How to Lose Money

by RJ

in Psychology

How to Deal with Emotional PainA lot of people right now are losing a lot of money. Real estate is still going down. Every day the stock market takes a giant step forward or back.

There’s a lot of uncertainty, fear, and pain happening.

Psychologists have been able to quantify how much people hate to lose. Research says that people respond twice as strongly to loss, as they do an equivalent gain.

If we play with the math, there are two conclusions we can draw:

  • If you just lost $5,000, your mind believes it needs to make $10,000 to make up for the pain.
  • If you previously made $10,000, but just lost $5,000, you don’t feel you’ve gained anything.

Acting on Pain

When you experience pain there’s a strong motivation to act. Going back hundreds of years, the pains humans dealt with far more serious than the types of pain you suffer from today.

Our ancestors dealt with death, predators, and starvation frequently. It’s a good thing their minds reacted strongly to pain or else you wouldn’t be alive.

Today, the pain you suffer from, such as losing money, is less serious. However, your brain still responds the same way your ancestors did to death, predators, and starvation – it’s highly motivated to act, to make up for or prevent the loss.

Imagine you just lost $1,000 playing blackjack. You feel horrible. The only thing you can think about is making up for that loss.

So what do you do? Play more blackjack of course. It’s what makes the pain go away for a short-period of time.

The period of time that comes after a loss, is a time where many stupid financial mistakes are made.

You’re so motivated to eliminate your pain; you’re willing to take giant risks. After all, in order to eliminate the pain you’re not only trying to make your money back but make twice the amount back.

How to Deal With Emotional Pain Caused by Money

If you’re suffering from pain right now due to financial problems, the answer isn’t to take a stupid risk to eliminate the pain.

Here are three better ways :

  1. Remember that you don’t have to make money back the same way you lost it. If you lost $5,000 in the stock market, there’s no law saying you need to make that money back in the stock market. Why not ask for a raise or find a new job that increases your income by $10,000?
  2. Look at life through a bigger picture. If you still have your health, things really are not that bad.
  3. Take a smart risk. Playing more blackjack is a stupid risk. Investing your time in starting a small business is a smart risk. Most of the time, it’s your fear of failure that causes you to label something as a risk, not statistical odds.

In the comments, please list other ways you’ve found to help eliminate or alleviate financial loss.

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Photo by: Petesimon

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{ 1 comment… read it below or add one }

Reuben LaneNo Gravatar May 10, 2014 at 11:15 am

I am thinking about retiring (I am 69) but the loss of income worries me.

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