Playing poker might seem to be the antithesis of responsible financial management.
That's what makes the comments of Phil Hellmuth, one of the world's most successful professional poker players, instructive. Hellmuth believes his astute money management has played a greater role in winning a record 14 World Series of Poker bracelets than his poker skills.
Here is what we can all learn from his experiences:
Set a limit
There are many mercurial poker players who seem to have more than their fair share of luck. Hellmuth credits his success not to his flamboyant ways, but to having some strict disciplines. He has a rule that he will never lose more than $10,000 a day, notwithstanding the multimillion-dollar winnings he sometimes enjoys. Having a hard limit means he has an in-built hand break to stop him throwing good money after bad. The daily limit also forces him to take a break and get some rest if he is losing because he is tired or distracted. He is able to return to play the following day with energy and focus and commitment to win back his losses from the previous day.
This seems like common sense. However, few of us apply the same simple money management techniques to our own lives. One of the best disciplines is to structurally limit spending. Ensure you have only one credit card and that its limit is no more than your monthly after-tax income. This reduces your chances of significant spending problems as you should always be able to pay off your credit card in full when you get paid.
Seems like a small thing, but having a low limit on your credit card is a good mechanism to prevent a rampage of emotional spending.
It's even more important to have this discipline as your income increases. The more you earn, the more financial institutions will be comfortable to extend you more credit, potentially luring you into a debt trap. As of 2017, Phil Hellmuth's total live tournament winnings exceeded $21.75 million and he is ranked eighth on the all-time money list. For a player of this success and wealth, $10,000 might seem like an insignificant amount, but he has kept it at this relatively low level to protect his wealth as it has grown.
Avoid being staked
One of the biggest challenges of professional poker is the high tournament entry fees. A common solution is to get "staked", taking money from an investor to pay the entry fees in exchange for a big percentage of any winnings.
Like many, Hellmuth was staked early in his career. However, he improved the quality of his poker and the enjoyment of the game once he could afford to bankroll himself. He is better able to play with a clearer head and not be distracted by the needs and worries of his financial backers, plus he can retain all the upside from his hard work.
Having a big home loan is a bit liked being staked in poker. You can work really hard and feel like you are getting nowhere because a large proportion of your income goes to paying interest. It also means that many financial variables are not within your control and you are at the mercy of interest rates and bank policies, rather than having the freedom to make your own choices. Just like Hellmuth, paying off your debt is likely to increase your enjoyment, and benefit, of your hard work.
Have clear goals
Hellmuth had mixed early results and credits his sustained success to clearly articulating his goals. He writes down his goals and tapes them to the mirror in the bathroom wherever he is staying. He reminds himself every morning not only of what he wants to achieve, but also the things he is grateful for in his life.
We all have things we want to achieve. However, few of us take the time to write them down or share them explicitly with those close to us. By clearly articulating what we want and engaging others to hold us accountable to these goals, we are much more likely to achieve them.