Monopoly is more than just a board game. For the past few decades, it has be touted as one of the unexpected ways to learn about personal finance. You may think that you are just buying properties, avoiding jail and passing railways, but the game offers subtle lessons in investment, debt, savings and money management.
If you have ever played a game of Monopoly, then there are few important money lessons that we think you should learn.
Invest your money
All players start out with some money from the Monopoly bank, and the last person left with cash or assets wins the game. During the course of the game, players buy properties and receive rent from other players who land on them. This is the key to multiplying your money in Monopoly, as well as in real life.
You may have cash, but if you do not invest the money, you are most likely not going to see it grow. You can keep the money in a savings account, expecting to receive interest on it, but investments are a better way of building and increasing wealth.
Apart from investing your money in the financial market, you can invest in a business that gives some returns, while you have a main source of income. You can also invest in your hobbies, and turn them into money-making ventures.
Spread your income
What do you do with your investments? Do you concentrate on buying lands in your city, with the hope that it appreciates in the near future? Or you would rather put all your money on mutual funds?
Personal finance experts advise that you diversify your portfolio, as a way of preparing for the future. The land you bought may lose value, while stocks appreciate. In Monopoly, you build up wealth by buying properties, building houses and hotels, and charging rent for them. Usually, a successful player will need to have properties on different areas of the board, to be able to collect more rent, and increase their cash.
Watch your debt
When buying a property on Monopoly, you need to ask yourself why you are making the purchase. Is it because there is a lot of cash in your hand, or because the property is in a strategic location that will bring in rent?
This is the guiding principle for buying things in the real world too, to avoid going into debt. We need to question what value a purchase will make in our lives, and if that value is worth going into debt for. For example, you can take a mortgage to finance your house, and that may be a good financial decision, compare to taking a loan to splurge on a high end piece of clothing.
Build an emergency fund
A player who spends all their money at the start of the game, may be on track to go bankrupt early. You could say that your assets will bring in rent, but be unfortunate that no other player lands on them immediately.
This is in a way similar to real life. Having an easily accessible emergency fund, prevents one from becoming unexpectedly desperate for money. A person that spends all their earnings as it comes in, with the expectation that more money will come in later, is not making a good financial decision.
Life happens, and there may be need for a medical emergency, or any other sort of emergency that requires urgent funding. This is why it is important to always set some money aside in case the unexpected happens.
Most people would not have guessed that as they roll the dice on a Monopoly board, they are actually making personal finance decisions that apply to everyday life. These tips from the game can help us better manage our finances in the real world.
Do you have any other personal finance lessons from Monopoly? Join the conversation on Twitter (@CRCCreditBureau), or Facebook (CRC Credit Bureau Ltd).