Online investors spend a good deal of time talking about how to find the best stock or mutual fund and deciding when to buy it. What we don't talk about too much, even though I see evidence of it all the time in the Start Investing community, is the financial paralysis that seizes some people, leaving them unable to make almost any decision about their money.

It's a common problem, according to Daniel Kegan, an organizational psychologist and lawyer in Chicago, who conducts workshops to help people grapple with these feelings. Worse yet, he says, millions of financial services' advertising dollars are spent to encourage a feeling of helplessness. "There are powerful forces in society that want you to believe you're incompetent, and that the only way you can survive, much less flourish, is to pay money to somebody else who knows more than you do," Kegan says.

If you are one of those who feel paralyzed, turning your money over to someone else may not be the best solution. Instead, you could recognize that you will make some mistakes, but that you can also learn and improve. "A 0.333 batting average in baseball is pretty good," Kegan says. "And if you pay attention to yourself, your environment and who you are influenced by, you can quickly get better, smarter and richer."

Now, I'm not sure I'd be happy with getting just a third of my financial decisions right. But all in all, I think Kegan has a point. You won't get anywhere unless you accept that you're going to make some mistakes. I see that all the time in our Start Investing community. A "newbie" will be trying to choose between two mutual funds, and I have the sinking feeling that after picking one, this investor will kick himself every time the other one seems to be doing better than the one he bought. Worse yet, he might prematurely sell his first choice in order to buy the other one.

Learn From the Losses

That's no way to learn. You have to make the best choice you can with the information you have at the moment, and then accept your mistakes -- or let's call them "decisions that could have been better." Learn from them and move on. It's what you learn from the decisions you make -- particularly from your mistakes -- that's most important in the end.

(Naturally, you don't have to make room in your portfolio for all your past mistakes. That would be like inviting all the boyfriends you didn't marry to come and live with you. Every investor's portfolio evolves as she gets smarter and more confident.)

I remember when Scott McMillin, one of our message board regulars, got started as an investor. He bought index funds for his tax-deferred accounts. He learned about indexing, liked the idea and wanted to dive right in. Once he got the retirement portfolio set up and wanted to start a taxable portfolio, he realized that he'd made a "decision that could have been better."

He could see now that active funds, which threw off taxable gains, should have been in his tax-advantaged account and the index funds, which are much more tax-efficient, should have been in the taxable account. But could he have made his initial decision differently? I don't think so. I think he made the best decision he could with the information he had available at the time. That's called a learning curve.

Of course, Scott could have learned this lesson by researching Web sites like

MSN MoneyCentral

and

TheStreet.com

, or by reading any number of good investment books. But he says that he finds he doesn't really pay attention until his money is at stake. I suspect lots of people are like that.

Focus On the Goal

Kegan makes some other excellent points, too. For instance, he says it's important to think about the people you hang out with. "If your friends are the type who say: 'Gee. I don't know what to do. Let's go to the mall,'" you're probably not going to be tucking your money away into mutual funds.

Contrast the mall rats with Ellie Mae, one of our newsgroup regulars who brown-bags it to the office, cooks everything from scratch at home and plans to volunteer at a soup kitchen where she can share her cooking skills. "You have to think about what you want to do with your life," Kegan says. "You want to have friends who reinforce your values." Here he quotes author Andrew Tobias who said: "What's the best way to save? Don't spend money."

All spending and saving issues are a combination of three things, Kegan says: Your values, clarity and demystification. Hmmm. Well put.

The values come first. How do you want to live? What do you want your money to do? Then you need some clarity. How will you accomplish your goals? And, money jargon can be intimidating for the novice. But you can pick it apart, one piece at a time, once you've got your values down.

Kegan started thinking about money issues when he got involved in corporate workshops some years back. He saw that people were forced to take on more and more responsibility for their finances with corporate downsizing, the advent of the 401(k) retirement plan and the breakdown of corporate loyalties. Yet most of those people received no training for the job.

Raising Expectations

Then in the 1990s, Americans began to raise their expectations for wealth. "Today people are upset with just 15% a year," Kegan says. And the press has compounded the problem, he adds. "The American dream used to be owning a home and having a good job. Now it's winning the lottery."

Now Kegan puts on his psychologist's hat and tells me one reason people feel paralyzed about their money is that they're not grounded to begin with. He claims that money is not the root of the problem, but an amplifier or accelerator of the problem.

"If your life is in balance and you get more money, you're empowered and you can do a lot of good things," he says. "If you're not balanced, the problems in your life will be amplified. If you didn't know how to choose friends before, it will be much worse when you have some money. If you made bad decisions with a hundred bucks, now you'll make bad decisions with half a million. Everything goes wrong."

Among Kegan's suggestions for dealing with anxiety over money issues is that we acknowledge that we're less in control of money than we would like. That's a tough one, particularly for a control freak like me. But it's true. We certainly can't control the stock market. Yet many of us spend a lot of time feeling guilty when we've made an investment just before the market goes down, or sold one just before it goes up. Or we feel depressed about unexpected medical bills or putting a new roof on the house. That's all wasted energy.

Kegan suggests that we know our net worth, assets, liabilities, income, expenses and values. I love the way he tagged values on to the end of that list. It's our values that should influence and determine where we're going with all of the other things.

Take Responsibility

Here's another good one: "Recognize that you're responsible for your financial well-being and that assets contain liabilities." That seemingly humble sentence packs a wallop. An obvious example is buying a home and taking on a mortgage. But there's a lot more to this. A marriage, for instance. An asset plus liabilities. Owning stock cuts two ways, too. Until you understand this, you'll be just another Pollyanna.

And here's my favorite: "Accept that there is no complete, accurate, valid model of the global financial system." That's one of the most frequent mistakes I see on the part of new investors. They believe that if they can just pick up the rules -- figure out, for instance that stocks go up in the spring and down in the fall -- then they'll be home free.

But there are no such hard-and-fast rules. And you must accept that before you become an investor.

Finally, Kegan tells us to watch our environment. By that he means the food we eat, the people we hang around with, the activities we engage in. Choose nourishing over toxic, he says. Reduce your couch potato time. Get out and do something.

Following Kegan's advice -- particularly the part about educating yourself -- should help relieve financial paralysis. But it will not turn you into a daytrader. Kegan believes finances are just one aspect of a balanced life and that focusing on them too much is as bad as doing nothing at all.

Kegan's Twelve Steps to Money Literacy and Avoiding Asset Anxieties:

    Acknowledge you're less in control of your money and feelings than you wish. Be able to recognize and articulate your feelings, a full range. Have a supportive active listener: partner, minister, barber or counselor. Know your net worth, assets, liabilities, income and expenses. Recognize that you are responsible for your financial well-being. Accept that there is no complete, accurate, valid, model of the global financial system. Accept your feeling of financial incompetence. Seek to increase your financial knowledge: Learn. Do your best, it is the best you can do. --R. Baden-Powell. Watch your environments: Choose nourishing, eschew toxic. --Fritz Perls Reduce passive (television); increase active (community). Know your cares and your caring. --Milton Mayeroff

Mary Rowland is the Start Investing columnist for MSN MoneyCentral. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She welcomes your feedback at

mctsc@microsoft.com.

At the time of publication, Mary Rowland owned or controlled shares of the following equities mentioned in this column: Pfizer, Intel and JDS Uniphase.

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