Money Management

I recently wrote an article on money and bankroll requirements and that article took a macro view of the requirements. I have been asked to write a more directed piece on money management. The specifics were not included in the request so I will cover a couple of ideas.

When to cash out and go home from a poker session?
I read a piece by Linda Johnson where she said too many players cash out when they are ahead and stay too long when they are stuck. In general, this is a true statement. There are a million reasons why a person should cash out of a poker game and only one reason to stay. The reason to stay is that your expected profit from continuing to play exceeds your opportunity cost. This is slightly different from how others have stated the reason. “Opportunity cost” is what you are giving up to stay in the game. You will need to ask yourself, “What am I foregoing to stay here and play?”

To be more specific, here are some examples to demonstrate the concept of opportunity cost. My day job is a very good one and pays quite well. I make a little over $50 per hour plus a great benefit package. All told my job has an opportunity cost of over $100 per hour. If I chose to quit my job and play poker full time I must believe that poker is a better opportunity and will provide in excess of $200,000 per year in income.

As I have grown older and my life has become more complicated, I now have priorities and poker is more a matter of luxury. My priorities include my health, my family, my work, and after that poker has to compete with other interests. My habit is scheduling my poker session weeks ahead of time with set starting and ending times. While I do go to the card room as scheduled, I do not always find an attractive game and may choose not to play. I still practice game selection even though I have a fairly tight schedule. If I have promised to be home at midnight I have no choice but to be there on time.

When to step up in limits to a larger game or, conversely, when to move down?
You have started at the right limit and have built your bankroll and skill up to the point you feel ready to move up. Moving up in limit is like starting over. Look for a particularly soft game at the higher limit; the games get tougher as you move up. Just because you are making $18 per hour playing $6-12 does not guarantee you can beat $10-20. You may not even beat the new game at all. You need to have an adequate reserve to allow you time to learn and adjust to the new game. If you have played 200 hours at the larger game and still are not making the money you were making at the lower limit you may want to move back down. If you start out losing at the higher limit do not stay too long before moving back down. Losing six or eight sessions in a row can kill a player’s confidence. Because confidence is a big factor in poker I am an advocate of taking a win in these early sessions. You are in no position to honestly evaluate your potential at the new higher limit so you do not know what you can reasonably expect to make in the game. At $10-20 a buy-in of $500 is standard and if you are $300 ahead in your first session take it to the bank and come back next time the game is good. If you get down a couple thousand dollars drop back and play a game you can beat before your confidence is destroyed.

I played $3-6, $4-8 and $6-12 very successfully for a couple years. Every time I tried to step up to $10-20 I was losing money. A long slow painful grind and I was watching my money leak away. I was always trying the game at the Peppermill in Reno which was the only $10-20 game spread on a daily basis north of the Bay Area and South of Portland. That game was too tough for me and I needed to learn more than I was able to. The game was 300 miles from home and I could never put more than a weekend at a time into learning the bigger game. I found a softer game at Spirit Mountain and spent a week sitting in the game. I learned to deal with the aggression and trickier players and began to beat the game. As I started to beat the game my confidence grew and I developed my own style. I returned to the Peppermill and suddenly the game seemed to be so much easier. My first six or eight attempts to step up were not well planned and were unsuccessful. I learned the lesson the long hard way, but then again, don’t I always.

If you are on a good run, winning consistently, you need to put some money away for a rainy day.
One of my good friends won $20K in a couple weeks and immediately spent the majority of the money. A windfall is no reason to waste the money. I had a similar good run and I used the money to pay off a house and reduce my future debt service. This would actually free up money in m budget for years to come. Paying something off, like a credit card, is probably where you want to “waste” your money.

I have a hard time giving clear advice on this subject as there are many factors at play. The larger your monthly budget the more bankroll multiples you need. The more flexibility in your budget the less insurance you need. I eat out every meal and budget $3000 a month for food and another $2000 for entertainment. I know that I can cut that $5000 down to $1000 if times get tough. My actual fixed costs of house payment and car payment and such are actually about $2500 per month and living a life on a $10,000 month budget is a luxury. I keep six months reserve above and beyond my poker bankroll. The fact that I work a day job allows me to smooth out my fluctuations. I have $60,000 in reserve and $20,000 in poker bankroll reserves. I play out of an account that is above and beyond those reserves. I play pretty small and usually only take $3000 to $5000 on any weekend poker trip which equates to six to ten buy-ins. If my funds get low and I need to dip into my reserves I would consider playing at a smaller limit. If my active account gets above $10,000 I will often spend some of my money on luxuries but never take it below that magical mark. I play in $500 buy-in games and keep $90,000 in various accounts behind my buy-in. That is well funded and very conservative. If I can build the active bank roll up to $15,000 I would like to take a $10,000 shot at the WSOP main event. This is money management and risk avoidance. You absolutely can not go broke as a poker player.

Sports betting, Blackjack and other types of gambling.
You cannot use your poker money to fund these activities. These things need to be funded out of the entertainment budget. No matter how well you play, if you have these leaks you are putting yourself in harms way.

This was my general primer on money management and if you have more specific questions or concerns drop me a note and I will address your issue.


Tags: , ,

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: