This was a guest post written by my friend John H. about the some money tips he took from the felt and put into his wallet.
When you think of your bankroll, you probably think about how much cash you have in your wallet or how much money you have access to via your debit card that’s not already spoken for by bills. It’s your extra money that you’ll use to put gas in your car this week, go out to eat one night, or for some random purchase like buying a box of Do-Si-Dos®  from the Girl Scouts outside your local grocery store.
Lesson 1: Bankroll Management
These things, while individually are minute, eventually add up to “I’m broke.” Instead of looking at your bankroll as your own personal petty cash fund, think of it like poker players do their bankrolls . The average professional poker player will typically only play in cash games for which his bankroll is 300 X the big blind, sometimes up to 500. If you don’t play poker, then this means nothing to you, but a blind is the maximum bet that the game will start out at. You don’t really need to understand this though to apply the strategy to your own life. Think of it as only making purchases that are equal to or less than a certain percentage of your bankroll.
For the sake of not being ridiculous, let’s lessen the number to 30 X your bankroll. Inflation  has pushed the price of Girl Scout Cookies  up to about $4 per box in most regions of the US. Do you have $120 in your bankroll to cushion the loss of the $4? You want two boxes? You should have at least $240 of extra money in your pocket if you plan on splurging. Only buy the Girl Scout Cookies when your bankroll can afford the blow. When you are running low on cash, you won’t be able to afford 30 X the purchase, and if you’re disciplined, you won’t buy it; thus, not running out of money before your next paycheck.
Another scenario: You have a date. Going out to dinner at a really expensive restaurant like Ruth’s Chris Steakhouse , for two people, would run you at least $100 (more if you plan on ordering martinis). If your bankroll has at least $3,000 (30 X $100) to cushion the loss, then by all means, you can afford it and your wallet won’t suffer too harshly. If you’ve got more like $200 in your pocket, Applebee’s  is running a special that includes an appetizer and two entrees for $20 and $2 20 oz. beers—now that’s a date you can afford.
There’s another term for this, it’s “living within your means,” which some people don’t do, especially when they get mixed up with credit cards, but that’s an entirely different story, and it’s been addressed on this blog already. Of course the number “30” is not the exact number for everyone, as there’s no perfect formula that fits every single person when it comes to finances. However, in such tough economic times as these, using restraint and moderation with your money is more than mildly important. Find a number that works for you, but just stick to it. Try it for one month and see how much money you have leftover in your bankroll.
Lesson 2: Saving/Investing
After you’ve practiced bankroll management as described above, you hopefully actually have some money left over above your monthly expenses. Now you can take a percentage of that amount and put it away in your “savings.” In keeping with the poker theme, poker players don’t take all their money with them to the casino (the responsible ones don’t anyway). They put away what their original investment was, plus some, and then continue to build on to their adjusted bankroll.
You’ve managed to pay all of your monthly bills and budget yourself to only spend 30 X your bankroll for an entire month. At the end of the month, you have $250 left over. Take 50% of that and put it away. So you now have a savings of $125, plus another $125 to throw into the pot for the next month’s bankroll. That following month, you’ll essentially have more money to cushion your spending. Stay disciplined, though; this does not mean that you should blow your extra cash on iTunes. Stick to your bankroll management, but you’ll have a little more free reign with what you can spend in relation to your bankroll (i.e., perhaps this week, you can afford Long Horne Steakhouse).
This one is for those who have credit card debt. Take the same example above. Instead of “saving” your extra $125, throw it towards the balance on one of your cards (that is if you have the will power to not use that card, which hopefully if you’ve come this far, you do). Continue whittling it down each month in this way, until it’s gone. Then your extra cash can go to another credit card or to that desperately neglected savings account.
Lesson 3: Expect Pitfalls
As in poker, life throws some things at you sometimes from left field. If you’ve heard of a bad beat in poker, you know that it means that a player, who otherwise had a killer poker hand, got beat by a better hand. Bad beats happen in life too. For instance, if you are a homeowner, you know that things happen to your house that need fixing. If you have kids, they need stuff. If you own a car, no matter how new, reliable, or gas efficient it is, it will eventually need work done to it. These things happen. Such is life. However, with the bankroll management tools explained here, you’ll be prepared for a bad beat.
If a poker player loses his entire bankroll on one bad call, then he’s out. He’s out of chances to risk anything whatsoever. If he is smart, though, he hasn’t lost it all on one hand. He’s been preparing for something like this since he first decided he’d sit down at a poker table and play a session. He may have to move down to smaller limits in order to build his bankroll up (instead of playing at the $25 blind table, he’ll move to the $5 blind table—something closer to his bankroll divided by 300).
You need new tires on your car. This is an expense that is not part of your monthly bills. You must dip into your bankroll and/or savings in order to afford this repair. No problem. If you’ve been following the rules suggested in this article, you have some fluff to your bankroll, especially after a few months like this have gone by. You may be able to take half of the expense from your cushiony savings account and half from your pocket, or 60%-40%, etc. But the key here is that once the expense is taken care of, you must be prepared to “move down to a lower limit table.” Tighten up on your spending again to cushion the blow to your wallet/savings that the tires cost you. Move down to only purchase at the 25 X level for a couple of weeks. You’ll be able to move back up, but you don’t want your quality of life to suffer severely down the road, when you have another unexpected expense come up.
Bankroll management in poker is applicable to personal budgeting tactics. Everything must be considered in terms of the bigger picture. If you don’t have a mental grasp of your spending to earnings ratio, you’ll never be able to establish savings or make investments, or worse yet, survive those inevitable pitfalls of life.
(Photo: jamadams )