Charles Schwab on Wednesday unveiled an eight-step plan to help people prioritize both their short-term and long-term savings objectives.


“One of the few benefits in the current environment is that people are focusing more on saving money,” noted Catherine Miller, vice president, investor development at Schwab. “Most of us have finite resources and are not able to save for all of our financial goals at once. Prioritizing makes them feel less daunting and more attainable.”


The first recommendation is that investors contribute at least up to the percentage of their employer’s match in the their 401(k) plan. As Miller noted, “You are getting paid to save. Don’t leave money on the table.”


Second is to pay off nondeductible, high-interest-rate debt such as credit cards next, particularly by paying more than the minimum monthly payment, so that high, non-deductible interest payments are not drawn out. In fact, Schwab says, it is sometimes possible to negotiate a lower rate with credit card companies.


Thirdly, Schwab reminds people to create an emergency fund to cover at least three months of essential living expenses.


Fourth, consumers should not forget to continue to contribute to other qualified retirement accounts, such as an IRA.


Fifth, parents should not forget to begin saving, the earlier the better, for their children’s college education. As Miller aptly put it, “Your child may be able to get a loan for college, but you can’t get one for retirement.”


Sixth on the list, according to Schwab, should be saving for the down payment on a home—and retirement savings should not be depleted to make that happen. As a guideline, particularly helpful in light of the housing crisis, Schwab reminds people that annual mortgage payments, taxes and insurance should not be more than 28% of a person’s gross income.

Following that, at number seven, is paying down or even refinancing tax-deductible high-interest-rate debt like mortgages or home equity loans. As Schwab puts it, “Reducing [such] debt can significantly enhance your ability to save in other areas over time.”


Eighth is the reminder to keep investing in a diversified, risk-managed portfolio for the long term, which always beats traditional savings accounts.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.