7 Lessons I Learned About Money & Life from Chess

When I was younger, I remembering playing chess with my dad and always losing. I didn't play a lot and I was never more than a casual player.

Starting around Thanksgiving of last year, I started playing online a little bit more. I'm somewhere around a 1200 on Chess.com (15/10 time controls), which puts me squarely in the novice realm, but it's something I'm really enjoying. I particularly enjoy watching Youtube videos by John Bartholomew, @Antonio Radic (and his dog!), and @IM_Rosen.

Like many parts of life, it's not about your individual performance but the trajectory of progress. Getting better at something is a far better reward than being good at something, especially when it's a hobby.

Since my experience in chess was so limited and my experience with personal finance a little less limited, I thought it would be fun to put together a few lessons I've learned about money and life that I saw with the help of chess. I hope you enjoy this!

1. Opening, Middle & End Games

Your goals at the start of a game are different than those in the middle and end. In the beginning, you're trying to develop your pieces, gain an edge, and avoid mistakes. You're trying to keep your options open but still take ground and improve your position.

It's mostly about adhering to basic principles and not messing yourself up.

When you're young, your goals in your life and career are the same.

You want to develop your skills through careful investment in yourself. This improves your earning potential and career opportunities because, all things being equal, someone with more skills is more valuable than someone with fewer skills. These advantages will magnify over time, which is why college graduates tend to earn over a $1 million more than non-college graduates over their career. Small advantages turn into large ones over time.

You want to gain an edge by saving money while your fixed expenses are low because those savings give you flexibility and options. You can take more risks if you have savings to support you if things don't turn out as well as you hoped.

And you want to avoid too many mistakes. A little credit card debt won't kill you but a lot can set you back many many years. Buying too much car or house will not sink your finances but it will slow your progress. If you saddle yourself with massive consumer debt, then you run the risk of being crushed if something non-elective comes your way like a medical emergency. Avoiding these mistakes early on are crucial and most you can see coming a mile away.

Here's a famous quote by chess player Rudolf Spielmann: “Play the opening like a book, the middle game like a magician, and the endgame like a machine.”

2. Guiding Principles Always Help

There are several guiding principles in chess – protect the King, get your Rooks to open files, try to keep the Bishop pairs, centralize your pieces, favor central pawns over flanking pawns, etc. They exist as rules of thumb that work in most, but not all, cases.

They are not unlike the Harold Pollack's index card of money tips and our Prime Directive of Personal Finance.

Rules of thumb are guidance but they are not the immutable laws of physics. What happens on the board dictates the next best move even if it runs counter to the guiding principles.

With your money, you may believe in the guiding principle that you should save 20% of your money (it's on Pollack's card) but what if that's not possible? What if you need to make a few sacrifices now, perhaps an investment in a class that gives you a certification that would improve your job prospects, to improve your ability to earn later? Can you sacrifice saving less than 20%?

Yes. And you should. It's a guiding principle, not a law.

3. You Need a Plan. And It Must Adapt.

“Even a poor plan is better than no plan at all.” – Mikhail Chigorin

Chess is such a fluid game but it is a game of perfect information.

There are 64 spaces, 32 pieces, and you can see very single one in perfect detail.

It lends itself to planning. Where you are going to move your pieces, where those pieces can attack, and where you can put your resources. Having a plan of some kind is absolutely crucial. It might be a bad plan, only time will tell, but a plan is better than no plan.

When you look at your finances, you need to formulate a plan for your future. The value in the process of planning is how it forces you to think of the future. The plan you produce may be bad. It may need to be adjusted. But at least now you're taken out of the day to day and into the long term. There's tremendous value in that stepping away.

You can do this with the help of a fee only financial planner or you can take the first crack at it by doing your own financial plan.

Once you create one, review it regularly. Life happens and sometimes it feels like it happens in a way just to foil your plans.

4. Make the Best Available Move

There's this idea of engine moves and human moves. Engine moves are those moves that are “best” only because a computer can calculate lines out much farther and faster than a human being. Human moves are those that feel right.

You can't always make the optimal move, the one that only a chess engine would find, so you look for the best available. When you're a Grandmaster, you probably find the actual best available move the vast majority of the time. If you're a novice like me, you find the actual best available move like 40-50% of the time and hope that you're just avoiding mistakes, inaccuracies, and blunders.

There are financial decisions that are similar. Sometimes you have to make the best available move even if it's not the best move. Don't let your search for the best be the enemy of the good.

Annuities are always a challenging product because of the fee structure but sometimes it's the best available. What if you need a reliable stream of income and are unable to manage it yourself? Perhaps it's for an aging loved one that can't manage it themselves.

An annuity may not be the most efficient approach but it may be the best available given your constraints.

5. You Don't Have To Be Perfect

In chess, blindness can occur even at the highest levels.

It's when you don't see the obviously best move.

Sometimes, double blindness occurs!

It's when you don't see the obvious and your opponent misses it too. It's hard to be correct 100% of the time.

The key to make the best decisions and not dwell on your previous mistakes or let them affect your future. There are plenty of games where I've blundered a piece and gone on to win the game. There are plenty of games where I've missed a free piece and gone on to win the game. There are, however, many more cases where I've done both and lost. You put yourself in a hole when you make these mistakes but your future is not fate.

When it comes to your money, mistakes happen. Bad luck happens. What is important is your response to these mistakes and cases of bad luck. Do you let it defeat you or do you persevere? Do you make a bad situation worse or can you keep your wits and battle back? Life is long, the game is long, very rarely do mistakes and luck sink you forever.

6. Decide Today but Plan for the Future

The decisions you make in the Opening phase of a game will dictate your options far into the future. It will also dictate your opponent's options in the future. People who are good at chess have sharpened their thinking such that they can “see” many moves into the future and plan for it accordingly.

One of the most common openings is e4, moving the pawn in front of your King up to two spaces. It's such an innocuous move. That one move will dictate a lot of what happens into the future of the game. Black's response will reduce the possible future positions of the game even further. Part of this is math (obviously you have the whole universe, by making a move you reduce the total number) but part of it is also intuition. It seems small but these decisions impact the entire game.

Seemingly small decisions in your life will have out-sized results. Ask anyone who is well into their career, perhaps late 30s or 40s, to look back at their past for seemingly small decisions that had surprising results. Then ask someone in their 50s or 60s. Our life is a series of small decisions that play a huge impact.

If you want something more concrete, ask those same people about their 401(k) balances. I'm in my late thirties, I contributed a lot to my 401(k) at first and then pared back to save for our house. That small decision, to invest in my retirement, has me sitting on a nest egg must larger than I would've expected.

7. It's About The Journey

Magnus Carlsen is the World Chess Champion. Fabiano Caruana won the Candidates Tournament earlier this year and will face him in the World Chess Championship in November (2018). Carlsen beat Bill Gates on television in 9 moves.

I will never be the best player in chess but I don't play because I want to be the best. I play because I want to become better. It's the journey and the discovery that is valuable. It's not the end goal.

We see these things so clearly with our hobbies. We don't play different games because we need to be the best. We are constantly searching for improvement and growth and we're OK with that.

When it comes to our career and our money, we often don't focus on the journey and only look at the end goal. We make decisions that are optimal but if the outcome isn't, we're discouraged.

The end is the same for all of us… so enjoy the journey.