- Be Patient
Everybody wants to get rich quick. In Texas Hold ‘Em, any two cards can win a big pot. The key to becoming a good poker player is good hand selection. Sure you may flop a miracle full house if you hold a hand like 2-7 offsuit, but over time, that hand (and other garbage hands) will lose you a lot of money if you keep playing it.
In personal finance, patience is a virtue. If you are buying your first home, don’t just pay asking price on the first house you see because you think it’s a good fit. Don’t buy that new laptop you see in the store without first asking yourself if really you need it, reading reviews, and doing price comparisons online.
- A Dollar Saved is a Dollar Earned
Say you have pocket kings and make a large raise preflop. 2 other people call and an ace shows up on the flop. You make a good size continuation bet but then get raised all-in by the next player. It’s almost a given that at least one of the two players besides you has an ace and you should fold to save some money. You look at your pocket kings (ooh, so pretty) and decide to call. Sure enough you lose an extra $30 on that one hand. For that day, you end up $20 but if you had just folded your kings, you would be up $50.
The same concept applies when making purchases. Searching for the best deals and using coupons and cashback sites have the same effect as earning more money when making a purchase.
- Don’t Go On Tilt
It happens to everyone in poker. You are a huge favorite in a big pot against one player with only 1 card (the river) to come. Only 1 card can lose the hand for you. Sure enough, that card comes. For a lot of players, anger, frustration and second-guessing ensue. This then causes them to play emotionally with revenge on their mind or believing they are “due” to win the next hand. They are on tilt and will probably now lose more money.
In personal finance, something may happen that makes you anger and you in turn start behaving irrationally. For instance, how will you react when your car refuses to start for the second time that week and leaves you stranded away from home? The logical thing to do would be to get it checked out and fixed. The irrational would be to decide you’ve had it with that car and go to the dealership to buy a new car.
- Bankroll Management
In poker, you want to have enough money in your bankroll to play at a level where a bad day doesn’t leave you broke. The general accepted rule is to have at least 20 buy-ins for the level you are playing at (ex: $1,000 bankroll for the $50 buy-in tables). The intention is to reduce risk and allow you to weather the inevitable downswing. Even the best players lose money over a short period (variance). But because of good bankroll management, they can continue playing through the downswing and make good money in the long run.
Figuring out how much of a house you can afford is an example of bankroll management. A couple taking home $4,000/month should not be taking on a $3,000/month mortgage. Sure they may make it for a few months but when an emergency happens (a downswing), what will prevent them from losing it all?
- It’s a Grind
Many poker players play for a living. Being at the poker table or playing online for 8 hours a day is a grind. At some point it stops becoming fun but they continue to do it because they depend on the money to pay bills. Unless they win millions in the World Series of Poker, they continue to play poker day in, day out.
A normal job is a grind as well. We go to work every day knowing we won’t be becoming millionaires overnight so we do the best job we can. We are grinding it out just like everyone else. Being able to balance work, family, and friends makes the grind enjoyable.
- Learn From Your Mistakes
Making mistakes is a part of life. Learning from them will make you successful. I big mistake in poker is when you know your opponent probably has a better hand than you, yet you put more money into the pot because you want to believe your hand is better. A good poker player will learn from this and start trusting his instincts and saving himself that last bet.
When you first start piling up debt at a young age, you just don’t care. When you later lose your job, have a family to take care of, and have no emergency fund, you should realize how the situation could have been much easier. To have the best chance of being financially successful, learning from mistakes instead of repeating them over and over, plays a big role.