Managing money is difficult enough as is, but the coronavirus pandemic has only made things more challenging. Tens of millions of Americans have lost their jobs over the past few months, investors have watched their portfolios plummet, and the future is still uncertain.
As unpleasant as they are, financial setbacks are a part of life. Only the most fortunate people are able to escape them altogether, and most of us will experience at least one major setback at some point.
In fact, around 73% of investors say they've experienced a significant financial setback, according to a survey from Ameriprise Financial. Some of the most common setbacks included job loss, stock market investment losses, pay cuts, and making bad financial decisions. Among those who have experienced a financial setback, just over one-third say the setback cost them at least $100,000.
The good news is that the vast majority of those who experience setbacks are able to recover from them -- and some are even better off afterward.
Recovering from financial challenges
Of those who have experienced financial setbacks, a whopping 89% were able to recover or are on their way to recovery, the survey revealed. Additionally, 21% of people say they are actually better off financially after the setback.
However, recovery is a long process. In 67% of cases, it took at least 3 years for investors to recover from the setback. Only 9% of investors were able to make a financial comeback in less than one year. Patience and persistence are key when getting your finances back on track after a loss, but recovery is an achievable goal.
No matter what type of setback you're experiencing, there are a few things you can do to ensure your finances are recovering as quickly as possible.
1. Keep your sights set on your goals
After a financial setback, it's crucial to have some type of goal in mind. That goal could be as straightforward as finding a new job, or as complex as broadening your financial knowledge to avoid making less-than-stellar decisions with your money.
Once you have a goal in mind, write it down and create an action plan for achieving it. Maybe you'll start applying for a certain number of jobs per week, for example, or read one financial advice article per day. If your investments have taken a hit, you may set a goal of contributing a certain amount of money each month to your retirement fund.
2. Build an emergency fund
An emergency fund is vital because it can help protect you from future financial setbacks while recovering from your first one. For example, if you've racked up loads of credit card debt over the years and your goal is to pay that off, an emergency fund can ensure you don't dig yourself deeper into debt if you're slammed with an unexpected expense. If you're investing for retirement, an emergency fund can help you avoid dipping into your retirement savings when money is tight.
To establish a healthy stash of emergency savings, comb through your budget to find some extra cash. You may need to make some sacrifices to save more money, but it's worth it to help you reach your financial goals.
3. Track your progress
Depending on the particular setback you're facing, it could take several years to get your finances back on track. At times, it may feel like you're not making much progress, and it might be tempting to throw in the towel.
By tracking your progress each step of the way, however, you can motivate yourself to keep pushing forward. If you're trying to get your retirement savings back on track, for instance, keep track of how much you've saved and celebrate each milestone. If you're getting out of debt, try setting smaller goals along the way and reward yourself each time you reach one.
Financial setbacks can be devastating, but they can also be opportunities to grow. By setting goals and creating a plan to achieve them, you can recover from any setback you face.