The game of Monopoly has been a staple in households for generations. Played among friends, family and strangers via the web, Monopoly owes its enduring popularity to the skill and strategy involved. Unlike a game of pure chance, a player with a firm grasp of the fundamentals can run circles around less cerebral opponents. But it’s not just during game play that Monopoly builds financial intelligence. Upon closer examination, many of the same tactics and strategies that prove useful while playing are also highly applicable to real-life financial situations, including home ownership, spending habits and the importance of saving. If you are an avid fan of Monopoly, consider the following 12 lessons it can teach you about shrewd financial living.
Establish Your Game Plan
Everyone knows that Monopoly presents players with countless opportunities to bankrupt their opponents. Which opportunities are utilized is entirely up to the player. Will you sink big money into hotels on pricey properties like Boardwalk and Park Place, or spread your resources around by building houses on a wider range of less expensive squares? Countless players have won with either strategy (and with hybrid versions of the two), but most consistent winners of the game decide on their basic game plan in the very beginning. The same is often true in real life personal finance. Because so much of financial success – delayed gratification, immediate sacrifice, prolonged savings – runs contrary to human nature, it helps to fall back on a plan that connects today’s effort to tomorrow’s rewards.
We’ve all been there – you’re rolling along, building houses or hotels and raking in the dough from unlucky opponents, when suddenly, you’re sent to jail. Then what? Either you’re lucky enough to have a Get Out of Jail Free card, fork over $50, or hope to roll a double sometime in the next three turns. Left unmanaged, the risk of winding up in jail can devastate a player’s chances of winning in Monopoly. Sadly, lots of people deal with financial obstacles by hoping for the real life equivalent of a Get Out of Jail Free card, which is rarely forthcoming. The lesson here is to anticipate and prepare for obstacles before they occur. If your first thought about how to get out of jail (or a pay cut, car repair, etc.) occurs when you are in jail, it could be too late.
Don’t Put All Your Eggs In One Basket
In Monopoly and in life, it’s tempting to rationalize mishandling the small, uncelebrated moves and vow to make up for it with a few big ones. During game play, this is epitomized by the player who plows their entire war chest into building a lone hotel on a flashy square like Park Place. And sure, when it pays off, it really pays off. But how many players have seen their chances of winning erased by an expensive hotel that nobody happens to land on? Observant players should spot a key lesson here: don’t put all your eggs in one basket. Whether it’s a single stock, a single supplier, a single client or even a single employer, such a scenario dangerously reduces your margin for error. If ever that one thing fails to pan out, you could find yourself completely wiped off the map.
Saving Expands Options, Not Saving Shrinks Them
While it’s dangerous to tie the entire outcome to a single plush property, there’s no question that owning as many valuable properties as possible is highly correlated with winning. But just like in real life, the best spots on the Monopoly board command a steep asking price. And unless you’re the beneficiary of some serious luck, you can probably only hope to buy such properties by saving some of your playing money. Not surprisingly, this is no different than most real life financial goals. Inheritance heirs and lottery winners aside, the acquisition of lavish homes, cars, clothing and vacations can usually be traced back to disciplined savings over a lengthy period of time.
Abandon Sunk Costs
One of the most common mistakes that even financially savvy people make is failing to recognize sunk costs. Too often, we stick with a decision (be it an unsatisfying job, an under-performing investment or a troublesome employee) simply because changing course is unpleasant. The same behavior occurs on the Monopoly board when players refuse to sell properties even as they are teetering on the edge of bankruptcy. In either case, failing to cut your losses is nothing more than an exercise in self-delusion. Costs that have already been paid should not influence future decision making. An economist would say that chaining yourself to a bad financial decision amounts to “throwing good money after bad.” Needless to say, throwing good money after bad is not the way to win in Monopoly or in life.
Don’t Chase Fads
Many a Monopoly player has been done in by trying to “one-up” the other players on the board. It can be frustrating to watch a well-heeled opponent blanket the board with houses and hotels while you struggle to get out of the blocks. That being said, abandoning your game plan to mimic what other players do can be financially suicidal. It’s not like racing car games, where everyone is following the same track. The key is to remain ever-focused on your goal and the best way to achieve it, irrespective of the glamorous moves others seem to be making. Just like in real life, the Monopoly player making the moves you envy is likely to be operating from a different financial position. Either they have more money, in which case you cannot emulate them, or they are heedlessly risking their money, in which case you ought not emulate them.
Ride Lucky Streaks For All They’re Worth
For all the skill and strategizing involved in Monopoly, the outcome is partially decided by luck. You can’t control the roll of the dice or the decisions other players make. The same is true in real life. If you examine a large group of randomly selected adults, you will see the best-laid plans thwarted by bad luck and the most foolish risk-taking negated by good luck (at least temporarily.) The takeaway from this fact is that lucky streaks should be ridden for all they’re worth. When financial events seem to be breaking your way, assume that this will not continue for long and make the most of it. If you get unexpectedly promoted, work hard to demonstrate to your boss that it was justified. If a prized new client falls into your lap, take the opportunity to impress them with stellar service.
Starting Early Matters (Really)
In Monopoly, it is statistically true that the player who rolls first has an advantage over all the others. And if you’re unlucky enough to roll last, the climb gets even steeper because you are the one most likely to land on another player’s property. In fact, that’s the entire point: to buy up as much property as possible before the others get a chance. Real life financial success dictates a similar course of action. The earlier you define financial goals and act to achieve them (such as by instituting an automatic savings program and a retirement account), the greater your chances of prosperity. Although it’s virtually always better to start late than never, any financial expert will tell you that the early bird gets the worm.
Systems, Not Ongoing Effort
The world’s richest people create systems that build and grow wealth for them. Indeed, Monopoly itself is patterned after one such system: real estate investment. As in real life, you put in a lot of work up-front so that you can coast on the wings of your “passive” income later on. Sadly, this is one of the less obvious and therefore most overlooked lessons that Monopoly has to offer. The real life equivalent of building passive income streams is to start a business, cultivate a robust investment portfolio or some combination of both. Financial author Ramit Sethi says he’s weary of any life plan that has you working progressively harder as you age, akin to the levels of a video game. You ought to be weary of that, too, and consider the ways in which you could create passive income.
A shrewd Monopoly player is always on the lookout for deals that would strengthen themselves or weaken opponents. Games can be won or lost on deals you make or don’t make, such as persuading an opponent to trade you their Get Out of Jail Free card. The most consistent winners tend to be movers and shakers who make the right deals at the right times. Likewise, your chances of getting a raise are far greater if you are willing to forthrightly state your case and negotiate for one. Same is true of knocking a few thousand dollars off the price of a new car or home. Strive to examine each financial situation in terms of what could be, rather than simply what already is.
Don’t Buy More Home Than You Can Afford
Monopoly offers an object lesson (albeit in game form) of the risks of buying more home than you can afford. Overzealous players often find that sinking all their capital into lavish properties is financially ruinous. Typically, such decisions are made based on the assumption that the best case scenario (everyone landing on those properties one or more times) will materialize. Unfortunately, history is filled with disaster stories in which nothing close to the best case scenario materialized. The recent housing boom and bust is a case in point. Too many borrowers allowed notions of the house they “deserved” to drown out the reality of the house they could afford. Before you buy, think long and hard about what kind of flexibility you will have after the fact. If you envision being pinched for every penny as a result of the payments, consider buying a less expensive home.
Lose Your Excuses
In Monopoly, as in any other game, there is a winner and a loser. What “should” or “could” have happened if this or that worked out differently is irrelevant. Marketing guru Dan Kennedy is fond of saying that the list of the loser’s excuses is never displayed on the scoreboard at sporting events. This is even truer of real life personal finance. When all is said and done, you will either have achieved your financial goals or not achieved them. Whether this means living in a beautiful home in the country, running a small business or traveling the world in retirement, excuses will not get you there. The only way to win in life or in Monopoly is to take informed, decisive action. Abandoning your excuses is therefore helpful in either pursuit.