Playing Financial Chess

As I noted in What I’ve Been Reading, the Leadership Team at work has been reading Scaling Up: How a Few Companies Make It…and Why the Rest Don’t (Rockefeller Habits 2.0).

It’s a basic management book in many ways (and yet most companies don’t implement the basics) but also a very good one if you’re interested in business.

A quote from the book stood out to me and I wanted to share it with you:

“Good managers play checkers while great managers play chess.”

It compared those who think and plan far ahead, deal with complexities, and cope with a variety of issues moving in various directions (playing chess) to those who think at one level only, don’t see the entire picture, and manage in a simplistic way (playing checkers).

They apply this to business of course, but I think it can be applied to personal finances as well.

Financial Chess

So what is playing financial chess? Here’s my take.

Someone who plays financial chess:

• Knows how the game is won. In chess, you win by placing the king in checkmate. In personal finance, the key measure is net worth, followed closely by cash flow. Knowing what you’re trying to achieve is a key part of playing financial chess.
• Has a strategy. If you go into chess or money management without an idea of what you want to accomplish, you have already lost.
• Uses tactics to implement the strategy. Once you have your strategy, you have to implement it move by move, slowly over time to see the fruit of your efforts.
• Focuses on priorities. In chess, it’s a priority to defend your king while also making progress in attack. In personal finance there are priorities like earning, saving, and investing. Ignore any of these at your peril.
• Uses tried and true principles to his advantage… In chess, there are tried and true principles like controlling the center, space, time, safety, etc. that generally lead to a victory. In personal finance, there are tried and true principles like spending less than you earn, keeping debt low, using compound interest to your advantage, etc. that will help you grow your net worth.
• …But is also willing to go against the grain when need be. Some of the greatest chess matches contain sections where one player abandons the tried and true, throws his opponent into confusion, and crushes him as he tries to figure out just what is going on. He takes a risk in hopes of a big gain. In personal finance, success often comes from taking counter-intuitive actions like buying when others are selling, investing even if the market is going down, putting money into index funds — an investment that is “average” and yet beats most others, taking a few risks like investing in real estate or P2P lending, and so on.
• Adjusts as needed to challenges. In both chess and life unexpected things happen. Those who are successful adjust as needed and take the correct action.
• Knows there are many ways to win. I’ve seen every piece on the board make the move that results in checkmate. In money management there are also multiple roads to success — earn big, save big, start your own business, invest wisely, and on and on.
• Understands that sacrifice could be the key. In chess sometimes you must sacrifice a piece to gain a bigger advantage in another way. In personal finances sacrifice of some sort is almost always required to amass any substantial amount of wealth.
• Realizes that sometimes the smallest things make the biggest differences. A pawn can win the game in chess if managed correctly. Saving a bit here and there year after year after year (and investing it wisely) can make you wealthy over time.
• Considers safety first. You must keep your king safe above all else. With money, you must balance risk and reward, of course, but I always play it conservatively, knowing if things go poorly I have a margin of error built in.
• Knows that bold moves and calculated risks can pay off. In chess sometimes it’s speed and the force of the attack that wins the game, not just having more/better pieces. With money, sometimes you need to risk a bit for a good reward. For me, my entry into real estate was a bold move (at least for me) that has certainly paid off.
• Has patience. Have you ever seen a chess match? It’s like watching paint dry. The best players have a patience like no other. With money, patient, simple moves over years add up to great success.

That’s my list. I’m looking forward to hearing what you might add.

More on Money and Chess

While we are on the subject of money and chess, let me make a couple other related comments:

• In case you missed it when the site was launching, here’s my post that explains the logo and how I came up with it.
• There’s actually a book on chess and money called Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing.  I have a copy. And while I really, really, really wanted to like it, the book just isn’t that good. At least that’s my opinion. The 5-star rating on Amazon seems to disagree.

There you have it — a geeky post on money and chess. Hopefully it won’t get any more nerd-like around here for a bit. 🙂

Let me know your thoughts in the comments below.