Author: Don Obrien

A fun way to learn about finance

THERE are many ways to learn about money. One of my favorite ways is through board games. Before the pandemic I’d meet up with friends and play. Nowadays, it can be done online. The classic board game Monopoly, for example, can teach some lessons about handling money and investing such as: Always having cash on hand for investment opportunities. Improving assets increases cashflow. Diversifying produces a more consistent income. Focusing on the return on investment and not on dollar amounts shows a more efficient use of capital.

Another boardgame that teaches money and accounting is Cashflow 101. In the game the players are represented by rats, who want to get out of the rat race and achieve their dreams. You, as a player, are given a profession that ranges from janitor to doctor with corresponding financial statements. The income statement starts off with a salary as your only income and monthly expenses. The balance sheet starts with cash as your only asset and liabilities such as a home loan, a car loan and credit card debt. To get out of the rat race you need to increase your passive income to at least equal your monthly expenses. Passive income is income from assets, such as interest and dividends, rentals, businesses, and royalties. In the game board there are several spaces which will prompt drawing a card. These are: Small Deals, Big Deals, the Marketplace, and Doodads. Deals range from businesses, stocks, and real estate. These offer opportunities to invest your money. If your savings is not enough you can always borrow from the banker that charges 10 percent interest a month. The Marketplace dictates the investment environment. Doodads are unnecessary expenses that you must pay out. Below are some of lessons from the game:

Lifestyle matters. In the game it is easier to get out of the rat race if you have a lower income profession compared to a higher income one. What is important is not how much you make but how much you get to keep.

There are two things you can do get out of the rat race faster. First is to increase your passive income as soon as possible and reduce your monthly expenses by paying off the loan principal.

Knowing your numbers is very important. Not all assets produce the same income. Some assets produce less income than others. Some can be bought with leverage, and some should be passed up. Knowing your numbers will help you decide the right deals to take.

Understanding your personal financial statements is a must. It is important to understand our own personal financial statements and their relation to each other. The game provides an introductory way to learn about the income statement and the balance sheet. You’ll notice that most items in the balance sheet is connected to the income statement. A rental house produces rental income. Credit card debt produces interest expense. After the game, you can even use the format of the financial statements to put in your actual assets and liabilities.

Diversify. Rather than simply waiting for that one stock to go up, you can also invest in some property or businesses.

The market changes. As in real life the investing environment changes. The same asset can sell at different prices at different times.

Life events affects our financial situation. The game contains life events such as being downsized or having children which will affect your finances.

Manage your cashflow well. Mismanaging your cashflow such as playing too aggressive and having too much debt could bankrupt you.

Take calculated risks. Save to invest. Not taking any risk or investing too little will not help exit the rat race. At the start of the game, you have the total expenses that should be matched with passive income. You can do reverse engineering to know how much cash you need to have to be able to invest in assets enough to generate the required passive income. It will help you risk just the right amount to reach your goal with less chances of getting bankrupt.

Team up. Your ability to make deals and partner with others will make it easier for you and your group to exit the rat race.

Be creative. Lack of cash should not stop you from earning from a deal and so is being downsized.

Sometimes you can’t afford the deal you draw. In this case, you might be able to sell it to another player or start an auction and make extra income.

Reflect and analyze your game after playing. Think about what you can learn from the game. Did you get out of the rat race? How or why not? How did the winner get out? Which strategies worked? Learning from your own and others should be one of your main objectives each time you play a game.

Josefino R. Gomez is a registered financial planner of RFP Philippines. To learn more about personal financial planning, attend the 92nd RFP program this October 2021 For inquiries, email [email protected] or text at 09176248110.

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Oliver Bolt

Oliver Bolt

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