Once you’ve gone through the budgeting process and understand where your money goes every month, it’s time to start thinking about saving for the future. People who learn to save money when they are young have a valuable headstart. But no matter where you are in life, it’s never too early or too late to start saving.

Why make saving a habit? Because at the end of the day, the amount you save is the most important factor in achieving your financial goals.

How much to save: Save early and often.

Making the decision to save is the first step. Now you have to consider three important things that can affect your success:

The amount you save

The time you have to save

Your rate of return

While you can strive for a certain rate of return, there are no guarantees. So it’s best to focus on the first two, where you have the most control.

How much is enough?

Whether you’re working toward a short-term goal or putting your efforts toward that all-important goal of saving for retirement, time plus the amount you save work hand in hand.

Here’s why: The sooner you start saving, the smaller percentage of your income you need to save. Conversely, the longer you wait, the larger amount of your salary you’re going to have to put away each year to reach your goal.

Start with 10 percent—and go up from there.

In general, saving 10 percent of your income is a good guideline for getting started, especially for young people. However, the later you begin to save, the more you should set aside. Learn more about how much to save for retirement and find out how you can meet your goal.

Don’t waste a minute.

When it comes to saving, time is your greatest ally. It just makes sense: the earlier you start saving, the more time you have to make your savings grow.

Consider this example:

Let’s say that two sisters, Mary and Sue, each have an extra $3,000 a year. Mary decides to start saving that money immediately and invests $3,000 a year for 10 years, putting aside a total of $30,000. At that point, Mary stops saving but leaves her money to grow for the future. And that is when Sue starts saving. Like Mary, she saves $3,000 a year. However, instead of saving for just 10 years, she saves for 30 years. At retirement, Sue has put away a total of $90,000.

For the sake of illustration, let’s assume that each sister made a consistent annual interest rate of 8 percent. As you can see in the chart, Mary, who saved much less than Sue, ends up with $472,306 compared with Sue’s $367,038. What made the difference? The power of time and compound interest.

Find out what it will take to reach your goals.

No matter what you’re saving for—a car, a vacation, a down payment for a house, or even retirement—our savings calculator will help you determine what it will take, and how long it will take you to reach your goals.

Think of saving as paying yourself first. And consider setting up an automatic deposit to a savings account each month, so you won’t be tempted to shortchange yourself when you’re juggling bills and paying off debts.

Saving for an emergency: Create a financial safety net.

Saving for a rainy day can be just as important as saving for a specific goal. What if you lose your job or have an illness or injury that keeps you from working? What if there’s a natural disaster? You never know when the unexpected will happen, but you can save to protect yourself in case it does.

How much do you need for an emergency?

It’s generally recommended that you keep three to six months of necessary living expenses easily accessible in case of an emergency. (You can eliminate many discretionary expenses such as restaurants and entertainment.) This is your emergency fund. Also realize that you may want to save even more in your emergency fund if your job is in jeopardy or if you’re feeling insecure about your financial future.

Where to keep your emergency fund

So you have fast access to your emergency cash, keep it in something safe and liquid such as one of the following:

An interest-bearing checking account may provide a slightly lower yield than money market funds, but you can write checks for any amount and may have easy ATM access to cash. And they’re FDIC insured, up to $250,000.

A money market savings account may offer limited check-writing privileges (over certain minimums) while generally providing higher yields than a checking account. Often the number of withdrawals is limited.

Money market funds typically pay more than bank accounts (checking and savings accounts). While money market funds are considered to be a stable investment, they are not FDIC insured, and it’s possible to lose money invested in a fund.

Short-term CDs are also FDIC insured up to $250,000, and CDs typically offer higher yields than money market funds or interest-bearing checking accounts. Although money invested in a CD is locked up until it matures, you can always withdraw early and pay a penalty if you really need the cash.

A home equity line of credit can also be a backup in case of emergency. However, it should always be used cautiously and only if you’ve built substantial equity in your home. You can borrow against it when you need to, and you may be able to deduct your interest payments from your taxable income.

With home equity loans and lines of credit, the financial institution will take a deed of trust to secure the debt. You could lose your home if you do not meet the obligations in your agreement with the financial institution.

Source: http://www.schwabmoneywise.com/. This information is for educational purposes only. It is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.