Manage your finances like a professional gambler

Here's a guest entry from Tynan. This post is about how a professional gambler looks at money.

Small Things Add Up

I was eighteen, and a freshman in college. For the past few years I'd been making a few hundred dollars a month selling Palm Pilots on eBay. It was a lot of money for a teenager with no real expenses, but of course I spent it all. My knowledge of personal finance was fuzzy at best. Naturally I squandered any money I made.

Then, through a strange series of events, I became a professional gambler. It happened fast, and soon my “studies” were being neglected for long nights of blackjack, roulette, and video poker. Eventually I dropped out of school to make serious money, and thus began my real financial education.

There are a lot of analogs between gambling and real life finance, which should come as no surprise since gambling is simply the bizarre intersection of fun and finance. I learned more about personal finance, discipline, and math during my six years as a professional gambler than any other period of my life.

My hope is that through this series you'll receive the same education, without the inconvenience of making piles of money.

When a gambler plays a game, he receives a payout. A 100% payout is what he'd get from a perfectly even game like flipping a coin. No one has an advantage. A 99% payout means that the gambler will lose, on average, 1% of what he bets. A 101% payout means that the gambler will earn 1% on what he bets. This may sound like a slight amount, but when betting tens of millions of dollars a year, that 2% spread between 99% and 101% represents the difference between going broke and living very comfortably.

As a gambler, I would implement changes to my playing habits. Each alteration might only increase my payout by .05%, but each .05% pushed me closer to the promised land of 101%. When I understood this concept, I realized that life is the same way. Either your spending habits are building your wealth or bleeding it — just like gambling.

For example, do you take money out of an ATM every week? If you do, that's costing you an average of $2.91 per week (according to Bankrate). People don't feel good emotionally taking out $160 at once instead of $40 a week, but that emotion has nothing to do with the real financial costs associated with the extra ATM fees. This irrational emotion is exactly what fuels casinos.

The profit in switching to a monthly withdrawal schedule is $104.76 ($2.91 * 3 * 12 ) per year. That negative emotion some people have is costing them $104.76 per year.

What about tipping 25% instead of 15%? If you're an average American, you're spending an additional $440 per year to feel generous. I'm not saying it's not worth it — I'm just saying that it's costing you.

Switching a credit card balance from 25% APR to a newly opened 10% APR card can save $1250 on a $5000 balance.

We ignore these habits and expenses on a daily basis, but as a professional gambler, small improvements in our habits are the difference between making a living and going bust. I learned my lessons fast and was a successful gambler for six years.

In real life, if we pay attention to our small habits and adjust them, they too can make a big difference. I've listed three changes that an average person could make. The benefit over ten years? Almost $18k — that's big.

Know When to Fold ‘Em

Now, I talked about how professional gamblers need to get the payout over 100% in order to profit. One way to get the payout over 100% is to play a progressive video poker machine. Normally Jacks Or Better, the standard variant of video poker, pays out around 99.5%. This is a losing game, with the expectation of losing $5 for every $1000 wagered. To assess the payout value of video poker, multiply the payout of each individual hand by the probability of getting that hand and adding them all up. The payouts for hands vary from $5 for a single pair to a whopping $4000 for the highly unlikely royal flush.

Progressive video poker is different. Its payout varies because the prize for the royal flush varies. It starts off low, sometimes even below the standard $4000, but as more and more people play a machine without hitting the royal flush, the prize increases. Since the overall payout of the machine is based on the payout of all of the hands, as the royal flush becomes more valuable the payout of the machine rises. Somewhere around $4600 it breaks over 100% and becomes worth playing.

Let's say that we have a gambler named Bob. He sits down at the machine when the progressive royal flush payout is at $4600. Because the payout is so high, he's making a smart move. He plays and plays and plays, losing $500 in the process. A positive payout is no guarantee of winning in the short term. He takes a quick break to go to the bathroom and when he gets back, someone else has won the jackpot and it has been reset to $4000.

If he's like most amateur gamblers, he thinks, “I already have so much money in, I may as well keep playing.” This is an incorrect move because the amount of money he has in the machine has no bearing on the payout. When the payout is good, it's worth playing. When it's bad, it's not. The difference between a pro and an amateur is that the pro doesn't care how much of his money is in the machine — when it's worth playing he'll play, and otherwise he won't.

There are two fantastic examples of how people make this mistake in everyday life.

People love to play the stock market. I've played it a bit, but quickly learned that I was an amateur, and that it's more like gambling than most people give it credit for. Now I let Warren Buffet manage my money for me.

When stocks go up, people are thrilled. When they go down, they make poor choices. Let's say that Bob decides to invest his money. He invests in a solid company named Acme Widgets, and watches his investment increase. Suddenly there's a change in management and Acme starts going down the tubes, along with his investment. He invested $1000 in Acme, but now his holdings are only worth $100. He thinks to himself, “I know I should sell, but I've got $1000 in, so I may as well see if I make it back.”

What he doesn't consider is that Acme has no idea how much money he has invested, and that original investment has nothing to do with the prospect of Acme going back up. If he wouldn't buy Acme with its shares at 10%, then he shouldn't hold them at 10%. Not selling is the same thing as buying. That isn't to say that you should sell when stock prices drop, but only that you should sell when it's no longer a good investment by whatever decision process you use.

The same principle applies to real life purchases, and is commonly exhibited when people buy cars.

Bob makes a stupid move and buys a brand new truck for $25,000 from the dealer. A year later its value has declined to only $15,000 and he's is in bad need of money. He looks into selling the truck, but people are only willing to pay $15,000 for it now. Disgruntled, he refuses to sell and thinks “I paid a lot more for it. I may as well keep it.” Again, the market doesn't care what he paid for his truck. Whether he paid $5,000 or $50,000, it's still only worth $15,000.

If he was to shop for a car today, on his limited budget, he would probably buy a car that cost only $10,000. By that metric, he should sell his depreciated car for the fair market value of $15,000 and buy a cheaper one for $10,000.

In fact, purchases should be sold if you wouldn't buy them today for their current value. I bought a monitor for $800 a year ago that is now only worth $600. I still like the monitor a lot, but I use my laptop most of the time now so the monitor isn't as valuable to me. Even though it was a good purchase a year ago, if didn't have the monitor today I wouldn't buy it. Thus, it gets sold.

The only other factor is my time expenditure to sell the item. If I have a computer mouse that I don't use anymore, but it's only worth $5, it's probably not worth my time to sell it.

I think this is terrific advice. Too many people “let it ride”, or worse, throw good money after bad. Based on Tynan's advice, I have several items I should be auctioning on eBay. And you know what? I think I might.

More about...Planning

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
63 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Bryan C. Fleming
Bryan C. Fleming
13 years ago

I’d also add…….

Just pay yourself first. Then everything else will take care of itself!

BTW – I never knew you could get a 101% payout in gambling. Interesting.

– Bryan
http://www.BryanCFleming.com

DeuceDeuce
DeuceDeuce
13 years ago

Pro gambling? Interesting. Look forward to more from Tynan.

Andy
Andy
13 years ago

This entry was a bit light on content, but I look forward to future entries by Tyran. It sounds like he might have an interesting take on some personal finance subjects. And by comparing personal finance topics to gambling topics, he might make something set in that otherwise we would have ignored.

brad
brad
13 years ago

Taking out a month’s worth of cash might not be cost-effective for everyone. Knowing that I have cash on hand would probably make me spend more simply because it’s there and readily available. It’s a psychological thing. My friends in France get paid only once a month, and they’re always complaining about how hard it is to budget so that they don’t spend it all before the next paycheck. They’re jealous that I get paid every two weeks, which they feel would help them spend more responsibly. I think the same reasoning applies to ATMs.

Russ
Russ
13 years ago

“BTW – I never knew you could get a 101% payout in gambling. Interesting.” As someone who has dabbled in sports betting (always use a betting exchange, never a normal bookmaker), I know this is possible, and as Tynan says it’s absolutely a key point. What you need to do is find opportunities where the odds are too generous for the real probability of an event occurring. To use the coin toss example, if it was a fair coin but somebody offered you odds of 2/1 on heads, you could statistically guarantee a profit by backing heads every time, since… Read more »

alejandra
alejandra
13 years ago

Dude, what you say about tipping is just silly. We don’t tip 20-25% simply to “feel generous” but rather because hardworking people who are serving us food (and who have to tip out to the unseen servers who wash our dishes and clean our table, etc.) depend upon this money. Would you tell our bosses to skimp us to save their own money? Please, grow a conscience.

DC Portland
DC Portland
13 years ago

My mother told me, “if you can’t say something nice, don’t say anything at all”. But taking financial advice from a “professional” gambler is utterly ridiculous. Anyone with a rudimentary understanding of odds theory knows gambling is for losers. Gamblers personify a “get rich quick” mentality, which is the opposite of what this site is all about. Just from the comments above (“interesting”), you can see the evil “how can I make a fast buck?” oozing out of some of your readers. Gambling is the most certain way to end being psychologically scarred and financially broke. A better understanding of… Read more »

GG
GG
13 years ago

It seems even more cost effective to switch to a bank or credit union without ATM fees and finding an ATM that is free for your new account.

On tipping, if you are really trying to save money, eating out less is going to save a ton more than reducing your tips to the minimum.

Schizohedron
Schizohedron
13 years ago

Curious as to your methods. Card counting at blackjack and careful slot machine payout choice I can see, but how did you play roulette as a +EV game? Are you counting the value of comps received as part of your win? I tend to lump all three as pricey forms of entertainment that I just pass by on the way to the casino’s (nonvideo) poker room.

J.D.
J.D.
13 years ago

Taking financial advice from a “professional” gambler is utterly ridiculous. While I can certainly understand this point of view, I’ve learned that I can get valuable insight from unlikely sources. Even if I don’t agree with a person’s viewpoints, I can often derive something from his methods. For example, I think Steve Pavlina‘s “psychic energy” stuff is hogwash, yet I find the principles he outlines to be fascinating and effective. Or, as I tell many people, Dave Ramsey’s personal finance philosophy is founded on Christianity, but most of his techniques are valuable for everyone, Muslim, Christian, or atheist alike. I’m… Read more »

brad
brad
13 years ago

Not to mention that the differences between “gambling” and “investing in stocks” boil down essentially to issues of legality. If Tynan had made his living as a speculative investor you’d probably hear no objections!

Boris
Boris
13 years ago

Taking financial advice from a gambler is far from ridiculous. If he’s been doing it for a while, it’s obvious he’s been succesful. I assume he’s moved to a game that plays against others rather than the house b/c all of those have negative expected values. This means that his income is completely dependent on a strong understanding of statistics and long-term benefits.
That sounds like someone who can give solid financial advice.

RS Hizzle
RS Hizzle
13 years ago

I have to agree, that tipping %15 instead of %20-%25 is a really shady move. As a former server, I know very well that those nickels and dimes add up. It’s a crappy system, but if you don’t want to play in it, don’t eat out. Jerk.

Jacob
Jacob
13 years ago

This reminds me of lessons I took from being addicted to a MMORPG, specifically the PvP of Dark Age of Camelot. The top players pour a massive amount time into building ‘uber suits’ which to casual players seem tedious and unproductive. But an extra 10 strength here, +4% to spell duraction there and so on adds up and keeps the power-gamers pwning noobs! But honestly, I did learn something from playing, small things add up and they’re the best/easiest/first place to start. Most refuse to do even the simple stuff (like buying purple ROG gear for their bg toons) and… Read more »

Tynan
Tynan
13 years ago

Hey guys – thanks for reading my article and taking the time to comment on it. A few points that have been raised that I should have made more clear. 1 – Why has tipping been inflated? 15% used to be the standard, and now it’s 20-25%. The thing is, restaurant prices have gone up with inflation, so keeping a steady 15% tip should be pacing inflation. If a waiter does an excellent job, I tip more, but raising the standard tip from 15% to 20% has no economic basis. 2 – People who discredit professional gambling are simply naive.… Read more »

Gwyn
Gwyn
13 years ago

I always take out cash on a monthly basis. Based on my budget I know what out of pocket expenses I will have (mainly just bus fares and the very occasional meal) plus my budgeted entertainment expenses. That cash is in my pocket from the day after I get paid and that is all I ever spend in cash that month.

Wesley
Wesley
13 years ago

I think this guy’s full of it…heck, just take a look at his site! While I agree w/ JD in thinking that perhaps some of his concepts are decent, someone who drops out of school to become a gambler, then a rapper is definitely not someone I’d think to take advice from. His articles seem ficticious (or sponsored as in the link he provides above for his gambling venture).

I’m interested to see the next article, but only because it’s a part of this site.

Leesa
Leesa
13 years ago

I really enjoyed this article.

I have been cleaning up finances for an estate, and I noticed lots of nickle and dime expenses that would have accumulated well over 40 years.

And for tipping, the gambler just wants us to make an educated purchase of their services. I tip 20% because I want to, but I pull out $300 at a time from the ATM because of the fees. It is a smarter thing to do if you will spend the same amount of money.

Tynan
Tynan
13 years ago

Wesley – All of my stories are completely real. I don’t ever exaggerate, so I resent the assumption.

The Casino On Net link is a sponsored link which I chose because it is by far the most reputable casino. You’d think that on a financial blog readers would be particularly supportive of people earning money from their hobbies (and I think most readers probably are…)

I hope you enjoy the next article.

Tynan

Schizohedron
Schizohedron
13 years ago

Just read the post Tynan cited above. Sorry, but I can’t lend any credence to a gambler who considers any form of a to be mathematically rational.

Jason S.
Jason S.
13 years ago

This was a good article, but I think I missed something regarding the ATM figures. The ATM fees for taking out $40 a week add up to $151.32 ($2.91 * 52-weeks). Changing to a monthly withdrawal system drops that number down to $34.92 ($2.91 * 12-months). This results in a “profit” of $116.40, not $104.76. Did I miss something? Why did Tynan use the formula “$2.91 * 3 * 12” to determine this profit margin? All that formula says to me is that you spent $104.76 on ATM fees over three years. Please help me understand. And I agree with… Read more »

Schizohedron
Schizohedron
13 years ago

Oops — the words “Martingale system” got trimmed out of my post before the Wikipedia link.

Tynan
Tynan
13 years ago

Jason, you’re right. 2.91 x 3 x 12 means ATM FEE x Difference in times per month (4-1) x 12 months.

I was approximating 4 weeks per month, but your method is, of course, more accurate.

Tynan

GG
GG
13 years ago

Sorry, he sounds kind of dogey. The “Martingale System” system is crap (if it wasn’t obvious.)

The point that the little expenses add up to a lot is very important though.

Tynan
Tynan
13 years ago

Sigh… if you read the article you’d find that I tried the martingale system before I knew about gambling, and quickly realized that it was a disaster. Its only significance to me is that it was my introduction to gambling. I would never recommend that anyone use the martingale system.

Jason S.
Jason S.
13 years ago

@Tyan

Thanks!

Cheers!

Schizohedron
Schizohedron
13 years ago

T: The only part of the explanatory article on your blog in which you go into any specifics is the part in which you use a Martingale strategy. Insofar as we then fast-forward to your dropping out of college and then spend six years gambling with this self-designed but undescribed method, there is no strong impression that you broke with the Martingale method, only perhaps that you came up with a new application of it. At least one other reader came to that assumption (see above). To counter this impression, would you consider fleshing out these 6 years in the… Read more »

Seth
Seth
13 years ago

“Professional Gamblers” don’t play roulette or video poker. The only way to get a true, lasting, mathematical advantage over a casino is to count cards in blackjack. Period. End of discussion. Without card counting, you can expect a 100% payoff from an odds bet on the craps table, but that needs to be paired with a regular bet with a negative expected value. The mathematics behind it all have been done to death. There is a .00000000001% chance that you thought you had a system and somehow lucked your way through it for a few years without going broke, or… Read more »

Seth
Seth
13 years ago

From your website – “There’s a lot of debate over whether or not the Double Martingale System has a flaw or not.” There is absolutely zero debate. Any Martingale system, requires an infinite bankroll, infinite time, and most importantly … wait for it … a table without limits. This final condition can never be met. This is the very reason that casinos have table maximums. Why else would they restrict your gaming? I’m also confused on how you talk about buying cars and planes on your website, and mention in the next paragraph that your world collapsed when you lost… Read more »

Dusitn
Dusitn
13 years ago

I think I am not risky enough in poker to make an money in personal finance. I think I am more aggresive in my investments (oddly).

D
D
13 years ago

Kinda rude to bring up “overtipping” someone who depends on those tips to live without mentioning eating at home as an option.

Really… why not just not tip at all?

“I’m just saying that it’s costing you.”

Rude.

Judging tips by % is for rich stingy old people. Tip by service.

Rachel
Rachel
13 years ago

Seconding the commenters above who suggested the bold move of picking a bank with convenient ATMs so you don’t *have* to pay fees.
Aside from vacations, I haven’t paid an ATM fee in the entire time I’ve had a bank account- and my main account isn’t even at a credit union.

Nick
Nick
13 years ago

Regarding Ty’s system, I can verify for certain that it did indeed work. I worked with him for about a year on it and also made my living from working with him.

I’d always had some doubt about the legality of it all, but it was in no way the Martingale system mentioned above.

I made a promise when we started that I would never disclose details of the system, so you’ll have to ask him yourself if you want specifics.

Prince of Thrift
Prince of Thrift
13 years ago

I agree with D and alejandra, it does seem rude, and tipping a larger amount to the waiter/ess that is being paid below minimum wage is the proper thing to do. If you are going to eat out, that tip better be in your budget to. If you can’t afford to tip, then don’t eat out.

Michael Langford
Michael Langford
13 years ago

It sounds like he’s playing poker from the phone call from his mother. Is that right Tynan? It’s not an easy life, but its very possible to learn to get a middle class salary if you chase good games all the time in poker. There is an entire group of people who do it both on online poker rooms and in person in Vegas (during trade shows) and elsewhere around the country. I’m not talking tournament poker, although many people do that too. I’m talking about “ring game” poker, which is 10 guys sitting around a table, with a dealer… Read more »

whining waiter
whining waiter
13 years ago

Every waitperson I’ve ever met feels entitled to generous tips. My response is always, “Get a better job.” I won’t even tip 15% unless the service is sensational. It’s not my problem you work a crummy job.

Jamasiel
Jamasiel
13 years ago

Re: tipping – what’s wrong with you people?
He’s giving tips about saving money, not saying to bilk service people out of tips they deserve. You’re the ones being rude here – the expectation for tips is 15-20% for standard service, therefore if you follow his pointers and pay that instead of more unless you get exceptional service, you’re not shorting a waiter…it’s what they expect, and what you should expect to budget to eat out.

I know lots of you are just anxious to be rude online, but find a better target.

CW
CW
13 years ago

It never stops to amaze me how much the average American DOES NOT know about money. The few tips Tyran gave is something every adult should know… something every parent should teach their kids with when they receive their first piggy bank. Note that I said “know”, not “follow”. As long as you are fully aware of what tipping another 10% means to your wallet–and you still choose to do it–it’s fine. On ATM: my bank has no monthly fee and doesn’t charge me any transaction fee for using one of their ATMs. Hence, as long as I’m not using… Read more »

Ted
Ted
13 years ago

I’m a semi-professional gambler with a very strong understanding of the math behind what I do. I play poker, that’s where the money is. I also started out clearing casino bonuses. One thing I must say though is that TYNAN WAS NEVER A PROFESSIONAL GAMBLER. He was (and is) foolish, thinking that he could turn a -EV wager into a +EV wager through changing is bet sizes. This is not possible. It is possible to run well for a long period of time and still be up money, but a guy saying he quit school to play internet roulette… well… Read more »

TheInsider
TheInsider
13 years ago

Not unless you find a hole in the Internet gambling casino site (and get better odds)…

Jacqueline
Jacqueline
13 years ago

He obviously was bonus-whoring. Duh.

Ryan
Ryan
13 years ago

Interesting take on things, I’m looking forward to reading more in the future.

Ted
Ted
13 years ago

He was not obviously bonus whoring. Read his entries about gambling, he mentions some secret system and whatever else. Not bonus whoring.

A secret system that can make -EV +EV, incredible!

Kolloid
Kolloid
13 years ago

I have been reading Tynan’s blog for a little while now, so there is a couple things that I think you should know about him: – First is that he seems to dedicate himself completely to whatever it is he decides to do. That explains why he dropped out of college to become a professional gambler. Although he may have initially started gambling with dreams of getting rich quick, he took the time to learn the games and to become a master. I believe that some games are set up to have a house advantage against a basic strategy. If… Read more »

Matt_In_Tx
Matt_In_Tx
13 years ago

Don’t make the blanket assumption that paying a credit card balance off every month results in no fees. I have read rumors that some affiliation credit cards have recently zeroed their “grace periods” – presumably meaning you would start paying finance charges immediately upon purchase.

Obviously, one should check their statements for fees they don’t understand. If any of my credit card companies were to make such a change, I would cancel the account immediately.

larry thompson
larry thompson
13 years ago

Hi,

Tynan, simply ignore the jealous ones! The world is full of them!
Professional gambling is an honorable profession……however, it is NOT an easy one! Professional gambling requires every “disipline” known to man! Practice every known “disipline” and you can become expert at anything!

Patrick
Patrick
13 years ago

Good article! The article triggers a lot of responses. If you want to be rich, you have to have a certain attitude and discipline. The reachest people are in certain cases very cheap. Like it or not, their first question in mind: what is MY (potential) return on investment. For me a reason to pay only 15% tip in a restaurant (Don’t blame me that your boss is paying you so poorly). I rather spend money to charity than spending more on tips because this will give me a tax reduction and a win win situation. People like alejandra, who… Read more »

Adam
Adam
13 years ago

I have a friend who purchased a manufactured home new many years ago. They moved out of it when they stilled owed more than the market was willing to pay. Between the loan and lot rent I expect they spent over $20,000 just to let it sit there. And they still owe more than it’s worth. I would have instead taken a personal loan out for the $20k and sold it quickly – that loan would be largely paid off by now. Instead, they are pretty much in the same position that they were in when they moved, and perhaps… Read more »

DC Portland
DC Portland
13 years ago

I was critical of your posting of Tynan’s advice last time. I still think it is risky business glamorizing the avarice of gambling. Even so, we are all? adults here. I do appreciate Tynan’s words regarding the “gamblers fallacy” – thinking that a machine or game is primed for a big payout because of all of the prior play without one. The fact in, each roll of the dice or push of a button is a “start over”. How many compulsive gamblers have gotten themselves into a heap of trouble following this simple fallacy? Shedding light on this is a… Read more »

brad
brad
13 years ago

Playing Devil’s advocate here: Tynan wrote: He invests in a solid company named Acme Widgets, and watches his investment increase. Suddenly there’s a change in management and Acme starts going down the tubes, along with his investment. This makes me think of one real-world company that followed this trajectory: Apple Computer. When Steve Jobs was forced out of the company by John Scully way back when, Apple started going down the tubes. A lot of people predicted the company would go out of business and its stock was pretty much worthless. But if I had owned a big chunk of… Read more »

shares