2020 was a challenging year in many ways, not the least of which was a less-than-hospitable financial environment. Events ranging from a significant bear market in stocks earlier in the year to a dramatic increase in job layoffs have put many Americans in difficult financial positions.
If you find yourself in these circumstances, you may be wondering what it will take to get back on track.
A recent study by Ameriprise Financial shows that with or without a pandemic, financial setbacks are more common than you might think. More than three-quarters of those surveyed experienced at least one major financial setback in their lives, and this does not include events since COVID-19 emerged.
According to the study, more than half of respondents faced setbacks costing them at least $50,000, and for one-third of respondents the losses exceeded $100,000. The impact was experienced across a wide range of households, regardless of age or income level. However, persistence paid off — a full 90% of respondents who experienced a serious setback say they have recovered from it.
What can we learn from their experiences? Here are three key takeaways:
1. Be ready for anything.
Financial setbacks can occur for a variety of reasons. Based on survey results, those range from investment market declines to earnings that did not meet expectations, to a job loss. Other events that created negative financial consequences include making a bad financial decision, having to provide support to family members, and divorce or illness. In short, there are any number of obstacles that could put a wrench in your financial plans. Having a contingency plan in place to respond to these types of emergencies can help you weather the immediate financial stress.
2. Patience and persistence are required.
While most people who suffered a significant loss managed to overcome it, don’t expect your comeback to happen overnight. A consistent finding among those who participated in the survey is that it takes time to rebound. For about two-thirds of the group, the recovery period lasted from one-to-five years. For others, it took longer, even more than 10 years in some cases.
Their experiences show that overcoming a financial setback typically requires a deliberate approach. For half of survey respondents, that included finding ways to cut back on spending. Tied to that, some (37%) say they changed their practices around saving money. A quarter of respondents decided that adding work hours or delaying retirement was a necessary step. Others found that having emergency reserve funds in place helped deal with their sudden financial shortfall.
3. You may be better prepared as a result.
Despite the stress of suddenly facing a financial struggle, there may be a bright side. More than half of survey respondents said they ultimately felt stronger as a result of the experience. And almost all (97%) say they have focused on improving their ability to withstand a repeat event. They decided to boost their emergency savings, many accumulating more than $50,000 in cash reserves, or enough to fill a six-month income gap should they face another setback in the future.
Getting back on track
Whether the economic fallout from COVID-19 or some other factor has resulted in a financial setback for you this year, remember that you are not alone. Take the matter seriously but keep a level head. You’ll want to closely examine your financial situation to determine the most appropriate steps to take to get your recovery underway. Talking with a financial advisor may be a good place to start.