What You Need To Understand To Win the Game of Financial Success

When I play Monopoly with my kids, I often find myself thinking about some of the ridiculous rules and how they impact the game.

It seems weird to me that leveraging a property should take away all its value. It makes no sense that there is a benefit to winning a beauty contest. It’s crazy to think that there are situations where going to jail—and staying there—is a great strategy for success.

But you know what? I accept that the game has its (sometimes crazy) rules, I spend time learning those rules in gory detail, and then I do my best to exploit those rules as much as possible (without cheating) to win the game.

Of course, this doesn’t guarantee I will win. There’s no way to guarantee that. But it does maximize my chances.

Winning at the game of financial success in real life — at least in the U.S. and other economically similar countries — is absolutely no different.

Sure, we don’t all start out with the same amount of money, or the same amount of properties, or the same stack of “Chance” cards. And sadly, due to factors that may be out of our control, some of us find that we are playing by different rules, or find that the rules are stacked against us.

But the rules do exist.

And if we want to maximize our chances of winning the game of financial success, it is our responsibility to learn those rules in gory detail and then exploit them (without cheating) to win the game.

So, what are those rules? There are a whole lot more than I can go into in a single post, but they are mostly encapsulated within three categories.

boardgame

The U.S. Tax Code

This is often referred to as fiscal policy. The federal government passes rules for taxation and collecting federal revenue.

Understanding fiscal policy is the best way to increase your short-term income and wealth.

While we may not like it, the people who make and pass these laws typically do so in a way that helps themselves, their donors, and their friends. And since all of these people tend to be business owners, real estate owners, and wealthy individuals, that means that the fiscal policy rules they create are going to skew towards helping large businesses and investors.

Understanding fiscal policy can help us choose the assets we should be buying, entities we should be using to hold our assets, expenses we should be focusing on to grow our businesses, and strategies for disposing of our assets.

Even if you’re not a full-time entrepreneur or investor, and even if you don’t own any significant assets, understanding the tax laws in this country will help you structure your financial life in such a way that you will be able to minimize your tax burden and maximize your net income today, tomorrow, and next year.

The Federal Reserve Map

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This is often referred to as monetary policy. The Federal Reserve sets high-level policies to drive long-term economic growth.

Understanding monetary policy is the best way to increase long-term income and wealth.

There are a lot of ways that the Federal Reserve can impact the long-term economy. But the two that have the largest impact on the average person are inflation and interest rates.

First, the Fed creates policy that drives low inflation, medium inflation, or high inflation, at their discretion. Understanding the level of inflation that the Fed targets will help investors decide what types of assets they should be holding and for how long. It can also help us determine when we should be buying assets versus when we should be waiting on the sidelines.

Second, the Fed essentially sets interest rates. Understanding what today’s rates mean for us and where rates are likely to be heading in the future will allow us to determine how we should be buying our assets, capitalizing on our businesses, and approaching the purchase of consumer and business goods.

Understanding the rules of credit, the types of assets that can withstand inflation or deflation, and the ways to maximize the appreciation of your entire financial world long-term is how you shape your financial destiny.

fed printing money

Investment Math

This is the linchpin for optimizing the information you glean from both of the points above.

Understanding cash flow, ROI, amortization, compounding, etc., allows us to put our knowledge of fiscal and monetary policy into practice.

It doesn’t matter how well we understand the rules of the game if we are unable to evaluate whether a decision makes sense and will actually be profitable.

At the end of the day, most financial decisions boil down to risk management and opportunity costs. An optimal decision for one person may be a suboptimal decision for another.

Knowing how to evaluate opportunities within the scope of your own financial world, as opposed to within a vacuum, will maximize your chances of winning the game.

Winning the game of financial success is not magic. And it’s a whole lot less luck than a lot of us might believe. It starts with simply learning the rules.