How Strict Should Your Money Management Rules Be?
You’ll see plenty of gambling writers deride the concept of money management. They have a point, too.
No amount of money management will turn a negative expectation game into a positive expectation game.
This does not, however, mean that money management isn’t useful.
If you’re a professional gambler with an edge, how you manage your bankroll is critical to your success. If you bet too much of your bankroll at once, you risk going broke, even though the odds are in your favor.
Recreational gamblers have different goals from winning in the long run – as they should. These goals usually involve having a certain amount or kind of fun while they’re betting.
This post covers how strict such a gambler should be with his money management rules.
Your Bankroll Must Be Money You Can Afford to Lose
The first rule of money management is that you should set aside a bankroll for your gambling that’s separate from money that you need for other purposes or expenses.
And this is a money management rule you should follow as strictly as possible.
This might mean that you have $500 set aside for Saturday night’s home poker game. It might mean you have $3000 set aside for five nights in Vegas. It might even mean that you have $20 in your entertainment budget each week that you can spend on lottery tickets.
The options you have in gambling are disparate enough that you have plenty of choices available to you.
But don’t ever make the mistake of gambling with money you need for something else.
You’ve heard the expression, “Scared money always loses.”
You’ve heard it because it’s true. You’ll make mistakes if you’re playing with money you can’t afford to lose.
I saw this in real life a few weeks back. One of my buddies – who resembles a leprechaun but isn’t nearly as lucky – was hoping to win enough money at the Saturday night poker game to cover how much short he was of the rent.
Of course, he shouldn’t have been betting with that money in the first place. He needed it to pay the rent.
He didn’t win enough to cover the shortage, either.
Some people plan a trip to a gambling destination without budgeting specific money for gambling either. This doesn’t seem like a terrible idea. At least, not until you spend two days eating McDonald’s and watching TV in your motel room because that’s all you can afford to do after losing a fortune at the craps table.
The first rule of money management is to gamble with money you’ve set aside as a bankroll and always to have a bankroll that’s separate from money you need for other things.
You Should Have a Loss Limit
A loss limit is just an amount you’re willing to lose before quitting.
There’s nothing magical about the amount, and it can be anything you want it to be up to 100% of your bankroll.
You can have a smaller percentage if you want, but setting loss limits doesn’t tilt the odds in your favor.
In my example above of a Las Vegas gambler with $3000 to gamble over five nights:
- He might have a bankroll of $600 for each night’s gambling.
- He might set a loss limit of 40%, or $240.
- If, at any point, he loses that $240, he has to call it a night.
There are all kinds of ways you can handle a loss limit. One way is to divide your bankroll for the trip into smaller session bankrolls, along with the idea that you’re willing to lose 100% of each of those mini-bankrolls.
With $3000, you could set aside $300 for a morning session every day and $300 for an evening session each day. Even if you lose all your money at every one of those 10 sessions, you’d still be okay, because that was money you could afford to lose.
You Should Have a Win Goal
Not long ago, I took a date to the casino, and we played Mississippi Stud for hours. She got way up early in the evening, but she managed to lose every penny of it and $100 more before we left. And she was convinced that she was really good at the game.
Had she had a win goal that she was willing to stick with, she would have had fewer regrets at the end of the evening.
I spent a little time at the Mississippi Stud table, too, but I also played Let It Ride at the table next to it.
My win goal was simple enough – I wanted to play until I hit a royal flush or until I went broke, whichever came first. (I went broke.)
But other gamblers like to set their win goal as a percentage of their starting bankroll. If you sit down with $300, for example, you might have a goal to double your money – once you have $600 in chips sitting in front of you, it’s time to go.
In the long run, the house has a mathematical edge, and you’ll eventually lose all your money if you keep coming back to play some more.
But wouldn’t it be nice to win enough money during the occasional session to be able to brag about your winnings?
You can’t do that if you sit there and keep playing.
A winning streak always ends.
There’s no magical number, though. Your win goal might be really low or really high, but in the long run, it won’t help you win against a game where the odds are stacked against you.
You Should NOT Keep Playing Just Because You Haven’t Met Either of These Criteria
Some people feel like they have to stay at the table until they’ve hit their loss limit or their win goal, but that’s not necessary at all.
You should quit playing when you’re tired and don’t feel like playing anymore, period.
In fact, this is one area where you’d be wise to be lax in your implementation of a money management strategy. Be willing to quit early regardless of whether you’ve hit or missed your win goals or loss limits.
If You Have a Gambling Problem, You Must Address It
Problem gambling is a more serious issue than most people think and is similar to a substance abuse addiction.
The difference is that compulsive gambling is a process addiction, and some people don’t believe that’s as big a deal as a substance abuse issue.
But the chemical changes that go on in a person’s brain when they’re gambling is significant.
There are many helpful resources available that can aid you in dealing with problem gambling, and you should take full advantage of them.
When you hear the stories about the lives that have been ruined by addiction, it can be a huge wake-up call. You will be less likely to want to gamble without addressing the issues. Once you start spotting the warning signs, you should use the resources available to get back on the right path.
So, how strict with your money management rules should you be?
With some of them, very strict indeed.
But with others, not strict at all.
There are many different methods that you can apply to your money management rules and how strict you are will be determined by the situation.
Keep in mind that money management is a useful tool for people who are still able to control their gambling. If you have a gambling problem that you haven’t addressed, though, you’re better off just abstaining from the activity altogether.
What about you, though?
How strict are you with your own money management rules?
Let me know in the comments.