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Insider: Bankroll Managment 2.0

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I am sitting here, writing this sentence, and having absolutely no idea what to write about. I could write about my favorite picks from Ravnica block or Theros. Done. I could write about how to buy a collection and break it down. Done a thousand times (to be honest, if you don't know how, why are you buying it in the first place?). I could give you future price suggestions with a spread between $5-$15, but that doesn't help anyone. Done, recently.

It's like everything has been said and we are just waiting on the next set of tournament results to come to get a real chance to put our knowledge to work. Even at this point, I have been investing in comics instead of Magic cards because until I can cash out my Standard spec box, I am working on a limited bankroll. Hmmmm, I think I have just backed my way into the topic of my article this week. Half of it will cover bankroll management, which I think I did previously but needs an update, and the other half will actually cover comics (stay with me on this one, it is actually worth the time).

Bankroll Management

If there is one that that I feel is not discussed enough, it is bankroll management. You get articles using imaginary money or that just tells you to "Buy Buy Buy!" and assume you have infinite money. No one has infinite money, sorry to burst your bubble. I have very strict rules which I follow when it comes to how much money I have tied up in inventory or specs. I never want to fall below a certain threshold I have set for myself when it comes to my disposable income. I basically have my income broken down into four categories (with 1 subsection) so that I have perfect information at all times regarding what I can or cannot spend.

1) Collection Money: This is my bread and butter. I have always been into buying and turning collections. My main rule is, no matter what I want to keep for myself, I have to resell until I breakeven and then make an additional 10%. Sometimes there is nothing I want to keep and I make more than 10%, but that is my cut off. This ensures that my other accounts continue to grow. I have an upper threshold for this account so when I exceed that limit I allocate those funds to my other accounts. My Income Tax Money account and Savings Account are the most important accounts when it comes to this excess money so they get roughly 75% of my profits between the two of them.

1a) Income Tax Money: Death and Taxes indeed! Based on my expected profit from a collection, I move a percent into this account to make sure that I am ready when March comes around to properly file and pay my taxes on time. I am very worried about a lot of the advice that is given to people because this is almost never mentioned other than by me. What we do, making money on Magic, IS a taxable income. All it takes is a random audit to hit you and there will be a lot of questions asked as to where this extra money comes from and good luck explaining and continuing to operate how you were previously. Set some money aside after every deal and you will barely even notice the difference in the grand scheme of things.

2) Speculation Money: This account is on an even stricter budget due to the inherent risk attached to it. I am literally gambling that a card is going to spike in value and not depreciate. I need to be able to continue to operate at 100% capacity even if a worst case scenario occurs (i.e., entire spec box goes to $0 value). Mine caps out between $3000-$4000 right now. This account will continue to grow as the collection money excess is spread around. When I cash out a spec, the initial investment plus a percent is put back into the money pool and the rest is spread out between the two accounts below.

3) Personal Living Income: This is the money that I earn at my real job. This lets me live and afford all the luxuries that I desire. There are times near the end of the pay cycle where I have to settle for chicken instead of lobster, but self-control is very important. There are rare times that I will dip into this money to buy a collection, but that is only if the collection can be flipped in under a month. This make sure that my personal life is not afflicted by my magic life. The excess money that goes into this account is usually just enough to pay a bill or 2 each month, but that adds up in the long run over your lifetime of being involved with Magic.

4) Savings Account: AKA my mattress (just kidding!). This is where all of my "money for a better tomorrow" goes. Emergency car or medical needs and future wedding or college funds. This is the most important account I have and a lot of the money is stored in long term assets gaining interest with a giant sign that says "do not break in case of emergency and even then think about robbing a bank instead." It is all of my hard work over the past 19 years of playing and dealing magic and it is my proudest achievement. This is not only important because it is what you have worked so very hard for, but it gives you motivation to continue on and keep making the smart decisions financially.

Comics

Now, I know this has nothing to do with Magic, but consider it a free bonus. I have always dabbled into comics since I was younger and collected comics with my dad during the 90's bubble of comic collecting. When the bubble burst in the late 90s, collectors were left bitter after having spent $1000's on comics that were now worth pennies on the dollar. Publishers learned in the early 2000's that print runs and limiting comic production will help maintain value of the comics and restore some consumer confidence in their product. I have learned a few key points that I can pass on to you to maybe help you diversify a bit if you are bored or help you continue to invest during down times with Magic.

The first comics I really took a shot at investing in was when Marvel launched their Ultimate line back in 2000. This was a complete retelling of the current "Earth-616" Marvel that everyone is familiar with. I picked up multiple first print-run copies of Ultimate Spider-Man and Ultimate X-Men including a few variants. I still have a few copies and these continue to appreciate as the years go on. Publishers limited the first print-run, making them a highly desired commodity among the collectors that did not lose their heads when the 90's bubble burst. A similar reboot happened in DC recently and I picked up several sets of the "New 52" print runs because I remembered what happened with Marvel.

The next product I picked up after Marvel was the 9/11 issues of Amazing Spider-Man #36. It was an all black cover that told the story of what happened on 9/11 from Spider-Man's perspective. These were very limited and I remember grabbing every issue I could find. Not only was it a great issue that really put this tragedy into a new perspective for the 16 year old kid I was, but from what I remember, some of the proceeds went to the 9/11 charity funds. Finding limited edition issues that focus on specific, real life events are great pick-ups because they have real-world attachment that creates nostalgia and demand. There were recent political issues of Spider-Man that featured different political figures on the cover depending on the print-runs. The Barack Obama issues still remains one of the more popular issues.

My recent pick-ups have been the Villains Month issues of the current DC library. I got in late on this pick up because it wasn't until the second week of the month that I started to hear of problems with the covers of the issues in the first print-run of each comic. Certain issues have a special "lenticular" cover that has created some problem with the durability of the comic. According to the stories, the covers are very sensitive to heat and when store owners placed the comics in the windows of their stores to advertise the issues, the covers melted. This also occurred in several delivery trucks who had their whole shipment of these covers arrive to the stores melted. These covers also required a longer production period, so DC allocated the special covers based on previous order volume from the retailers, and this caused there to be a shortage of supply for the higher than expected demand of these issues. The special covers were limited to first print-run only and are going to only get rarer.

That is it for me this week. I hope you enjoyed this slight change of pace article this week. This coming weekend we get our first look at Theros in action and then we can get back to business as usual.
-Stu
www.twitter.com/ssomers55

Posted in Finance, Free Insider

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12 thoughts on “Insider: Bankroll Managment 2.0

  1. I am from Belgium (Europe), so don’t know exactly what the “Income Tax Money” is. Is it a tax on the cards you sell? Or on the money you make (profit)? If so, how do you proof you bought cards a X and sold at Y and as such only should be taxed on (X-Y)?

    1. Income tax in the States is based off of a % of your net income. I keep a spreadsheet with names, address, dates, and amounts of money spent or earned for every cash transaction. That way I have an audit trail if that time ever comes.

  2. Good article, Stu! It’s really nice to see you touch on the importance of income tax prep. While I don’t think a random audit is the biggest worry for the large majority of us in the finance community, unless you’re making $10,000+ cash deposits, the real worry is the 1099-k you receive from PayPal if you break their reporting threshold.

    If you’re ill prepared for that it could certainly become a big problem.

    What kind of cap do you keep on your collection account? I’m currently keeping $1,000 in collection reserve, but finding in my area that most collections that pop up rarely exceed $400. Have you tailored your accounts specifically for you geographical needs?

    1. The way I see it is, it is still against the law for the amount that I do to not report it, so I rather be safe than sorry.

      I do a lot of internet buying, so my cap is high 4 figures, low 5 depending on what I have in or what I am doing. I have my cap a bit lower right now since I am trying to pay off my car faster to save money.

  3. If you are buying/selling to the tune of thousands of dollars, then I would recommend seeking the advice of a tax professional – the cost of a consultation is way smaller than trying to figure it out all on your own.

    I also can’t emphasize enough the importance of a cash emergency fund – from what I’ve read that should be 6-12 months of living expenses. Noone wants to sell off their hard earned collection for a fraction of its true value because your car dies…

  4. Enjoyed this! Any break from articles that are just lists of cards and opinions of their future prices is appreciated. not that that style of article isn’t useful.

  5. The income tax piece is particularly interesting – you’re right that most overlook this. But does that mean you keep track of your entire cost basis? I mean, you need to factor in shipping supplies, eBay fees, and even gas for your car to drive to the post office. Do you write all these off your MTG gains to accurately capture what you’re making here?

    Also, if you sell cards for a loss one year, do you take that as capital loss for a tax break? The two should go hand in hand, right?

    1. I do the ebay fees, though to be honest I don’t do very much ebay other than buying. Shipping supplies I do, but gas and like parking meter money I don’t because the effort to figure it out when the PO is 7 blocks away is just not worth my time.

      Um, as for the capital loss for a tax break, I haven’t looked into that because I have never had a losing year since I started doing taxes for it, I can look into that if people are interested

  6. Really great article. Sadly I’m actually selling off my cards to help buy a 20k camera something that will deprecate faster then magic cards but I can rent right now for additional profit. so in a lot of ways I did exactly the opposite of what you advise in here. My emergency fund was invested in magic cards. and although I did sell a little higher then buy list prices it still was way less because I had to sell it fast.

    When I have the captial to invest again I really want to do it right I ened up holding on to a lot of cards to long since I wanted to play with them or colect them, I had gotten both really lucky with collections and also burned really badly once. But I really liked your aproch of sell off enough to break even plus 10% then you can keep others if need be or speculate.

    also like comics I wonder if rtr large print run hurt it’s prices I was hopeing for more gains. there.

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