Make your money work for you!

August 14, 2009

Laura and I are in an interesting, pre-“real world” state for the next year. Being in grad school has been equated to making an investment in education which is expected to return big dividends in the future (according to one website, a Ph.D. earns $2.2 million more over a lifetime than one with a high school diploma, and $1.3 million more than one with a bachelor’s degree). One attitude that we’re practicing right now is to be comfortable living below our means. That’s incredibly difficult when your income barely covers rent, insurance, and food; is it too much to ask for a night out to dinner here or there? But, we’re taking this as a good experience for when we have a larger income (hopefully a year from now!); we’d love to use the extra income for things like charity, traveling to see family more, and investing…

That said, I have a group of friends that are really into investment strategy. None of us are really practicing these principles outright, but as we’re all fairly poor, we’re using this time as an education for the “near” future. Last night, we sat down for a rip-roaring game of CASHFLOW!cashflow

Haven’t heard of Cashflow? Probably because it retails for $195 (my friend got a deal on ebay). It was created by the guy who wrote the book “Rich Dad Poor Dad.” Despite my skepticism, it was actually a fun and non-cheesy  (pun not intended) game. It reminds one of Monopoly, with the exception that you start out the game with a randomly-assigned life. I was a truck driver, and the others were a lawyer, a doctor, and a teacher. Although I had the lowest salary, the teacher actually had a lower take-home income thanks to higher expenses. To put it into perspective, my salary was $2500, and the doctor was $13000. But the game is designed (correctly, I’m sure) so that a truck driver has a cheaper house, cheaper car, and less general expenses than a doctor. As the game progresses, you earn your income after expenses from a “pay day” roll, but you can also land on either “opportunity” cards or other spots dictating expensive life situations like having a baby or getting a divorce. The goal is to acquire enough assets (real estate, businesses, etc.) using bank loans or your own savings to get out of the “rat race,” which they define as having a passive income (that income not including your salary, say dividends or rental income) greater than your expenses. I guess I picked up the concept quickly, because I was the first (and only) one out of the rat race.

The point that the author (Robert T. Kiyosaki) is making is that everyone should increase their financial knowledge. If people understand that acquiring assets is the path to financial independence (and that assets are not your own home or your car and boat, but income-producing property), they would allow their money to work for them. Another point is that it doesn’t matter which “card” you’re dealt (i.e. truck driver achieves independence leaving doctors and lawyers in the dust).  Granted, in life, like the game, you need to forego “doodads” (new car, boat, luxury vacations) in lieu of acquiring assets. Once your assets provide you enough income to cover your expenses, do whatever you want with the surplus!

There are all kinds of reasons not to follow this advice. “How can I go without buying a new car?” “I want to secure a great lifestyle with a beautiful home and nice cars since I work so hard, not risk my money on investments.” I don’t know what our strategy is going to be, or how we will balance investing with our own needs and wants, but I think it is a conversation everyone should have with themselves or their spouse if they truly want to have financial independence.

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