Doing Magic with Numbers

Time for a little magic!!

Last posting I talked about my poker strategy. I mentioned at the end of it that I had some problems tracking the funds. Here's the first part of the magic trick...the money disappeared.

That's when I noticed that there is a problem with my budgeting technique. I talked about the benefits of budgeting before, but I realize now that creating a budget is just the first step. It gave me a general idea of my limits and for the most part I kept within those constraints even though I wasn't checking the numbers regularly. And, if it wasn't for unexpected expenses it probably would work just fine.

When it comes time to pay the Visa and we need to decide how much to pay, the waters always seem to get a little muddy. We sort of just eyeball the balance in the chequing account and figure out how much we can comfortably afford to pay and still make the next mortgage payment.

To clarify, we don't leave a balance on the Visa ever. However, in this particular case we had some unexpected car expenses and some frivolous (but glorious) travel expenses that needed to be taken care of. So the question was how much to take from the chequing account and how much from the line of credit.

So using the eyeball method and seeing this inflated chequing account, we included my poker winnings in the amount to pay from chequing. Not intentionally of course, but I hadn't really been watching what was in there too closely. Well...there goes my poker plan...or so I thought.

Now here where the real magic begins. Ignoring my other expenses for the time being, let's look at just the car repairs and the poker savings. The poker winnings in this case were $200 and the car repairs were $3000.

Scenario 1:
I put my poker money into a savings account and draw the full $3000.00 from the line of credit.

The result: +$200.00 in savings -$3000.00 on the line of credit
Net result: -$2800.00

Scenario 2:
I use my poker money to pay down the visa and draw 2800 from the line of credit.

The result: $0.00 in savings -$2800.00 on the line of credit
Net result: -$2800.00

Prest-o change-o! The result is exactly the same. Actually I'm better off in scenario 2 because I save the interest on the $200 for as long as I don't pull it back out. And by changing my thinking the disappearing poker money comes right back into view. It's just a number in a column somewhere. Or, it would be if I had been tracking this better.

Keeping that in mind, I don't think it makes a lot of sense to have separate accounts for all these savings (i.e. poker, vacation, car, haircuts, etc). Especially when you have a large outstanding debt like I do. So instead of earning little to no interest I can put these things into the line of credit and save interest. This only works because I can pull the money back out again when I need it though. Putting these towards the mortgage for example would mean the savings would be lost.

The problem is only how to properly track these amounts. I'll discuss this more next post.

Poker Strategy

I'll be the first to admit that poker probably isn't a good place to try to make money for most people. I gave it a shot but so have millions of others around the world. So, why would I be talking about poker in a personal financial blog??

I have two reasons. The first, is because I'm pretty happy with myself for the system that I came up with. The second is, it leads up to an interesting budgeting problem that I wanted to talk about. I thought about getting it all done in one posting, but then I thought "what's the hurry?".

Before you get all concerned about me here, poker isn't part of any long term financial plan of mine. It's just a hobby that I enjoy to do and I budget $60/month to play. So it's not like I can't pay the mortgage if I lose a lot in a month. For some people that could happen because they have an addiction. Clearly I'd advise them not to play.

I consider my poker money a sunk cost. That's a big economic word for money that can't be recovered once spent. So as I put the money on the poker table I count it gone. Any winnings then are free money. In the past that generally meant that I went out for lunch or bought a video game or something.

Probably not the most practical money management, but it's the way the human mind works. At least mine! It would certainly take at least some of the joy out of winning, if the money went towards groceries or Visa payments. We had those bills covered beforehand anyways. Otherwise the gambling would be irresponsible win or lose.

At the end of last year I won two fairly large tournaments. Large for me anyway. I spent the winnings from the first on a bunch of video games for my PS3. Then a month later I won another tournament. This time I wasn't sure what I wanted to do with it. So I hung onto it.

That's when I came up with the idea to save up my winnings. The winnings can then accumulate and I can draw them out to play more, play at a higher stakes, or better yet fly to Vegas! Wish I'd thought of this sooner.

One issue did come up through all of this though. How do you keep track of this money? Next posting I'll explain how I lost the winnings and then found them again through the magic of numbers.

Anyone else with a hobby that pays? What do you do with the money? How do you keep track of it?