Personal Finance

A surprise hit to your finances could set you back for years, report says. Here's how to stage a comeback

Key Points
  • Market losses rank as the top financial setback (26%), followed by earning less than expected (23%), job loss (20%) and supporting family members (17%), according to a survey done in January.
  • Roughly half reported they had recovered fully from their biggest setback, while 41% had made a partial comeback.
  • There are a variety of ways they made progress toward their financial recovery, including adjusting their spending and savings habits for the better.
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Anyone whose financial picture isn't looking so rosy right now may want to prepare themselves for how long it can take to recover from an unexpected setback.

A survey conducted prior to the Covid-19 pandemic shows that about 75% of respondents had dealt with at least one major financial setback in the past, according to a report released Wednesday by Ameriprise Financial.

While many respondents (48%) reported they had recovered fully from their biggest setback — some even doing better than before the unforeseen event — 40% said it took three to five years to get their finances back on track.

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"One important thing to know is that financial setbacks are actually really common," said Marcy Keckler, vice president of financial advice strategy at Ameriprise. "And when we look at the top reasons for the setbacks in the survey, a number of them have been magnified or compounded for millions of people in the current environment."

Market losses ranked as the top financial setback (26%), followed by earning less than expected (23%), job loss (20%), supporting family members (17%), bad financial decisions (16%), divorce (12%) and illness (12%).

Even as the stock market has come roaring back from the pandemic downturn, nearly half of U.S. households have reported a job loss since March 13, according to Census data. Another 35% were expecting a loss of employment income in the following four weeks. 

The Ameriprise survey canvassed more than 3,000 U.S. investors, ages 30 to 70, who had at least $100,000 in investable assets as of January.

Roughly 38.6 million U.S. households fall into that $100,000-plus category, according to separate research from the Limra Secure Retirement Institute. More than twice that number — 87.3 million — have less than $100,000 in investable assets.

Regardless of where (or whether) you fall on that spectrum, the lessons learned by those surveyed can be applied to anyone whose financial life has been upended, Keckler said. For one, while many respondents said their financial setback was stressful, they also reported some positive emotions, including being "determined."

So how did those warriors do it? By adjusting their spending (50%) or savings (37%) habits, working more (26%) and using emergency savings (24%).

"I'd encourage people to focus on how they can take charge of things they can control, because it's a challenge when you feel out of control," Keckler said.

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She added that one positive result of dealing with a financial setback can be a new focus on preparing for it to happen again down the road.

"People said they were much more likely to have set aside an emergency fund or rainy-day fund for any future challenges," Keckler said.

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