For those of you who have been readers of this blog for some time now, you’ve probably noticed something about me. I really like analogies. I am a very visual person, and I often find that analogies help me visualize things better.
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One of my favorite analogies, which I often think of when I think of our finances, is Las Vegas.
After a recent trip there last week, I am more convinced than ever that if you want to run your financial house well, you need look no further than Las Vegas to find a great guide.
The reason I think this is because casino owners in Las Vegas figured out the way to wealth a long time ago. Ever since the first casino (or “gaming establishment,” as they were called back in the day) opened in Vegas in 1931, casino owners have long known how to triumph in the game of money.
There is only one rule.
The house always wins.
As in, the house ALWAYS wins.
The reason that the house always wins is that casino owners set it up that way. All those fancy machines that make all the dings, beeps, and cute musical sounds? Yep, they are all set, or “rigged,” if you will, by the casino owners. They aren’t stupid, you know. If you come in and sit down at the same machine and proceed to take them to the cleaners every day, they know they’ll be out of business before you’re done signing the papers on your sweet new ride down at the jag dealership.
So what do they do to stay profitable, and to prevent people like you and me from coming along and cleaning them out every other day? They set the machines so that, over time and overall, the casino always wins.
It’s automated. The owners don’t have to do a thing to even think about it on a daily basis. They just set up their financial lives so that they always win. And then they sit back and reap the benefits. Every. Day.
How powerful is that? Never mind, how AWESOME is that?
How to Run Your Finances like a Las Vegas Casino
We can all learn a great lesson from Las Vegas casinos. The first rule is this:
Run your finances like a Las Vegas casino. Set it up so that the house always wins.
That’s it, really. I think of Las Vegas a lot as my hubby and I go through life and make money decisions. That’s one of the reasons why we ultimately had to turn down the job offer that we really wanted a few weeks ago. Because we set up our financial life so that the house ALWAYS wins. And, because we are still carrying some student loan debt and the salary offer was less than Mr. CMF is currently making, we didn’t think we could win if we were playing with those numbers.
I know that the term “win” is ambiguous here, especially when talking about personal finance, so I’ll tell you how we define it. Basically, we consider ourselves to be “winning” at the game of personal finance when our net worth rises in any given month or quarter (taking into consideration what the overall market is doing, of course). I’d like to say that we define it as any month when we bring in more than we spend, but we are in hardcore debt pay down mode right now, so every spare bit of extra cash is being thrown at student loans every month. Thus, our outflow roughly equals our inflow right now. But because we are decreasing our financial liabilities every month, our net worth is still going up, up, up. That’s a win in our book!
Basically, we consider it a financial win every time we make decisions like automating both our savings and our debt repayment, finding easy ways to make extra cash online, slashing fixed expenses, and working to increase our passive income. But the bottom line is that all of these things- and many more- together help us pull our financial picture into the “win” category on a routine basis. We just set these things up so that the house always wins.
Ok, so maybe the word “always” is not always perfectly correct. We’ve definitely had months here and there where our outflow exceeds our inflow (I’m thinking back to the month last year when we had to shell out big bucks in adoption-related expenses). But, just like the Las Vegas casinos, over time and overall, we set it up so that we always win.
And so can you.
It definitely takes some time to get into your financial groove, so if you are not yet in a position where you can confidently say that the house is always winning, don’t worry. It also takes a solid job and some ability to save money and still cover basic expenses. But, no matter where you are at in your financial journey, you can start taking steps now so that over time you’ll get there. Paying down debt, starting an emergency fund, and taking advantage of employer retirement matches are a few of the ways that you can start yourself on the path.
However, the biggest tip that I could possibly give you in this regard is to contain your cost of living; in other words, live well below your means. Living below your means is a key piece of achieving financial independence, and depending on how much you are able to save you could potentially retire years before your cohorts (see this excellent post from Mr. Money Mustache if you don’t believe me). For a free resource to help determine how you are doing on your retirement savings goals compared to certain benchmarks, you may want to consider signing up for a free service like Personal Capital (review here).
Living well below your means is the absolute best way to guarantee that the house always wins. Unless, of course, your house is a place called Caesar’s Palace and every day thousands of people flock to see it and drop loads of cash in your front lawn. If that’s you, well then… you’ve got other ways to ensure that the house always wins. 🙂
Have you got your financial house set up so that the house always wins? What’s been the biggest challenge you’ve faced in working toward your financial goals?
Suggested Reading: My very favorite personal finance book, The Millionaire Next Door
P.S. If you liked this post, you might enjoy using our free Net Worth Calculation Template. Sign up now to receive each new post delivered to your inbox, and we will email you the template! Sign up here.
CMF’s favorite FREE money management tools!
Some of the best online tools out there for money management are at Personal Capital, and the awesome news is that they are all FREE! Cash flow tracker, 401(k) fee analyzer, investment checkup, net worth monitoring, and many more! I’m a net worth junkie, so the net worth monitor is my favorite. Check out my Personal Capital review here, or click here to check out all the awesome tools for yourself!
photo credit: East Coast Gambler, creative commons (license), 10/30/2015, with changes
I like to think that we’re set up to “win” since our expenses are so low. Our income fluctuates, but we are earning somewhere between 4-5 times our monthly expenses each month. In other words, we could take a huge pay cut and still meet our expenses! Hard to lose when that’s the case.
Excellent! It’s all about setting up your finances so that you come out ahead every month- and the more you come out ahead by, the better!
Fantastic article! I wasn’t sure where you were going to go when I read the title. I was thinking it could be “take advantage of the ignorant”, “scam those bad at math”, etc. But I like your conclusion much better. And I completely agree! At the end of the day, it doesn’t matter how much you’re budgeting or earning, it’s all about the direction your net worth is going.
Ha! Too funny. I try to keep it upbeat around here. But you gave me a good laugh thinking of how different the article could have been if I ended with suggesting to scam those bad at math!!
Another great lesson to learn from Vegas establishments is to contain your overhead until you’re consistently winning. Caesar’s palace can afford high staffing levels, and excellent service for gaming MVPs, but they are winning every day, and they have the volume to support that extravagance which yields even more income for them. However, there are other casinos that manage to go bankrupt because they don’t have the traffic to support their overhead.
It’s better to own the slot machine in a truck stop that’s making money than a casino on the strip thats losing money hand over fist.
Fantastic, I love it. You’re so right- there are folks out there who can afford to live a more extravagant lifestyle because they have already put in their due diligence and built their wealth to such a level that they can afford it. Too often, people try to go out and live a really fantastic lifestyle before they really have the money to afford it. There are few shortcuts in life, and money is no exception 🙂
I like analogies too–they speed up understanding something!
To take yours a bit further, if we’re managers of our ‘casino’ (our finances), then all the people and companies trying to sell us something we don’t need are the ‘gamblers,’ working hard to transfer cash from our pocket to theirs. Like the casino manager, we have to be wary not be scammed, cheated, deceived, or robbed by our ‘gamblers.’ And like Vegas, many show up in our lives with that sole aim in mind!
Sad but true. It’s always important to be vigilant and keep an eye out for these things. Identity theft in particular is one that I’ve had a few brushes with over the past few years.
I like the analogy. The idea is a really important and powerful one: Make sure that you are winning month in and month out. Even if it’s only a little bit. It’s hard to overstate the power of consistency when you are trying to reach financial independence. Winning a little here and a little there every month goes a long way. Thanks for an entertaining read.
Exactly. I think that one of the many mistakes that I made when I was younger is that I paid so very little attention to my personal cashflow that some months I probably couldn’t have even told you if I was coming out ahead or not! Starting to keep track of our finances and budget is the best favor we ever did ourselves 🙂
Great post. Just saw it on RS Finance.
I would just point out to you that you already are winning if pouring money into paying off debt. It can at times be hard to see it when you’re in this phase but the process is the same as investing. It took a while for this light bulb to click on for us as we actually felt a bit lost when we payed off our mortgage and for the first time were completely debt free.
I would recommend, if you don’t already, to look at paying off debt not as spending but as investing in your future. This will allow you to evaluate whether it is the “best investment option” at any time and will also allow you to avoid the potential period of being lost when you become debt free. You can then simply reallocate your money to other investments when you no longer have the “option” to pay off more debt.
Good luck to you!
EE
Thanks EE! Wow, we cannot wait for the day that we no longer have the “option” of paying off more debt! What a great day that will be. Thank you so much for the words of encouragement and sound advice.
This is such a great analogy! It’s easy to get lost in the day-to-day budgeting sometimes, so it’s important to look at the big picture and stay ahead of your expenses for the ultimate win of financial freedom!
Exactly. That’s really how this analogy helps me at least- it automatically frames our personal finances in terms of the bigger picture and helps us see the forest through the trees.
I too could not see where you were going with this post…and I loved where you went.I think it’s rare that wisdom and humor come together in the same post… rare and thought provoking. thank you.
Wow, thanks Madeline! I appreciate it.
Well, our savings account is slowly inching up, so I guess our house always wins. Now if only the actual house would stop having problems that require repair, the metaphorical house could win even more.
Oh man, I hear you there. Not so much right now, but we just about died last year when heavy rains flooded our basement literally one week before we were supposed to drive out of state to adopt our daughter and bring her home from the hospital. When it rains it pours- literally!
Interesting!!! I like your thinking here, Dee! I’m going to have to contemplate this a bit further. 🙂
Thanks Laurie!
I never thought of it like this! Setting your financial house to always win in the long run is a great way to look at your finances. Month to month, it may not look like you’re winning, but you know that overall you are. Great analogy!
Exactly. There are some days when it may not feel like we’re winning (for example, when those unexpected expenses like car repairs come up), but if you’re keeping track of the numbers and you’re setting yourself up well, you can still be winning 🙂