Remember those days of sitting around board games like Monopoly with your siblings, cousins or friends? It was all fun and games (at least they started out fun), but there are valuable lessons to be learned from it.
We often find learning about money management boring and intimidating. However, we fail to realise that sometimes we are learning, even when we are having fun.
Monopoly actually teaches us money management lessons in an easy and fun way.
Here are some of the financial lessons you can learn from a game of Monopoly:
Lesson #1: Diversify your investments
When playing Monopoly, you acquire wealth by buying houses, hotels, and charge other players rent when they land on your property. The more you acquire the more you will earn. You can choose to buy a series of small properties or just a few big properties which yield higher rent. You can also add income generating utilities to your properties.
How does this apply in real life?
If you want to have more money, you need to earn it from more than one sources. Like Monopoly, you can rarely win the game by just owning one property. If you didn’t have anything but a monopoly on Boardwalk, you COULD win big but the risk was often really high and most of the time you wouldn’t last long enough to win.
Do not put all your eggs in one basket. When you are buying more and more properties of different types, you are essentially building a balanced and diversified portfolio by spreading your assets across various financial instruments. In real life, we do that by putting our money in various investment vehicles like unit trust, stocks, and REITs. It helps to maximise return by investing in different areas that would each react differently to the same event.
Although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimising risk.
Lesson #2: Manage your assets
Monopoly, is all about managing different types of assets, such as cash, properties, people, and more. The winner is usually the person who can successfully manage all of his or her assets. If you do not maintain enough cash reserve for expenses such as rent or taxes, then you may be forced to sell or mortgage your properties at a loss to raise money. On the other hand, to win the game you cannot stay completely safe in cash. It will need to be invested and that means taking a risk in buying and developing their properties. Finding the right balance between both will ensure your victory.
How does this apply in real life?
Likewise in reality, you will garner the most success in your financial life if you manage all of your assets well. You cannot simply focus only on keeping your cash while ignoring the value of your home or failing to invest wisely.
It is not recommended to just invest your money into the market without also managing your cash flow well. To win in finance, you need to manage all of your assets well and keep them growing as best you can while maintaining a good contingency in case of emergency (like hitting that Boardwalk monopoly).
Lesson #3: Spend wisely to avoid debt
One of the biggest mistakes commonly made by Monopoly players is when they buy everything that they come across on the board. Although the game requires you to earn as much rental income as possible by owning various properties, going on a spending spree can lead to a loss in the game.
Owning too many properties can result in you being unable to pay your rental when you land on someone else’s property later. You will be forced to mortgage your properties to raise cash, and as a result, lose out on the opportunity to earn rental income on those properties.
How does this apply in real life?
Spending all your Monopoly money puts you in the loser’s seat. If you do not have any cash in real life, the consequences could be much worse. Taking on too much debt (even if you’re investing it) without the means to pay for it also can set you back financially. Find out what true affordability means when it comes to taking a loan.
Even though you are spending to earn money, you should still balance your inflow and outflow of your cash better.
Lesson #4: Handling emotions in investment
Even though the money is not real in Monopoly, the emotions can be real. Whether it is Monopoly or reality, losing money can upset you. Recognise how your emotions may affect your investment strategies in the game. For example, you may feel insecure and stockpile on cash, or you become greedy and start buying too many properties and end up depleting your cash reserves. However, emotions should not be the guide to your financial decisions.
How does this apply in real life?
Evaluate each investment decision from every perspective, including the pros and cons in order to make the most educated and calculated financial decision. By having a new perspective on money and making rational investment decisions, you will be able to manage your investments better and work your way towards greater opportunity of making money.
Lesson #5: Mitigate or make your own luck
In board games like Monopoly, very often the roll of the dice or the draw of a card determines your fate. One roll or draw can make the difference between winning and losing. Sometimes the luck may be in your favour, while at other times it would not.
How does this apply in real life?
You may come across of such circumstances in real life too. Getting into an accident or having flood hit your house, are all random events. Call it luck, karma, or fate, these random events can have a big impact on your finances.
While luck plays a role in your financial picture, you can also put plans in place to prepare for these random events. If you carry adequate insurance, that accident or flood is not nearly a wipe-out that it would otherwise be. If you save up a substantial emergency fund, the bad luck of a job loss does not have to become a financial disaster. You may get dealt some bad luck in your life, but if you plan and play well, you can overcome much of it and even turn your luck around.
Lesson #6: Take well-calculated risks
Sometimes it takes a risky move to win the game. Like buying houses depleting your cash reserves in the process because you can see that someone else is close enough for a payout opportunity. It can be uncomfortable and scary, but you weigh the pros and cons and decide that the risk may pay off.
How does this apply in real life?
In personal finance you have to take some risks to get ahead financially. It could be taking up a higher-paying job in a different country or begin investing even if you fear losing all your savings.
Sometimes risks can be worth it. However, do not simply jump in without doing your research and understanding how each decision will affect you financially. In Monopoly, losing may not a big deal. In real life, it is indeed. Only take calculated risks that you feel certain of having a fairly good chance of paying off. Never risk more than you can afford to lose.
Lesson #7: Having money on hand usually wins
Games like Monopoly reward players for having cash on hand. Having cash enables you to take advantage of opportunities and buy the properties you want. Ultimately, the person with the most cash at the end wins.
How does this apply in real life?
Balancing between cash-rich and asset-rich can definitely help you weather emergencies and take advantage of great deals and opportunities that may come your way.
Money may not be able to buy you happiness, but it certainly lets you choose your own form of misery.
Learning to manage your money better doesn’t have to be boring and scary. You can learn valuable lessons when you least expect it, in the unlikeliest places. In a few hours of game play, you can get a glimpse of financial matters like mortgages, diversification, property ownership, and cash flow.
It’s pretty crazy but Monopoly teaches players money management and the impact of financial and investment choices and situations. Who says you can’t play and learn at the same time?
