3. Cashflow Statement: This statement records how much cash has entered and exited the system. This might seem like an income statement for beginners but it isn’t, it accounts for all cash meaning, investments, borrowings, savings, interest, depreciation, etc.

I will post different stories for each of the following statements hinting at the basics of what they mean.

   A simple balance sheet


What is an asset and what is a liability?  -  Personal Finance 101
An asset is an instrument that produces excess cash and a liability is an instrument that takes money from your pocket. As pointed out by Robert Kiyosaki in his books, many times people confuse an asset and a liability, thinking an instrument is an asset if it goes up in value and a liability that goes in value. It is not true at all, let’s take a few examples. 

First, if you own a big corporation called ABC Corp with a factory in Mumbai bleeding in hundreds of crores of losses each year. The only value it has is the value of land. Now think about it, whether it is an asset or a liability. Would you cling on to the factory thinking that land prices in Mumbai will increase in the future? The obvious answer is no, you would either turn it around into something different producing cash, or exit it. Housing and transportation are always a liability whether you own the cars you drive and the house you live in or lease them from somebody. The cash flow is always from your pocket to somebody else’s pocket. But this expense is necessary, housing and transportation are not an option. When you put your car on lease for Uber or get rental income from real estate, you have just turned an instrument into an asset producing excess cash.

Secondly, if you own stock in a company called ABC Corp. If the company isn’t doing well, it is a liability for you to hold on to it because sooner or later, the stock will go to zero. There is a fair chance that fundamentally the company is deteriorating, and the stock price is touching new highs in each trading session, even then it is a liability because you never know when the market says “Enough is enough” and the shareholders get a punishment. In history, we could see numerous examples of the same, multiple bubbles followed by crashes have occurred in the past because of anomalies in the market. 

Thirdly, taxes are one of the biggest liabilities in the financial statement of an individual but the tax code can be used as an incentive. More on that in future blogs.

In the next blog, I will dive into more details of how I and my friends play the cashflow game…

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Read about Monopoly: https://therutvikdiary.blogspot.com/2024/08/monopoly-trade-up-using-in-my-school.html

Location: Bharat

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