Why financial setbacks can be positive learning experiences

Not everybody will face the same money challenges, but being prepared is a step in the right direction

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When life changes, money changes. And when money changes, life changes. Transitions in life are not only inevitable, they are constant. In fact, life is not linear but a set of many transitions. And with these transitions, come setbacks.

I am currently moving house. I was away with my son during the key moving weekend and, perhaps naively, imagined I would come back to my new home, with my wife and movers having seamlessly taken care of everything while I was away.

But a series of setbacks prevented this. In my frustration and amid a sea of boxes and bubble wrap, I glanced over to see my son playing Super Mario on his Switch. He was celebrating moving up a level.

This helped me to remember that challenges exist at every stage or transition. Finishing one change means you advance to another.

As a professional planner, I commonly guide clients through more than 30 familiar life transitions such as moving countries, marital issues, retirement and estate planning. Like Super Mario, life without setbacks, challenges, opportunities or struggles would be a boring existence. Not only would we be bored but we would never be able to learn and better ourselves.

Financial setbacks should not only be expected but also welcomed.

If you ask people what a perfect world looks like, you might get a world where life is effortless, with no stress and no worries.

Even though it seems like paradise on the surface, this mythical world falls apart with a little bit of thought. Humans adapt to their surroundings very quickly, something known as hedonic adaptation, so being happy all the time would become our new normal.

And if that is normal, then we would need to feel extra happy to feel a little bit of joy. And what we consider normal today would be sad in this new world.

There will be challenges and setbacks in your financial life. Benjamin Franklin once said that the only guarantees in life are death and taxes. However, Franklin missed one other guarantee: setbacks.

Setbacks will happen and pretending that they will not is futile. If you assume there will be no setbacks, then you, almost by definition, will feel bad when the next setback comes (which it inevitably will).

But since you should have known setbacks will happen, feeling bad is effectively your choice. This does not mean we can predict the future.

If we are talking about investments, we know from data there will be a severe downmarket in the future. After all, an economic cycle goes around and comes around.

What we do not know is when it will happen, why it happened or how long it will last. Those are the unknowns.

Similarly, you will face unexpected expenses. You do not know how big that expense will be, when it is going to happen or why it will happen, but it is a guarantee there will be unexpected expenses in your future.

Other setbacks are not guaranteed, but possible. For example, my son might have failed that exam I took him away to do. I might get gazumped on the house I wanted to buy.

The promotion you wanted might go to an outside hire. Your company could go out of business. You can argue with your partner about money. Your children might run into financial struggles and need money from you. Your parents might need financial help.

These are all possible. Some of them are not very likely but others are more likely than you think. Again, we do not know when they will happen, why or how long they will last. Only that they are possible.

Changing our mindset to expect setbacks will make us more resilient in the future.

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Instead of being upset when the next setback happens, we can reframe it as a learning opportunity or invitations to solve interesting problems
Sam Instone, co-chief executive of AES

It is important to understand adversity is necessary for growth. If you have never had to solve a problem, then you have no skills to solve problems. Setbacks and adversity give us the tools that we need.

Instead of being upset when the next setback happens, we can reframe it as a learning opportunity or invitation to solve interesting problems. We can view setbacks in such a way that we look forward to coming out on the other side with our new skill set, knowledge and ability.

As with the case with my moving day misery, setbacks will happen to you. Pretending they will not happen is not going to help you. Instead, reframe setbacks as opportunities for growth. Train yourself to reframe a setback as soon as you are aware of it as it may prevent you from feeling angry about it. Not being angry is necessary to come up with the best solution we can for the setbacks that life throws our way.

Life is not linear and your plan for it should not be either. Setbacks are not our enemy; they should be welcomed. It simply takes a little bit of a mindset change.

Sam Instone is co-chief executive of wealth management company AES

Updated: January 28, 2022, 4:00 AM