Savings Fundamentals

Saving is a lifelong journey, but that doesn't mean it has to be daunting. Even small amounts can add up over time. 

On this page:

4 essential savings tips

Consider these four essential savings tips, listed in order of suggested priority.

Contribute to your company’s retirement plan and other tax-advantaged accounts up to the maximum match.

What you can do now:

Credit can be a powerful tool if it's used wisely. But if it gets out of hand, maintaining high balances on your credit cards could cost you hundreds of dollars in interest each year.

Example: The staggering cost of credit card debt.

If you buy a $3,000 TV on a credit card with an annual interest rate of 14%, make a $100 payment each month, and don't use the card for additional purchases, it will take over three years to pay off your balance. And you will end up paying more than $700 in interest—almost a quarter of the original purchase amount.

What you can do now:

  • Use our Debt Calculator to see what your debt is really costing you.
  • Try to negotiate a lower interest rate with your credit card companies.
  • Avoid making only the minimum payment on your balance. Pay as much as you can afford each month to avoid high interest rate charges. If you have more than one credit card, pay off the card with the highest interest rate first.

Build an emergency fund to cover at least three months' worth of living expenses to help avoid borrowing from credit cards or tapping into retirement funds. Having emergency cash on hand also helps you avoid selling long-term investments at inopportune times in the market.

What you can do now:

  • Make a list of your essential expenses to see how much you need to save. There's no need to include nonessential items like cable TV or entertainment, since this emergency fund is meant to cover the bare necessities.
  • Decide where to keep your funds. It's preferable to keep them somewhere relatively liquid, such as in a money market mutual fund or deposit account, a short-term CD,1 or an interest-bearing checking account. See more options to invest your cash.

Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Maximize your savings by contributing to your employer-sponsored retirement plan to get the full match amount and up to the annual contribution limit, if possible. If you can afford to save more, consider opening and funding a Schwab IRA, or if you're eligible, contributing to a tax-advantaged Health Savings Account.

What you can do now:

More Savings Goals

Consider these savings goals as well.

The first four savings fundamentals are essential for everyone. Once you've tackled those, consider these additional savings goals in any order. Pick and choose your goals according to your personal financial priorities.

  • Save for a child's education

    • Saving for retirement should still be your top priority, but it's possible to save for a child's education as well, particularly since there may be tax benefits. Any amount saved for education is less you may need to borrow.

    What you can do now:

  • Save for a down payment on a home

    • To estimate what you'll need for a down payment, get an idea of the purchase price and what type of monthly mortgage payments you can afford. The general rule of thumb is to spend no more than 28% of your gross income on principal, interest, property taxes, and insurance.

    What you can do now:

  • Pay down other debt

    • Once you've taken care of your other savings priorities, we recommend that you start paying down high-cost debt, even if it's deductible. Unless you can refinance at a lower rate, this includes tax-deductible debt such as mortgages, home equity lines of credit (HELOCs), and student loans.

    What you can do now:

  • Keep investing

    • To outpace inflation, your money needs to earn more than many traditional savings accounts pay. Our recommendation for long-term investors is to invest early and often—regardless of what's happening in the market.

    What you can do now:

    • Get more details on how to invest and why waiting to invest can be costly.

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