Setting goals for the future strengthens saving strategies

By Carrie Schwab Pomerantz

Published: November 23, 2008

When we teach our children "Save your money,” we’re trying to ingrain a habit that we know will serve them well later. With kids, saving might be oriented to something specific. Adults have different goals, and the challenge is how to prioritize. The Schwab Center for Financial Research, a division of Charles Schwab & Co. Inc., recently published eight "savings fundamentals.” These can help you take maximum advantage of your company’s retirement benefits, as well as existing tax breaks and interest rates:

→Take full advantage of your company’s match: If you participate in a 401(k) or similar plan and your employer offers a match, priority No. 1 is to contribute enough to get the full benefit.

→Pay off credit card debt: Priority No. 2 should be to eliminate high-interest, nondeductible debt — in other words, credit card debt.

→Save for the proverbial rainy day. Put three to six months of living expenses into a safe, liquid account.

→Max out your retirement savings possibilities. Contribute the maximum to tax-advantaged retirement accounts.

→Save money for your children’s college. Save using the 529 plan or the Coverdell Education Savings Accounts.

→Save for a home. Saving for the down payment could be the next goal.

→ Pay down your mortgage.

→Finally, keep investing. Choose a taxable account in a diversified, properly allocated portfolio. This framework can help you maximize every dollar.

Carrie Schwab Pomerantz is Chief Strategist, Consumer Education, Charles Schwab & Co., Inc., Member SIPC. You can e-mail Carrie at askcarrie@schwab.com.

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