Introduction to Money Management
It never fails. Inevitably, the first day of my lifeskills class on Money Management at Brookdale Community College somebody will ask me - What is Money Management? Instead of asking them why they signed up for a course about something unknown to them, I usually answer the question this way. In the broadest possible sense, money management is setting income against outflow and creating a budget. In some way we all deal with money. Some comes in (income) and some gets spent (outflow) and how we deal with it is money management.
So why is dealing with something as seemingly simple as this, hard enough many people who think they need it don't even know what it is, and most people just cannot do it? The key word in that question is people. In a factory, if Robot A costs you $500 a day to operate and makes enough poker chips each day for you to sell for $450, then Robot A is losing you $50 a day and once you realize this, Robot A is history. In life, if your friend, Smilin Bob borrows $50 a day from you and never pays you back, well that's a whole different story. First you tell yourself that one day he will pay you back. Next you remember that he is the guy who turned you on to Enzyte and natural male enhancement. For one reason or another people are very good at ignoring the truth when it suits them.
As an example, how many of us feel that we are good drivers? I raised my hand, did you? Well, if we are all good drivers then please explain to me just who are the idiots we all yell at in those other cars when they cut us off going 90 in a 45 zone while doing their makeup in the mirror and talking on their cell phones?
The truth is that we all delude ourselves. The golfer who puts down a 4 on his scorecard because the one that went into the water "didn't count". The dieter who eats the off limits brownie because she "was good all day". The poker player who spends $500 on rebuys in a $50 tourney, squeaks into the money to win $200 and tells his friends only that he won $200. Try, for one minute to think of a time when you stretched the truth because it made you feel good. Way too easy, wasn't it?
Now don't get all mad at me. I'm not trying to tell you that making yourself feel good is a bad thing. Heck, I'm sitting here eating a cheesesteak and drinking a beer while I'm writing this, even though the doctor tells me I need to lose weight. What I am trying to tell you is this. If you want to be a long term winner as a poker player, you have to start by at least being honest with yourself. Lie to your friends, lie to your wife, lie to the dog if it makes you feel better, but be honest with yourself.
Let's start with some honest record keeping - not the kind where a $500 buy-in and a $200 cash = a $200 win. For the purpose of keeping honest records, only the bottom line matters. Just take the amount you took out of a poker session and subtract the amount you put into that same poker session to get your bottom line for that session. So a $200 cash minus a $500 buy-in = a $300 loss for that session. Now do this separately for every poker session you play from now on and keep all your bottom lines either on paper or in a spreadsheet. Either weekly or monthly take a minute to get a running total.
One thing you should keep in mind as you do this is that this is not an indictment of your poker playing ability, this is only keeping track of your money. Just as 1, 50, or even 100 winning sessions does not make you a long term winner, the same number of losing sessions does not make you a long term loser. In math, the "long term" is a much bigger number than you can imagine. Poker skills are about making the correct decisions based on all your available information every time you act. Money management is about keeping track of your money.
We are now up to defining money management specifically for a poker player. To put this in layman's terms, the ups and downs that are a part of poker for everyone, NO MATTER HOW GOOD THEY ARE, force us to follow certain guidelines so we don't go broke easily. Even if you follow these guidelines to the letter it is still possible to go broke, but you will have much less chance of it. So money management for a poker player is being able to follow a set of guidelines when deciding how much money you can invest in poker with the least possible chance of going bust.
These guidelines differ depending on a few factors. Things like your level of poker expertise, your bankroll level, your disposable income, and even the reason why you play poker all affect what levels you should be playing. So quickly, while you are still being honest with yourself, take a moment to answer a few questions.
1) If you have been keeping honest financial records for over a year, is your yearly bottom line positive or negative? Then take this a step further and do a little math. Add up all your buy-ins and then divide the total by how many sessions you've played. For example, if my total buy-ins over 100 sessions is $25,000, then I divide $25,000 by 100 sessions to get an average buy-in of $250.
If your yearly bottom line is less than ten times your average buy-in, either positive or negative, then for our purposes you are a break-even player. In our example with an average buy-in of $250 this means you ended your year anywhere from $2500 down to $2500 ahead.
If your yearly bottom line is closer to fifty times your average buy in than it is to ten times, then you are a winning or losing player. In our example with an average buy-in of $250, this means you ended your year closer to $12,500 up or down than you were to $2500 up or down.
If your yearly bottom line exceeds fifty times your average buy in by a lot, I sincerely hope that it is positive or you are wealthy. But for now, go ahead and place yourself as a winning or losing player.
2) Now, try to objectively judge your ability. Remember doing this will not brand the word "Donk" on your forehead. Nobody will ever know what is in your mind, so please try to be honest. Then, after you have labeled yourself as either Expert, Average, or Donk, get a few second opinions. Ask a few of your fellow players what they think of your ability. Try not to ask after you just sucked out with a 26 off against rockets, but do try to form a fairly objective opinion of your current ability.
3) Go over your finances carefully. Do you have money in savings or are you in debt? Are all your credit cards maxed out or all paid in full? After you pay all your monthly bills, do you have money left over or are you constantly wondering how you are going to make ends meet? Do you have a steady income from sources outside of poker or are you otherwise unemployed?
The truth is, most of us fall somewhere between these extremes. If, after going over your finances, you find that you can comfortably say you have some money left over for the year, call that your bankroll. If you have been honest in going over your finances, your bankroll will be the amount of money you can play with for the year.
Note - If you are a professional who plays for a living with no other source of income then that is a special case and, unless you are starting off in debt, you should skip this step.
4) Now complete this line "I play poker because ..." If your answer is "to make money", then your total bottom line had better come out positive. If your answer is "to have some fun" then you should make sure that you are having fun playing. After all, setting goals and then achieving them is one of the things that makes life rewarding. If you are not achieving your goal, then start working on it. Read some of the excellent poker literature, join an online training site, or find a mentor or private teacher to help you work on your game.
You should now have a basic profile of yourself complete. It might say be something like, average break-even player who plays for fun with a $5,000 bankroll, or losing donk who is desperately trying to win enough money to get himself out of debt (hands off - that profile's mine!). The next step is to read all the specific suggestions in the upcoming articles, but pay the most attention to those for your profile.