Reprinted from the December 21, 2006 issue of Schwab Investing Insights®, a monthly publication for Schwab clients.

The bear market of 2000–2002 woke up many investors to the fact that the market can't do our saving for us. Then came the housing boom of 2002–2005, and some folks started partying like it was 1999 all over again. Well, hopefully, we also now realize that "my home is worth $1 million" is not a retirement plan.

The best idea for 2007 and beyond is to get back to basics and start saving more. No other factor comes as close to ensuring financial success as the amount you are able to save. The flip side of how much you are able to save, of course, is how much you spend. The sooner you start spending less, the sooner you can use the difference to pay down unwanted consumer debt and begin saving more.

Paying off high-cost, non-deductible consumer debt is hard to beat, no matter how you slice it. For example, paying off a credit card that's charging you 18% is just like earning a risk-free, tax-free 18% rate of return. That's a rate of return you will never be able to duplicate!

Once you pay off the non-deductible, high-rate debt, you can begin saving more toward important financial goals such as sending your kids to college and achieving the retirement of your dreams. Think about it. If you could only save an extra $250 per month over the next 25 years, you could end up with an extra $203,700 down the road, assuming an average 7% annual compound rate of return. C'mon, folks, that's less than $10 a day!

Speaking of the retirement of your dreams, living a little below your means during your working years has a double benefit—it allows you to save more for the future and it reduces the size of the nest egg required to maintain your standard of living when you stop working. The alternative means growing accustomed to a more lavish lifestyle of spending you won't be able to support in retirement. Better to give up a little now for a lot more later.

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