River Rafting your Way to Financial Success
May 14th, 2009One of the ways to increase your financial success is to understand the types of mistakes you are making. Of course, it is even more helpful to learn how to prevent and correct the mistakes you make as soon as possible.
Back in 1982, we identified six psychological money traps that can interfere with financial success. We call them the RAPIDS. The first letter of each money trap spells the word, RAPIDS. The RAPIDS are Rationalization, Avoidance, Projection of blame, Idealization, Denial, and Splitting.
We also use the RAPIDS as a metaphor for a river rafting experience.
Photo by Fernando Weberich
For those of you who have river rafted, you know about the challenges of navigating the RAPIDS successfully. You also know that the higher level of RAPIDS you raft, the more risk and danger you are taking. If you don’t navigate the psychological money traps successfully, your financial position could suddenly go “Man overboard.” For risk management, you want to have an expert psychological guide who understands your fears–and risk tolerance—before you get in the raft!
If your guide thinks certain RAPIDS are too risky for you, you would want him or her to recommend a river more within your comfort range. That river will flow more slowly and offer less excitement. However, the chances of the raft flipping over or of being knocked out of it are much lower. You know you are much more likely to get there safely. The trade-off is that it may take you longer to arrive at your destination–although not necessarily. Just think about The Hare and The Tortoise.
One more important point before we discuss the RAPIDS: It is human nature for everyone to use these money traps at different times in our lives to protect ourselves from unpleasant or painful experiences with money. When our stress levels are low, we tend to use the RAPIDS less often and to smaller degrees. With high stress, however, the reverse is true. So during periods of economic turmoil such as today, most of us are riding in the RAPIDS more often than we would like.
Some of us use only one or two psychological money traps exclusively while others use most or all of the money traps at different times. The problem with using the RAPIDS is that the price we pay to protect ourselves from unpleasant feelings can be far too costly.
We can benefit by learning to recognize the traps before they have much of an impact on our financial decisions and by learning how to navigate them more effectively. Since they begin as blind spots, this can be a challenging task. To help illuminate the blind spots, it helps to understand their definitions and to hear examples of them. Also, it can be beneficial to reality test our behavior with others.
In our next blog we will examine the first of these money traps: Rationalization. Let’s see if you can become aware of how you may be using (or have used) it to interfere with your financial success. We will present an actual client story with the identifying information disguised. More importantly, we will present tools and strategies that have helped our clients to navigate Rationalization successfully.
James W. Gottfurcht, Ph.D.
Zoreh Gottfurcht
Who was Adolf Merckle and Why are we Writing about Him?
May 7th, 2009(We are delaying the upcoming series of blogs about the six psychological money traps for one week to discuss a dramatic story of Poverty Thinking)
Do any of you know who Adolf Merckle was? Last year, he was one of the wealthiest people in the world. And just a few months ago, he made the headlines for a different reason. This blog is dedicated to Mr. Merckle and the financial and life lessons he offers for all of us.
Merckle was a German billionaire who took over a family company with eighty employees in 1967. He turned it into a giant corporation with 100,000 employees. He owned Germany’s largest cement company and amassed a fortune of about twelve billion dollars! With the global economic meltdown, he lost six billion.
How many of you would be financially content with six billion dollars? Like myself, I assume you can answer that question in a New York minute.
After his loss, Merckle was negotiating with forty banks to get a bridge loan to refinance his investment company. Although he was consistently able to overcome adversity before, this time extreme Poverty Thinking overtook him.
He committed suicide by laying down on the tracks of a speeding train. The ironic conclusion to this story was that his bridge loan was approved less than two days later!
Why did he kill himself? According to a statement by his family, “The desperate situation of his companies… and his powerlessness to act, broke the passionate family entrepreneur…” One of his friends, Ernst Junger, said: “His companies were his life and when he was going to lose control of them he obviously felt he would lose control of his life, that is the only way I can see it.”
Our attempt to understand Merckle is based upon the idea that money means different things to different people. Very wealthy people usually derive a great amount of passion, meaning, purpose, self-esteem and even identity from money. When they lose a large amount and their identity and ego are highly wrapped up in their wealth or power, they usually become depressed. When they believe they are not going to regain their position (as Merckle did), their depression can become suicidal.
The purpose of today’s blog is to see what life lessons we can learn from Merckle’s suicide. Several that come to mind quickly are:
1) Our own lives are more important than money.
2) Relationships (and family) are more important than money.
3) Living in the present moment is more important than money.
4) Six billion dollars is more than enough.
5) When our identity is based upon something external that we cannot control, watch out!
Below are three interviews related to today’s blog:
The CNN interview on Anderson Cooper is where Dr. Gottfurcht speaks about the psychology of billionaire suicides. The Associated Press link afterward provides additional insights into how the wealthy are handling losing so much money. More importantly, in the Vanguard interview, Dr. Gottfurcht gives practical tips to help all of us to handle the economic turmoil.
We invite your comments about what Merckle’s story means to you, what you learned from it and what tools your are using to help yourself to handle these challenging financial times.
James W. Gottfurcht, Ph.D.
Zoreh Gottfurcht
