Oh monopoly, the game that dictated my childhood and led to countless arguments and various accusations of cheating. The game could take ages to complete but every minute of it was entertaining and gripping. But having played the game more times than I can remember, Monopoly teaches up a great deal about finance and wealth creation.
Looking back at the times I played monopoly, it’s actually funny that the way many people play the game resembles there view on money and wealth creation in real life. For example, I am more prone to taking calculated risks in the game and that is why I invest in good quality companies in the stock exchange. My friend on the other hand was more conservative whilst playing and always liked having cash and it should come as no surprise that today, he still prefers to keep money in the banks rather than acquire money generating assets.
Here are 5 financial lessons I have learnt through the game of monopoly:
1. Buy Early and Hold
The cautious people in the game wait too long to make decisions and lose opportunities to buy property. And when they finally do decide to buy a square, all the good places have already been bought up and they are not getting the best value for money. The best opportunities present themselves early in the game, and those who hang on to their cash and wait too long to invest often lose. And by buying late, they have missed out on the cash-flow the property has produced which could have been used to buy another property or buy 4 houses and then a hotel.
The same principles apply in real life. It may feel nice and comfortable to be sitting on a pile of cash, but that money will not be generating more money for you – that money is not working for you. The best investors know cash is the worst investment (only keep a rainy day fund in cash). By investing early, you get the best deals. Investing early also gives you the added benefit of getting compounding returns for longer due to interest or dividend reinvestments and this helps your money grow faster over a period. Always remember that you should let your money work for you by learning how to generate passive income.
2. Negotiation is Key
The key to being successful at monopoly is to negotiate well. Good negotiation skills can lead you to paying lower rent when you land on someone else’s property or it can enable you buy someone else’s property at a cheaper price. It is important to find a fine balance when negotiating – If you are too soft you will be taken advantage of and if you are too harsh nobody will make deals with you. Using proper negotiation skills are vital in this game.
In real life we negotiate most of our lives; we negotiate with parents, with employers, business partners, banks, kids and so on. We spend most of our lives negotiating deals; hence you have to learn to be an efficient negotiator to get to where you want to be.
Negotiating can also lead you to lower your investment costs in the real world. Look at various brokers or platforms and see which offers you the lowest annual management charge. Contact the platform if need be and negotiate with the customer service or sales team for a lower price – if you never ask, you will never get!
3. Be Patient
To win at Monopoly you have to be patient and have a game plan. A strategy of buying every piece of real estate you land on will make you go bankrupt quickly – you have to be patient and know when to buy and when to take a pass.
Similarly, if you just buy without discipline when investing, you will be placing your outcome on the hope that the market behaves nicely. Successful investors don’t invest based on hope, they invest with a disciplined approach. Patience is a very integral part of that approach.
During the Internet boom of the late 1990s Warren Buffett was ridiculed for not investing in Internet companies while speculators around him were capturing triple-digit gains. A lucky few got in and out at just the right time; however, for the vast majority, the result was painful losses. Buffett exercised patience for years while everyone else was chasing Internet stocks. In the end when the market and investors ran out of money, the bottom came crashing quickly, wiping out the majority of investors who weren’t patient and disciplined enough.
Being patient does mean holding on to cash for the sake of it ( point 1 above). Being patient means that you should not rush into any investment decision and you should critically analyse a situation before taking action.
4) Improvements are worth it.
If you just buy the properties and do no build on them you will not succeed in the game, you constantly have to reinvest in your properties and improve your position in order to move ahead.
In the real world, this means that you need to re-balance your portfolio at least once a year. Just because a certain stock or investment was great over the past 3 years does not mean that it will be great over the next 3 years. Always take a step back and see how you can improve your portfolio.
If you own a rental property, improving your house by buying newer furniture/appliances or painting the walls will enable you to charge a higher rent on your property.
5) Luck is Part of the Game
Luck is just part of the game as it is part of real life. One player may have a few doubles and fly across the board picking up properties while you barley get to purchase anything. You have to learn to live with it; you cannot control everything in life. The best strategy is to stay positive and take advantage of the opportunities that come your way. By staying positive and optimistic, you can create your on luck.
Along with monopoly, there has been several other games that has helped people become more financially literate. One of those board games is Cashflow by Robert Kiyosaka – author of Rich dad Poor dad.This game is brilliant if you want to get to know about finance as it teaches you the difference between a asset and a liability and the importance of cashflow.