The Psychology of Losing Money (personal story)

What I learned losing more than $100K in a year
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written by oz chen

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psychology of losing money

Important note: my mental health is and was good. I was not suicidal. Please read for full context. If you’re in a dark spot, please dial the National Suicide Hotline “998”

In May 2022, a massive crypto project called Terra started to fail. A bunch of people had their money invested, directly or indirectly, in Terra’s stablecoin called UST. This coin was supposed to be backed 1:1 to the dollar, but it lost its peg.

That was the first wave of losses. Then Voyager and Celsius, two companies where I also held crypto, were exposed to the Terra failure. In the first wave I lost money. The second wave is being sorted out in bankruptcy courts, but my funds (and millions of other customers’) are held up and may end up in complete loss.

_ _ _

I never understood why people who lost money would ever kill themselves. “It’s just money,” I thought.

After losing more money than six figures worth of money in 2022, my understanding widened.

Here’s a metaphor that best explains this:

Imagine a mountain with steep cliffs. Before this climb, I wasn’t aware of the edges on this path. Now that I’ve climbed it, I not only see those cliffs—but I’m able to understand how someone could get close to the edge. I wouldn’t entertain that edge myself, for fear of falling or…the deathly curiosity to jump. But now I see how someone gets there.

Research shows that financial stress can make people up to 20 times more likely to attempt suicide. I’m glad that I never got to that edge.

But I did go through series of emotions. Here’s what a big part of my brain looked like in 2022:

How could you be so stupid? I wish I pulled out my funds earlier…I should’ve known and taken less risk…

Especially brutal were the unhelpful comparisons:

The amount of money you lost would take you years to make back.
You lost what would’ve amounted to some people’s salary for a year.

I acknowledged the inner critic in order to move on. What now?

My own financial therapy

It took a while for me to realize that what I was experiencing was financial trauma. Contextualizing it that way helped a lot. It meant the next step was to heal from the trauma.

Out of all the unhelpful comparisons I thought of, a healthy one sprouted out:

“I lost money investing in risky things I didn’t care about. Why don’t I spend more money on things I do care about?”

That flipped the script and was completely counterintuitive. I did not expect the desire to spend more money after losing so much money. I reckoned with my money-vigilant personality type that the purpose of money is to fund experience.

Intentionally spending money became my own financial therapy:

  • I traveled to Portugal and Iceland for summer break. It was MARVELOUS.
  • I joined a gym with a sauna, regular yoga classes and rock climbing. Great for my health.
  • I bought an eBike and zipped around Long Beach like a hooligan.
  • I more liberally treated friends out and donated money.

Other lessons learned from losing money

There’s a lot I’m grateful for. The fact that I’m able to reflect like this is itself a high form of privilege.

For starters, I lost a lot of money, but it wasn’t my entire portfolio. I sympathize with those who lost more, or invested more than they could afford to lose.

I’m reminded of Morgan Housel’s advice sharp and simple advice:

“There is no reason to risk what you have and need for what you don’t have and don’t need.”

I still have a mortgage and have some home reconstruction projects. Those are more needed than putting so much money at risk to earn interest from crypto accounts. I’ve managed to cling onto financial freedom (10+ years of work optional time), but my investment losses set my full early retirement plans back by at least 5 years.

But there’s the silver lining: I’m glad I’m learning this lesson now at 33 instead of near retirement age.

If the house of cards got bigger and took longer, I could’ve poured even more of my money into bad investments. If I didn’t learn this sobering lesson now, I might have not diversified away from risk when I have even more to lose later. In a weird way, I thank my lucky stars.

You never think it’s going to happen to you, until it does.

I’ve heard that sentiment shared many times. Now I’ve lived it.

Noted, universe.


Money coaching

Losing money has made me into a more well-rounded financial thinker and coach. If you’re looking for a money coach, be wary of those who have only experienced bull markets and made money in good times. You want someone who has been through multiple cycles and have reckoned with losses.

If you’re dealing with financial loss, shame, or need a money consult, see my money coaching page.

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