I’ve been playing too much Monopoly on the computer the last few days. I don’t know why it’s sucked me in, but it has. At first I wasn’t very good at it and the computer beat me every time. But then I started applying the good money principles I talk about here and I started winning. Here are some money lessons from Monopoly.
Take Some Risks Early
How this applies to Monopoly: When you first start the game of Monopoly you have to take some risks and lay it all out on the table. If I sit back and wait for the perfect time and the perfect property I’m going to lose out. I buy every property I land on even if I have to mortgage other properties to do it. Sure I could keep all my cash which seems like a win at the time, but everyone else will be investing and then I will be paying just for the privilege of going around the board.
How this applies to real life: Getting started young will benefit you your whole life. Whether it’s college, starting a business, or investing for retirement. It’s better to go all in at the start than to waste time watching TV and working entry level jobs. Even if it feels like you are going backwards at first you are planting seeds that will grow in time.
Build Your Emergency Fund
How this applies to Monopoly: Once all the properties on the board are purchased I don’t do a thing until I’ve saved up $400. This money will get me around the board without having to mortgage any extra properties. At first I would unmortgage properties as soon as I had the money. This meant I was spending more than I needed to on interest since I would have to turn around and mortgage them again if I landed on an unlucky spot. Now that I’m a more experienced player I will not spend my hand under $400 if I can help it.
How this applies to real life: Having an emergency fund gives us more control over our finances. It will smooth out rough patches and keep us from borrowing when it’s not in our best interest. Having money set aside for unexpected bills reduces stress and gives us more control over our money.
Use the Debt Snowball
How this applies to Monopoly: I will spend any money I can get my hands on buying properties, even if that means mortgaging my properties. When my cash is low and my debt is high it can feel like I’ll never get out of it. As I save money from going around the board and collecting rents on my unmortgaged property I may find myself with “extra” cash. I will spend anything I have over $400 to unmortgage properties. I start with Mediterranean Ave and work my way around the board to Boardwalk. This is essentially the debt snowball, lowest balance to highest balance. I don’t build houses or make any trades yet. I first become debt free.
This is the do or die point in the game. If I can get debt free then I’ll win the game. If I can’t keep my hand over $400 and get some debt paid off I will end up filing bankruptcy pretty quickly.
How this applies to real life: Having a plan to pay off your debt makes it possible. Once you have a small emergency fund in place the next thing to do with your money is become debt free. This will allow you to stop making interest payments and start building wealth.
Increase Your Emergency Fund
How this applies to Monopoly: As the game progresses it gets more expensive to travel around the board. Your opponents are also making improvements to their properties and you want to have a little more cash on hand to avoid having to mortgage your properties. How much exactly depends on the particulars of the board.
How this applies to real life: Once you are debt free you want to increase your buffer between you and life. Having 3-6 months of bills in your savings account will protect you from most of life’s curve balls.
Start Building Wealth
How this applies to Monopoly: Once all my properties are free of their mortgage the income gets a little better. More money is coming in and I don’t have to pay off any debt, now I can start building houses. Again, each turn I take any money I have over my emergency fund and use it to improve my properties. Which in turn increases my income. I build my houses in order making sure not to over improve one area of the board while leaving another empty.
How this applies to real life: Once you have an effective barrier against financial setbacks you can start to invest your money by maximizing the tools you have available to you. Start saving for retirement by investing in your IRA and 401(k). Diversify your investments to lower your overall risk.
Go for the Win
How this applies to Monopoly: When I have hotels on all my properties I start saving cash to buy property from my opponent. Hopefully by this point they are low on cash after landing on all my overly improved properties and they can’t turn down a good deal. I buy the properties I need to make more monopolies and then improve them using the steps above. I buy one monopoly at a time and am careful never let my cash dip below my stated emergency fund.
How this applies in real life: You can start to make other investments once you have maxed our your retirement accounts for the year. Invest in yourself first, and then go looking for outside investments. You can buy rental property, buy stocks, fund a start up company, or whatever else catches your attention. When you know that your financial house is in order you can afford to take on a little more risk than you have in the past.
Obviously Monopoly is a game and if you lose you just start over, or don’t start over and go have dinner. But life is long and even if you don’t get off to a great start you always have time to make it up later. You can start over with your money at any time. The sooner you do it the sooner you get on your way to riches.