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Chess and Financial Planning

Effectively planning your financial life is not unlike a well-played chess game!

As I played a game of chess yesterday evening against an unknown internet opponent, it occurred to me that there are many similarities between a well-played game of chess and a well-ordered financial life. Chess is a game where careful planning, development of resources and risk-taking at the right time often leads to victory. It seems to me that the same can be said of financial planning.

In the classic chess book, “Logical Chess: Move By Move,” Irving Chernev teaches the art of analytical chess thinking by examining each chess position as the game develops and determining the “best” move at every point. Although more suited to chess beginners than seasoned players, Chernev's makes the point that the right move at any given point in a game is always determined by the requirements of the position on the board. Before every move, assess the situation at hand and have a goal in mind. Since there are only certain actions that will lead to reaching that goal, a careful step-by-step approach helps eliminate the irrelevant choices and help focus on the moves that are productive.

As with chess, financial planning requires careful planning and goals in order to be useful.

Strategic Planning for the short and long-term: Write down your long-term goals as well as things you feel you need to accomplish in the next few months or years. It is important to understand what you are working for and how your goals fit together. Don't make moves without a plan! Always ask yourself the “what if” questions and try to anticipate the results of your actions. Make sure that you know how your short term goals fit into your overall financial strategy.

Always have a “Plan B”: Realize that, as in a chess game, your opponent will not always follow the script that you have imagined. Life has a way of throwing the unexpected at you! Be ready to adapt to a changed situation and make the right moves!

Seek active play: If you play a “passive” game of chess, only reacting to your opponent's moves without having a strategy of your own, then you will likely lose, or at best draw. If you play simply to survive and avoid checkmate, then you miss out on the rewards the game has to offer. In planning your financial life, you must sometimes take action to improve your position (i.e., getting a better job, investing, buying a home, etc.).

Learn from your mistakes: The Polish Grandmaster Savielly Tartakower is often quoted as saying that “the winner of a chess game is the player who makes the next to last mistake.” it is impossible to always choose the best move – sometimes it is necessary to adapt and correct for mistakes. What seemed to be a good move when played can turn out to be a  liability, as many homeowners found out during the recent financial crisis. One error, or even many errors rarely spells disaster so long as you adapt your play to account for the changing situation you find yourself in!

The Immortal GameChoose the risks you take carefully: There are few things more beautiful than a surprise “sacrifice” in a chess match. The unexpected queen sac – leading to a checkmate is very satisfying but, as any chess master knows, a sacrifice takes planning and strategic understanding. Only the opponent is surprised! When considering risk, by investing money, changing careers or moving to a new area, always be aware of the pros and cons. Carefully choose the risk that you take on and, plan for the unexpected. Ask lots of “what-if” questions and know what to do when your opponent makes a different move than the one you expected!

Be consistent: Few well-played chess games are short. Planning your financial life is much like planning a chess game, and in many cases, victory goes to the one who can overcome challenges and uncertainties the best. As in chess, life is sometimes a game of mental tenacity. Hang in there! Even when things are difficult, there is often good news right around the corner, especially if you work hard and have a solid long-term strategy.

Published Feb 08 2010, 05:36 AM by moneycoach
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