Mathematics of Gambling Lesson 3: Money Management

Posted: November 4, 2011 in Gambling Lessons
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If you have been following along from the beginning, you may remember a few popular posts I had on the mathematics involved in gambling. I discussed topics such as house advantage, return on investment, and expected value. Lesson 3 will be a little simpler but something that not many consider when gambling.

One of the keys to having success as a gambler is managing your money. Sounds simple, and it is very simple yet so many people fail to properly manage their money. This lesson goes back to the notion of treating gambling like an investment. Each year you should set aside a budget equal to the absolute maximum you can afford to and are willing to lose.

As you all know, I set aside $2,000 as my budget this year. When I am placing $55 bets, I am only risking 2.75% of my initial budget. My initial budget has grown to $2,687.84 as of this post, so a $55 bet is really only 2.05% of my budget. In other words, I would have to lose 48 straight $55 bets before I am broke with no chance of battling back.

What is the point I am trying to make here? Let’s say you have a smaller budget, $550 to make the math work out easier. If you are still placing $55 bets and happen to lose your first 5 bets (this is very realistic considering I have had an 8, 6 and two 4 game losing streaks this year already) you will be down to $275. May not seem like a huge deal, but that is a -50% return on investment and you don’t have much to work with for battling back. In order to break even now, you would need to double your money! Always remember that it takes a 100% increase to make up for a 50% decrease! I hope you keep this lesson in mind when determining how much to bet next time you go to place one.

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