25 Nov 2024 Beginner This material is for beginner players A-game bankroll discipline distance mindset Why do excellent poker players go broke? It's really unfortunate, and it's really like asking the same question as why do smart people do stupid things. The poker ecosystem is designed to get you to make bad financial decisions in many different areas. We just don't have the education that we need through school coming up. We're not taught things like financial literacy. Then we step into especially difficult financial environments like the poker environment, and all of a sudden there are a zillion different traps that can really cost us. So let's focus on three of the top ones that I see over and over that affect my students. #3: Not Keeping Poker Finances Separate Coming in at number three is simply not keeping your poker finances separate from your everyday finances. And the reason this is so costly is that when real life strikes, when there are major unexpected life expenses, what people have to do when they have everything jumbled all together is pull from their poker bet. Well, now all of a sudden you're on a downswing that actually had nothing to do with what happened at the poker table. Imagine if at that point you go on a real poker downswing. So maybe you started with a sufficient bankroll for the stakes you're playing in, but after spending, you know, $20,000 on a house expense and going through a similar downswing, all of a sudden your bankroll was cut to maybe a quarter of the level that it was to begin with because of poor planning. So this is exactly the situation we want to avoid. We want to be keeping finances separate from the very beginning so that when life happens, it's not affecting the way that you're viewing your poker bankroll and your poker decisions. Another factor for people that don't keep their finances separate is that often they're not keeping good records. So all of my students keep great records of what they're doing on a daily poker session, where they're playing, how many hours they're playing, and that way they're able to tell whether they're profitable players or not and where their profit is coming from, which venues, which session lengths are helpful to them, and what are the ones that are better to avoid. Without proper record keeping, poker players are really at the mercy of just chaos, of not knowing, like, what they're doing well, what's going poorly, and how they need to adjust. This is another reason why keeping finances in a separate account is so valuable because you really get that clean record keeping. You're able to look back at any time and see where the swings were really coming from, whether it was from a life expense or whether it was from a poker-related expense. Then there are other players who every time they have a big score, they win a big tournament, they cash in a big cash game, they remove a bunch of that money and they spend it on luxury goods, which is sensible from time to time. A lot of my students like to withdraw their money maybe every six months to every year from their poker bankroll. Not all of it, but just a chunk to treat themselves to whatever they're looking to do. But if you're somebody that is constantly withdrawing from your poker bankroll every time you have a big score, well, what happens when you go on a downswing? Now, all of a sudden, you're always at that starting bankroll level, but you're basically always feeling as though you're on a downswing because the money's never rising, because when you win, it comes out. And then when you lose money, there's really nothing replenishing it. So this is the mentality that we want to avoid. People generally make worse decisions when they're feeling financially pressured, when they don't have that cushion to play their best game at the table. And a lot of this comes from overspending and withdrawing from their poker funds just too much. #2: Poor Bankroll Management Coming in at number two and closely related to number one is just poor bankroll management. Not planning in advance with one key question. What is the amount of money I can lose on poker and not be affected in the rest of my life at all in any material way? So this number will be different for everybody. When people go broke in poker, they should never, ever be going life broke. The amount of money that they put in poker should always be a sliver of their actual net worth. It should not be something that's actually going to cost them if poker turns out to be a failed experiment. For bankroll management, if you’re live poker player, I highly recommend you have at a minimum 20 buy-ins for the stake that you're playing. So if you're a one-two player and you're buying in for $300, you should really have a 6K poker bankroll to withstand the variance of this game. If you're somebody that prefers to buy in for three buy-ins and never lose more than three for a given day and have that as your stop loss, now I think it's better for you to have 30 buy-ins in your poker bankroll because you're willing to tolerate a little bit more variance, a little bit more risk. So if that's the case and you're a one-two grinder, now all of a sudden you're looking to have a 9K bankroll. You would adjust accordingly for whatever stakes that you're moving up in. If you're a 5-10 player that's playing, you know, $2,000 buy-in, of course, then you would want a 60K bankroll. For online, because the swings are larger, because you're making more decisions in less time with less information, and often the edges are smaller, you need a larger bankroll in terms of buy-ins. So at a minimum, you're going to want 50 buy-ins if you're going to be a serious online poker player. All of this protects you from the inevitable variance that comes from this game. Texas Hold'em features many periods of maybe 5-10 buy-in downswings that are just a result of normal variance, and this happens in live poker. In online poker, it may be more like 20-30 buy-in downswings. You need to be prepared for that financially and emotionally when you embark on this journey. So that's why I'm recommending what I am, and doing this will protect you during those times. It's also important to recognize that even winning players are losing anywhere from one-third to even one-half of their sessions. They're making all of it back, of course, in the winning sessions and then some, while they're minimizing losses in those losing days. On any one given day, really anything can happen, and it's on you to minimize the effects of any one given day, so that you can reach the long run and see the results that you want over time. On any one given day, I would estimate you probably only have anywhere from like 10-20% control over your end result for that day, which seems pretty small and seems pretty discouraging, but that edge, when projected over the long run, can enable you to make some serious money. The key is you have to make it to the long run. You have to plan financially to be able to get there, and you have to be able to handle the swings emotionally to make it there. Now, some of my students, they're not Hold'em students. They're PLO students, and these students need even greater bankrolls because PLO has more variance than Hold'em. We need to be prepared for these large swings, and we can't become emotionally affected when this happens. If we are compromised, we have to have side skills to deal with those emotions, which is something that I offer all the time for my coaching. #1: Not Paying Taxes Coming in at number one, and maybe the most under-talked thing in poker, financially related, is paying taxes. It's one of those hush-hush subjects - of course, we know why this is. So we need to consider that as far as paying taxes goes, it's not just taking a legal risk and maybe even some would say a moral risk - we’re not here to discuss this. We are here to just discuss the practical side of paying taxes on your poker winnings. If you are somebody that never pays taxes on your poker winnings, what that means is you're also somebody that's not free to legally invest the money. That means that your money is essentially sitting under a mattress, growing at a linear rate like a snail. It is money that is being eroded by the high inflation that we are in, to a point that it's basically not even worth it for you to play poker if you're doing it this way. By paying taxes, you are set up to be able to legally invest your money. This means that you are able to compound your money with compound interest over time, geometrically, unlike the guy with the money sitting under the mattress. So using the rule of 72, one of the most important rules of compound interest and of personal finance, rule 72 states that you can divide the number 72 by the interest rate that you expected your investment to make, in order to see the number of years it will take for your money to double. So let's say that you made $100,000 in poker profits that you could either put under a mattress or you could invest in a 7% returning vehicle. So of course, if you put it under the mattress, it's going to stay fixed at $100K. Maybe you don't have to withdraw that, you know, $30K to pay taxes for federal and state, but it just remains under there and there's really no growth. On the other hand, if you were to invest the money after paying taxes, sure, you're only investing $70K because say you have to take out $25K for federal, $5K for state. If you live in a taxpaying state, now you're down to $70K that is able to get invested. However, in 10 years time, you will have doubled that money from $70K to $140K. In the next 10 years, it will double from $140K to $280K. Right off the bat, you're making money off your investments. Maybe it takes a little bit of time to catch up to the guy under the mattress. Over the long run, you're going to do significantly better by having compound interest on your side. Another factor that people don't think about is by not paying taxes, you're also not able to prove winnings if and ever you want to buy a house. So if you want to buy a house as a poker player, often you're asked to show profits from your last, you know, say three to five years. And if you can show consistent and steady profits, you are more likely to be able to get a loan and be able to get a mortgage for your house. If you don't have this type of track record as a serious player because you've never been paying your taxes, you've never been declaring it, it's going to be that much harder, if not impossible, to get the loan, to get the mortgage, to get the house that you want. And of course, having a house is one of the key ways that we're able to build wealth over time. So you don't want to be that poker player that is doing extremely well at the tables, but then punting off the winnings in other ways, or even if you're not punting off the winnings, just simply not growing the winnings at the rate to actually get the true benefit out of your poker play. You don't want to be the poker savant strategically and not the good poker player overall. Conclusion So these are just three tips that can really help you maximize your poker career earnings, starting with keeping really good records and keeping finances separate, practicing great bankroll management, and ultimately paying your taxes. These are some of the lesser-talked-about things in poker because they're not as sexy as check-raising strategies and three-betting and all the plays that people like to make. But over the long run, you're going to thank yourself for practicing this level of discipline with your finances. I hope you find this helpful. And if you like this topic, please share or leave a comment below. Have a great week!
