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May 24, 2007

The Psychology of Financial Success

The hardest of the three functions of a Family CFO is managing behavior. Have you ever noticed how easy it is to know what you should do with your money but how hard it is to actually do it? That is because our relationship with money is very complex.

 

At one point in my life, I made my living as an options trader. I had three mentors who taught me how to be successful as a trader and what they taught me about trading also influences the way I invest, and how I teach others to invest. In case you are wondering about the distinction, trading and investing are not the same thing. Trading is hunting. Investing is farming.

 

One of those mentors was a psychologist who had spent much of his career working for hedge funds, specialist companies and the proprietary trading desks of the big Wall Street firms counseling their traders on how to control their behavior. This is not dissimilar to the function of a sports psychologist, or others who specialize in the psychology of performance.

 

Of course, today we have the recognized fields of behavioral finance, neuroeconomics and socionomics. But back then, if these areas of study existed, they did not have a name. Still, even today, many people don't realize there are these psychologists working up and down Wall Street and most of you are only vaguely aware of the behavioral aspects of investing.

 

One of the first things my mentor said to me when we started working together was, "What ever issues you have will play themselves out in your trading."

 

My immediate thought was, "What issues? I don't have any issues. What kind of psychobabble is this? I want to learn how to trade, not be psycho-analyzed!" It was years later that I would allow myself to see that he was right. Boy did I have issues!

 

My parents divorced when I was very young. My father had a lot of money. My mother and stepfather - not so much. I had a very contentious relationship with my father for as long as he lived. I desperately wanted his love and approval, but on my terms - not his.

 

The way my father showed love and approval was with his money. The way he showed disapproval was by withholding it. This felt conditional and controlling to me. I resented it and fought him every step of the way - eventually driving him away for good. We did not speak for the last seven years of his life.

 

Somehow, along the way, I got money and love confused. My daddy left. He must not love me. My daddy is unhappy with me. He withholds his money. Money must be love. Since my daddy doesn't love me, I must not be deserving of love. If I am not deserving of love, I must not be deserving of money since money is love.

 

I know it is pretty convoluted looking back at it now. But that is how my little kid brain interpreted it.

 

I am not bragging when I say I am reasonably smart, well-educated, ambitious, entrepreneurial and therefore have always earned a nice living, even before I graduated college. But this created a real problem for me. It meant I always had money. At some points along the way, I had a lot of money.

 

One thing I have learned is that our brain cannot tolerate inconsistency. It needs our outside world to match our inside world. Our subconscious is capable of amazing things to make it so. Looking back at my life, I can see a pattern where every time I achieved financial success, I sabotaged it. So I have this recurring pattern of lots of money, broke, lots of money, broke.

 

From the outside, it was easy to say that each time I hit a broke phase, it was someone else's doing. Some external event beyond my control wiped me out. But once I understood the issues I had around money, and why, I could clearly see that my behavior - some action I took, no matter how easily justified at the time - set me up for failure over and over again because I couldn't tolerate financial success.

 

Weird, huh?

 

So my mentor was right. And a funny thing happened. When I understood it, I could deal with it. Now I know I am deserving of both love and money. I understand they aren't the same thing. As a result, I have plenty of both. This was the big Aha! Whatever you believe you deserve is exactly what you will get.

 

So my question to you is this: If you are not as financially successful as you want to be, what issue do you have that is getting in the way? Like me, you may initially write the question off as a bunch of hocus-pocus. But I promise you, if you are not financially successful, it has nothing to do with how much money you make. I can show you many "Millionaires Next Door" who accumulated small fortunes on relatively modest earnings.

 

No. Financial success has nothing to do with how much you make and everything to do with what is going on inside your head.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.

Posted by Kim Snider on May 24, 2007 | Permalink

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