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To
Your Wealth Column Financial
Dysfunction -- Is this
why you are not reaching your goals? BY
MICHAEL P. HAUBRICH, CFP |
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If your personal finances are a
source of stress, family conflict, dissatisfaction, or depression the root of
the problem could be financial dysfunction. In his book "Facing
Financial Dysfunction – Why Smart People do Stupid Things with Money",
Bert Whitehead defines financial dysfunction as the set of conditioned
choices we make due to our own financial personalities and the dysfunctions
that rise from them. We will identify some of the extreme personality types
and discuss some strategies to manage the dysfunction that is inherent with
each. Whitehead defined the Scrooge
extreme personality type as one motivated by greed and a propensity to save.
Many successful business owners fall into this type. They show a tendency to
take risks and are more aggressive with their taxes, sometimes getting
themselves into hot water with Uncle Sam. They also tend to avoid
diversifying their investments, and when they do they tend to be victims of
high-risk, illiquid investments such as limited partnerships and venture capital
private placements. A Gambler is an extreme
personality displaying greed and spending propensities. Often they are
burdened with high debt due to their expectation that the next high-risk deal
will bail them out of a current failed enterprise. When the "next great
deal" falls through, depression sets in and they swear to reform—an
addictive cycle of risk, depression, and regret. Their dysfunctional
portfolio is made up of high- risk investments with their financial decisions
often colored by guilt and feelings of responsibility tinged with an
indelible belief that the next deal will be the "big one." The Miser is an extreme example of
a personality type who is motivated by fear but who tends to save. The Miser
tends to invest in fixed, bank-like investments and is susceptible to losing
money on cash value life insurance. Their fear sometimes drives them to be
overly cautious or over pay taxes rather than risk being audited. Taken to
the extreme, a Miser financial personality will horde cash, stashing it in
coffee cans and mattresses. Sadly, Misers often have little to show for their
money saving discipline. They exhibit behaviors such as renting rather than
owing a home or holding a disproportionately small mortgage compared with
their income. Misers punish themselves by not living the lifestyle that they
really can afford. Like the Gambler, the Shopaholic personality type demonstrates addictive
characteristics such as spending followed by guilt and depression followed by
more spending. This outgoing, friendly soul is a joy to be around; always
spending on themselves and others. Record keeping is something they avoid,
for this would prove that their spending is out of control. Identifying the personality type
that is most like your own is the first step to understanding and controlling
financial dysfunctions. These four financial personality types—Scrooge,
Gambler, Miser, and Shopaholic—represent the
extremes, and Whitehead suggests that less than 10 percent of the population
actually falls into one of these distinct types. The rest display varying
characteristics from one or more of the categories helping them to reach
balance in the financial behaviors and avoid the ails
of financial dysfunction. For more information, check out www.bertwhitehead.com or our web
site at www.toyourwealth.com Michael Haubrich,
CFP, is president of Financial Service Group, Inc., a registered investment
advisory firm in |