Money lessons from Monopoly

Monopoly is a beloved game played by friends and family alike. Monopoly has managed to enrage even the calmest of persons. While we spend days and nights playing this game, little do we realize that this game teaches us several valuable money lessons.

1. Always keep cash on hand, but never too much idle

This is without a doubt the most important lesson both in the game and in life. Even the best savings accounts offer lesser interest than the prevailing inflation rates. Keeping too much cash in hand, though a flex, does not bode well for the long term as it loses value with time. That does not meant to say that you run on empty. Always having some cash in handy helps you tide over the difficult times. A good rule of thumb is to keep 6 months worth of expenses handy to meet any unsavory situations.

Warren Buffett’s opinion on cash echoes the same sentiment, “Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.”

2. Think long term

Anyone who has played the game knows that there could be several rounds where no body lands on your hard earned houses and hotel, but then all of a sudden other players land on it in succession. This is the same with the real world. An investment may not move much in the short or even medium term. However, every sound investment multiples in the long term. As Warren Buffett the famous long term investor said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” There is no better time to start planning and investing, than now.

3. Cash flow is king

How many times have we noticed that there is this one player who has minimal cash in the bank, but has several properties, and then in one turn several players land on his properties and he is flush with cash. That is the reality of life as well. It is very important to build several streams of income that can contribute to your cash flow. The major types of cash flow ( income streams) are rental income, interest income, income from royalties, dividend income, income from profits and capital gains.

4. Diversify

A player who tends to focus on building and developing just one color of properties will soon run out of luck. It is not practical for one to step on that property every single time. The player who most often wins at Monopoly is the one who has several properties spread out across the board. Similarly, owning one asset class or type of stock increases your risk. One must own several asset classes as well as consider investing in index funds to mitigate risks and create a diversified portfolio.

5. The most expensive asset need not be the best

Most Monopoly players target to buy Park Walk and Broadway as they are most expensive assets and offer the highest rent. But what players tend to miss out is the cost they have to incur to enjoy this benefit. Similarly, owning the most expensive asset too does not guarantee the best returns in real life. One must look for value and maximize the benefit he gets out of his investment.

Hope one can soon apply the life lessons learned from Monopoly to real life investments.