Poker is a game played with money, but how well do poker players understand money itself? I have found that the answer to that question tends to be at the extremes, poker players tend to understand money incredibly well (hence they often branch out into things like investing, trading, crypto) or indeed they are terrible with money which is why a lot of otherwise talented players end up going broke.
Today’s topic will seem obvious to a lot of you but in a game where people often walk around with huge wads of cash, some people need still need it explaining. That is that there is a big difference between being wealthy and being rich.
The gap between what you earn and spend
Being rich is simply having a lot of money. Wealh is a lot harder to pin down. Morgan Housel describes wealth as the gap between what you earn and what you spend. Somebody who earns $100,000 a year and spends $100,000 a year is rich but in every other respect is living paycheck to paycheck. Somebody who earns $50,000 a year but only spends $25,000 is comparatively wealthy.
Another way wealth is described is when you have assets that earn you money while you sleep, especially if they generate more than what you spend. If you have a yearly expenditure of $25,000 and you have savings and investments that generate $25,001 every year, congratulations you are wealthy. You don’t have to work to live the lifestyle you are accustomed to.
You can no doubt see why being wealthy and rich are different beasts. This goes back to the lifestyle creep concept we covered a few weeks ago. Living within your means is perhaps more important on your path to wealth than finding ways to generate money. All over the world professional athletes like footballers and basketballers live like Kings until they retire then go broke quickly, because they were no longer able to fund their lifestyle.
Assets that earn while you sleep
It is particularly important to understand this gap as a poker player because when you handle large amounts of money you can become both desensitised to it and also get a false sense of security. The game is littered with people who rent penthouses in Vegas one week and are broke the next.
The poker players who are wealthy usually have assets that generate income for them when they are not playing. A piece of a business or investments, like stocks or crypto. Somebody like Doug Polk is probably a decent example of this, when he is not spanking Daniel Negreanu for six-figures he has a coaching business and is also well known for his crypto investing.
The biggest lesson even if you are a small stakes players is not to instantly hero worship your high stakes poker player friend who is throwing money around like it is a game of monopoly. They are probably rich, they might not be wealthy. If they want to keep the lifestyle they are accustomed to they need to keep on playing, whereas a wealthy person could take a year off from the game no problem.
Ultimately therefore, wealth is freedom.
What other financial concepts do you think poker players need to understand? Let us know in the comments.