The markets set and then retreated from another all-time high, with the S&P 500 closing the week down about 1%. As the year comes to a close, it seems we will have a third consecutive year of gains in the market, and many analysts are predicting 2026 will continue the trend.
Many clients ask us how to manage competing priorities. They might have some debt, often car loans, student debt, sometimes credit cards or a home equity loan. They need an emergency fund. They want to save for retirement, but they also want to help their children with college. Oh, and they still need to pay today’s bills, buy groceries, and put gas in the car. It’s hard to know where to start.
The first step is to review your spending. If you’re spending more than you make, now is the time to make some hard decisions. If you’ve already cut your spending to the bone, it may be time for a second job. If you are able to make ends meet, and maybe even have a little extra, but don’t know what to do with it, the first step is building an emergency fund of $1,000. This should cover most emergency car repairs or medical bills.
After that, tackle any unsecured debt, like credit cards. Pay off any high-interest rate debt as well. After that, we take debt on a case-by-case basis. If the interest rate is low, or tax-deductible, we may want to just pay it off over time. If you have student loans, see if there are forgiveness options available. If not, work towards paying those off as soon as possible.
At the same time, you want to contribute as much to your employer’s retirement plan as they will match. That’s free money.
Once you’re out of debt, with the exception of mortgages or low-interest car loans, build your emergency savings. The long-term goal is six months of living expenses. But you can balance this with other priorities. For example, if you have an extra $100 each pay check, put $25 towards your emergency fund, $25 to college savings, and $50 more towards your retirement accounts.
Once you have your emergency fund built up, you can increase savings for retirement and college. We generally recommend no more than $25,000 of your emergency fund be kept in a High Yield Savings Account. If you have more than that, open an investment account to give yourself an opportunity to grow those funds more aggressively.
Beyond this, remember to start small. Suddenly saving hundreds or thousands of dollars each paycheck will often backfire. It’s like running a marathon your first day of training, or going on a starvation diet. Establish the savings account, and transfer $10-20 a paycheck into it. Once you’re comfortable with that, slowly increase the amount.
With retirement savings, start with your employer’s match. Every time you receive a raise or cost-of-living adjustment, increase your savings by 1%. It’s a fairly painless way to build savings while still seeing some increase in your take-home pay.
Your action item this week is to count your blessings. Year-end is a good time to reflect on the positive things in our lives, and gratitude has been shown to improve mental and physical fitness. Thank you for listening this year, and I hope in some small way I’ve made a positive impact on your life. I’ll be out for the holidays but back January 5th with our next Monday Money Report.
CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.