How to become financially comfortable

Catching up on retirement savings

It's no secret that having a financial plan to follow is a key to saving and keeping debt from becoming unbearable. The problem is the part about following it. 

Consider the Charles Schwab 2018 Modern Wealth Index assessment, which compiled information on a thousand participants. It revealed that individuals who follow a written financial plan tend to be regular savers and effectively manage their debt. But only one in four of those surveyed have and follow a plan, and three in five Americans surveyed live paycheck to paycheck.  

When asked how much they thought they would need to save, survey respondents said they would need $1.4 million to consider themselves "financially comfortable." To be "wealthy," they said they would need $2.4 million.

The Schwab index revealed that "Planners" -- those who have a financial plan -- also are more likely to exhibit several other positive financial behaviors. They pay their bills on time and still find room to save each month. In short, they live on less than they earn, and they always find a way to put some savings away.

How to budget after landing your first job

Individuals who follow a financial plan also have an emergency fund. Because unanticipated expenses, such as a car or home repair, or uninsured medical bills, are going to happen. Also, losing a job can disrupt the best-laid financial plans and lead to a sudden increase in debt. That's why it's important to have an emergency fund of at least three to six months worth of living expenses. 

Finally, the Planners report that they never carry a credit card balance, they make other loan payments on time or have no debt.  

The most common reason people gave for not having a financial plan is that they don't think they have enough money to need one. Other reasons include not knowing how to make a plan and not being confident they would stick to it if they made one.

What would it take to save $1.4 million? The answer largely depends on how much time you have to save. If you have 30 years to save, and start putting away about $1,000 per month, invest it and earn 7.7 percent annually, you may be able to accumulate $1.4 million. If you have just 20 years to reach that goal, the monthly amount you'd need to save more than doubles to over $2,400.

Many younger workers can make progress toward this goal by enrolling in their employer's 401(k) plan as soon as possible. You should find out how much you need to contribute to receive the maximum matching contribution from your employer. Most employers want you to contribute at least 6 percent of your pretax pay to get a 3 percent match.

Six percent is good, but make it a point to contribute at least 15 percent of your pay each year into your 401(k) plan. If you can't afford that amount, begin with the minimum required to get the maximum matching contribution and automatically increase your contribution each year and every time you get a raise. Some 401(k) plans have a feature called a contribution escalator. It allows you to automatically increase your contribution by a defined amount on a preset date in the future.

One more thing: In just a few minutes, you can take the Modern Wealth Index survey and receive your own personal score. After you do, think about one positive step you can take today toward improving your financial security -- and do it.  

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