Personal-finance lessons from the game of Scrabble
Posted
Nov 23 2007, 12:13 PM
by
Karen Datko
Rating:
This post comes from partner blog Blueprint for Financial Prosperity.
My fiancée and I often play Scrabble. In fact, we've moved on to Super Scrabble (think Scrabble, but larger board and more tiles). At my fiancée's suggestion, I've come up with eight lessons from the tiles I think are crucial for both Scrabble and personal finance.
Patience, patience, patience. To win at Scrabble, you need to be patient when you use your tiles. If you can position words on spots with double- or triple-word scores and double- or triple-letter scores, your score will increase exponentially. Personal finance also requires patience. Compounding takes a tremendous amount of time. An 11% gain on $100 is only $11 the first year. If you’re patient and let that 11% accrue over 40 years, you’re talking about a $6,400 gain.
An early lead means nothing. You could build up an early lead with the bonus-point spaces in the middle, but as the game progresses and those triple-word-score squares (and quadruple if you’re playing Super Scrabble) become accessible, a 50- or 100-point lead could evaporate in a single turn. This is true in real life. Having an early lead isn't a guarantee of prosperity in the future. Being behind early on doesn’t prevent success down the road. While your history plays a role in your success, you play a much bigger role.
The more difficult it is, the more valuable it is. Q’s and z’s are notoriously difficult to use in Scrabble, but you are rewarded handsomely when you do. The same concept is true in personal finance. For instance, tax preparation is complicated, but there are rewards if you understand it. An example is the telephone excise tax refund, which lots of deserving people ignored. Apply the same idea to investing. Investing in the stock market seems scary. Given the choice between a possible 11% return on the stock market versus a guaranteed 4% return from an online savings account or CD, you might pick the 4%. Taking the time to understand the stock market is important because 11% is a lot when you’re talking about decades.
Planning ahead is essential. In Scrabble, using up valuable pieces too early can be detrimental because you won't have any as the game progresses to the triple-word and triple-letter scores. It's important to figure out when you should throw out “zoo” for maximum benefit. Planning ahead is also one of the most important ideas in personal finance. Making a big purchase? Plan ahead by budgeting and saving money so you can put down a bigger down payment and get a better interest rate. Retirement requires planning for 40 years down the road.
Work with others. My favorite letter in Scrabble is “s” because it allows me to start a new chain with words on the board. I get points for my new word, and points from the original word (plus 1 for the s) as an added bonus. Personal finance involves working with others to achieve common goals. You read personal-finance blogs because you want to learn more, I write personal-finance blogs because I want to learn more, and we all are better off than if we kept to ourselves.
Get another perspective. When it’s hard to figure out where on the board you can play or what your tiles could spell, it’s helpful to look at the board from a different angle or jumble the letters. With finances, it’s helpful to talk with a financial planner or a trusted friend to see if you're missing something. Maybe you’ve never heard of a Roth IRA, or you have misconceptions about a 401(k). Getting a new perspective can help.
Take a break. Scrabble can go pretty quickly, but Super Scrabble, with many more tiles and spaces, can take a while. We often take little breaks. Apply this to financial planning. When I was breaking down my retirement account asset allocation, I took a little break after I collected my asset amounts and before I did the math. Why? I was tired of the copying and pasting. Had I plowed ahead, maybe I would have taken some shortcuts that could hurt me down the road.
Be gracious. Be a good winner and be a good loser, because ultimately the game doesn’t matter. Relationships do. In life, don’t burn your bridges. Shake hands and part ways kindly, because your paths may cross again.
Other articles of interest at Blueprint for Financial Prosperity:
"A guide to mutual-fund fees"
"12 signs of a fraudulent mystery-shopping company"
"Saving for a house: 401(k) vs. brokerage account"
