Vast majority of investors who experienced a major financial setback have overcome it
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In the early 2000s, Ann James was a divorced, single mother facing mounting debt. The turning point for getting her finances on track was her daughter, who was diagnosed with autism.
“I realized I had to turn my life around,” James says, who lives in Henderson, Nevada. “My ‘why’ was my daughter. I had to get myself financially secure for her to have a better life.”
James, who is now retired from the Air Force after 21 years of service, was struggling at the time to pay off more than $20,000 in credit card debt and a $15,000 car loan. So she turned to the snowball method to pay off her accounts, a strategy that tackles paying off debt with the smallest balances first, while paying the minimum on larger ones.
From 2002 to 2009, she paid off both her credit and auto debt, habits that helped her take advantage of opportunities during the global financial crisis. In 2009, she bought a house and paid off a 30-year mortgage of $132,000 by 2014.
Now she owns a small business as a financial coach at Financial Freedom Battle Buddies.
The road to recovery may seem daunting for Americans facing hardship from stock market losses, unemployment or divorce, but careful planning and a change in spending habits over time has helped most rebuild their nest eggs.
More than three-quarters of people have experienced at least one major financial setback, often costing more than $50,000, and in some cases more than $100,000, according to the Financial Comebacks study from Ameriprise Financial that was given to USA TODAY exclusively.
Those investors, however, have also managed to put their finances back in order, with nearly 90% of respondents who experienced a setback bouncing back, the data showed. The study surveyed more than 3,000 investors between the ages of 30 to 70 with at least $100,000 in investable assets in January 2020.
The survey was conducted before the coronavirus pandemic and one thing about bouncing back was consistent regardless of the event: it took time.
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Those surveyed say the number one financial setback they experienced was market losses (26%). Other financial hurdles they most often cited included earning less money than expected (23%), job loss (20%), supporting family members financially (17%), bad financial decisions (16%), divorce (12%) and illness (12%).
“Unfortunately, as we’ve seen in recent months, everyone – regardless of their income or assets – is susceptible to financial setbacks,” Marcy Keckler, Vice President of Financial Advice Strategy at Ameriprise, said in a note. “Though it’s hard to predict exactly when and how an event will impact your finances, we can anticipate that there will be ups and downs along the road to financial security."
Bouncing back takes years
Unlike James, others unfortunately faced financial hardship during the housing crisis.
Ashley King, 38, left her husband in the spring of 2008 just before the financial crisis hit a breaking point later that fall. In 2006, King and her then husband took out a $125,000 mortgage that was on the brink of default by the time she left the marriage.
“My ex husband's credit was trash, which should have been the first red flag when we got married,” King says. “I packed my bags and walked away knowing my credit would be terrible for a long time.”
King, who lives in Jacksonville, Alabama, moved in with her parents and returned to school to get a computer science degree. Since then, she’s paid off $5,000 in credit card debt and has been able to rebuild her credit.
“When I got remarried, I decided to keep our banking accounts separate because I was never going to depend on anyone else again,” King says, who is now maxing out her 401(k) contributions and is stashing money away in a 529 college savings plan for her six-year-old son. "It works for us. A lot of people say we're not being a team, but my current husband admits that I'm better at budgeting."
Nearly two-thirds (64%) of investors said it took them one to five years to get their finances back on track, while some respondents (19%) said it took six to ten years, and 8% said it took more than a decade. Only 9% of respondents said it took less than one year to make a comeback.
The study revealed investors took deliberate actions to make a comeback.
Change spending, work more
The most common steps they took included adjusting their spending habits (50%), followed by changing their saving behavior (37%), working more or longer (26%), and using their emergency savings (24%).
“As investors grapple with the impact of the current crisis and look for ways to get their finances back on track, we can learn useful lessons from people who’ve previously experienced financial setbacks, and eventually made a comeback,” Keckler said.