Something I’ve been wanting to share with you guys is the process that poker players use at the table that can apply to finance as well.
The currency of poker is, of course, money.
In other sports, they use points, but in poker, we use money. It’s a unique challenge because in many cases, you may be well versed to decision-making surrounding large sums of money at the table, but it can be difficult to navigate the differences between our relationships with money on and off the felt.
In the poker world, if you can’t afford to part ways with the money in front of you, you shouldn’t be sitting in that seat—you need to move down in stakes or avoid playing altogether. And paradoxically, when playing, you have to be both hyper aware of the expected value of the plays you make, while also mentally disconnecting yourself from the fact that the chips you’re using represent actual dollars, all of which you can potentially lose in any given hand. It’s a cliche for a reason: Scared money truly does not make money.
Away from the felt, keeping the value of money in perspective can be difficult. How do you go from betting the equivalent of a car and a house to caring about the price of an avocado?
Poker is it's own currency
For many years, this was a huge problem for me—I would deal with large sums of money at the poker table, and it skewed my perception of its value. While I made a lot of money in my early years playing, I didn’t save a lot because my spending habits were so short sighted.
My wife finally really helped me take a step back and recognize that poker is, in a sense, its own currency.
Playing poker, you take calculated risks with large quantities of money hoping for a big return, as with any form of investment. Money has different rules in the real world—the rules of finance and decision-making vary, but the same macro blueprint applies. Recognizing this distinction was where I’d been failing.
You’re taught to think about the process of making decisions in poker. At it’s core, that’s where the art and creative spirit of the game lie. You have to say to yourself, “Okay, I don’t really care about the money here. Money’s what we use to keep score, but the process is about making the best decision possible.”
You try to play each hand in a way that yields the best possible result, maximizing value and minimizing loss. At the end of the day, doing that to the best of your ability is how you get rewarded and take home the most cash.
In essence, it’s the same in other sports. For example, in basketball, the objective is to get the ball into the goal as many times as possible. The reward is that you score points, which leads to winning games, and ultimately, winning the championship. The championship is the payoff, but the process of throwing a ball into a relatively tiny hoop, opponents be damned, is the art.
I’m actually very good at mentally detaching myself from caring about the money that I’m dealing with at the table and focusing purely on trying to play the hand the best way possible. It comes with the territory that sometimes that means risking large amounts of money, and sometimes it means folding and relinquishing what I’ve already invested into the pot. However, I was terrible at applying these same principles in real life. It was costing me because my finances weren’t in order. They weren’t optimized.
What if I looked at money like poker?
One day, my wife challenged me to apply the same framework that I use in poker: trying to play the hand the best way possible at all costs, not even caring if the pot is $10, or $10,000, or $100,000. She explained that I’m so focused on the process of playing the hand that I don’t care about the size of the pot, and why couldn’t I apply that in the real world as well? What if I looked at finance, investing, and other economic decisions like a game—like a hand of poker?
It really hit me that I wasn’t doing that at all. I wasn’t playing the game. It hadn’t clicked to me yet that I was mindlessly spending to satisfy my immediate wants—driven by ego—with so little consideration for the economic impact of that spending. I was like a kid in a candy store.
What if I looked at money like poker? What if I approached economic decision-making like a game that I could study and ultimately master?
So, that’s what I started to do. I’ll never forget the first time I applied this newfound mindset.
I was in Barcelona for a European Poker Tour event. Walking down the Ramblas, the main street in the city, I realize I need a bottle of water. I walk into a shop, let the shopkeeper know what I need, and he says it’ll be $4. Normally, I would just buy the water, my justification being, “Whatever. It’s only $4. I can afford $4.”
Instead, I did something different this time. I thought to myself, “A bottle of water should cost a dollar.”
Just like in a hand of poker, I don’t call a bet if I’m not getting the right odds. It’s not that I can’t afford to call a $10 bet, but if the expected value doesn’t align with the risk, it’s a waste of money. I’d go so far as to say it’s disrespectful to the money—to the art, the craft. I don’t call a bet that I have no business calling not because I can’t afford it, but because it’s the wrong play.
It was such a seemingly insignificant moment, but simply realizing that it would be wrong to pay $4 for a bottle of water worth $1 led to a profound shift in the way I thought about economic decisions. I decided to find a bottle for $1 instead.
You might be thinking, “But Alec, it’s not worth it to find the cheaper water because your time is worth more than saving the $3 difference.”
I get that, and in the real world, I do spend money to buy back my time at a rate that I think my time is worth, and I outsource lots of things to free up my time. But in order to instill this fundamental approach to spending in myself, I needed to change the way I thought about decisions.
I considered walking a block down away from the main strip to find a cheaper bottle, and another option was to skip the water altogether and just find some later—there’s no opportunity cost here. This was me applying this macro framework of decision-making to very low-level economic choices.
Mr. Money Mustache and Spectrum of Financial Idiocy
What I want you to take away from this in terms of making decisions is to understand the macro principle that the more optimized you are with your finances, the more time you can spend doing things you love because you have more financial security. I can’t stress enough how important this is to get right.
The truth of the matter is that a lot of people who make more money per year are ironically in worse financial situations because people who make less money are often better at making economic decisions. They recognize the immediate urgency of being good at doing so and don’t spend recklessly without foresight because they’re more tuned into how it’ll negatively affect them in the future.
On this subject, I recommend following someone known as Mr. Money Mustache.
He talks a lot about how to retire early on a low salary. He lives his best life spending ~$27,000 per year, even with a wife and child. He has a cash-cow house and makes rental income, having retired at about 35 years old. He didn’t make a million dollars. He didn’t win the lottery. He just had a good job making $100,000, maybe $120,000 a year, and retired after 5-10 years—his story’s unbelievable.
To me, it really codifies this idea that it’s not about how much you make. It’s about how much you save relative to how much you make. If you make great economic decisions, the money adds up fast.
I’ve noticed this personally over the past decade after meeting my wife and transforming my decision-making surrounding money. It’s been an amazing journey, considering how poorly I did this before, and fast forwarding to now, just how much I’ve flexed this muscle and gotten good at decision-making because I decided to treat it like a game. I treat it like a hand of poker, and it’s actually fun now.
Before, I would look at everything as a sacrifice—remember, I’m a kid in a candy store at heart. I have an ego, and I want what I want. Now I look at everything as a conscious trade. It’s saying “no” to something now to be able to say “yes” to something later, something that I want more.
Thinking of money as a game, just as with a hand of poker, you don’t play most hands. You shouldn’t play most hands. Most hands are bad, and therefore not worth the risk, and it’s the same in life. Don’t misunderstand me and think that my point here is that every dollar should be saved at all costs. The 10% of hands you do play, you bet big—you play aggressively because it’s worthwhile, and the same is true with economic decisions in life.
You don’t play all of your hands because you don’t care about most of the hands.
What’s really important to you?
For me, clothes aren’t a big deal to me. I have what I need to be able to work and to go out and make a good impression, but in general, clothes aren’t a priority for me. Things in general aren’t a priority. I “fold” most of my hands when it comes to buying things because they’re not what matters to me.
In a sense, I’ve optimized that category of spending by getting as much value as I can by spending as little as possible. I’m very value driven in these ways because I want to get the most value for my “hand”—again, this is the craft and the game of economic decision-making.
In other areas of my life, I play my hand aggressively, just like I do at the poker table. When it comes to creating beautiful memories with my wife that I’ll remember when I’m older, I bet big. That’s what value is to me. Value’s subjective, of course—people value all sorts of different things, and that’s what makes the world go ‘round.
Making memories brings a lot of happiness and joy to my life, as does documenting them. I have a video editor whom I invest money in to make vlogs for me. It’s worth the investment to me because when I’m older, I can look back fondly and remember my favorite moments. I can relive all the happiness and joy that they brought me.
I mostly focus on spending my money on experiences and activities. We travel a lot because to me, that’s what makes time go by more slowly. I’ve talked about this in a past video—how to lengthen your life, how to live longer. It’s really by doing things that make time slow down for you. We all have pretty much the same amount of time, but what you do with that time makes a big difference.
I also spend money on my health because I think that’s going to compound over time, and ultimately, give me more time. It’ll make me feel better and happier and be more productive, as well as leading to fewer problems down the road. I invest money now on supplements and eating healthy food so later on, hopefully I won’t have to spend as much money because I’m optimizing my health while I can. These are the things I care about the most, so spending on them always feels like the right decision.
I challenge you to think about what’s really important to you—then think about it like a game. Look at it like a hand of poker. How can you optimize the process?