Saving is one of the most essential steps to achieving financial security. In the short term, saving gives you emergency resources for handling a crisis, like an accident or an unexpected layoff. (In general, people with the equivalent of at least three months worth of expenses saved in an emergency fund are much better able to cope with a layoff.) In the long term, saving will help you accomplish longer-term financial goals, like paying for a child’s college education or for retirement. To save, you’ll need to spend less than you earn. 

As you save money, preferably from every paycheck you receive, you have many options for where to put it. Your saving options include basic savings accounts, high-yield checking accounts, certificates of deposit (CDs) and money market accounts (MMAs), all of which are explained in Save Lesson III.II Savings Options. In general, when you save, you want to achieve the highest interest rate for the best terms possible and the lowest amount of risk. Also look for savings institutions that are insured by the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration.

While much depends on your income, your expenses, and your financial goals, a good rule of thumb is to save 20% of your income. That should be split between putting money in an emergency fund (5%), saving for specific goals (5%) and retirement (10%). 

Yes. When you mingle your savings with the money you use to pay your everyday expenses, it is very difficult to track how much you have saved and it's easier to accidentally spend your savings. Keeping your checking and savings accounts separate makes it much easier to track how much you can spend without tapping your savings, as well as how much you have saved toward your goals. Additionally, many checking accounts do not pay any interest, which is a benefit you want for your savings. Interest is what helps your savings grow over time, so you want to get the highest interest rate you can. 

You can have as many as you want. Many people keep multiple savings accounts to keep their savings for various goals separate. You may want an account for a new car, a vacation, an emergency fund or a down payment on a home. Separate accounts make it easy to see how much you have saved toward each goal. If you amass more than $250,000 in any one account, you will need to open another account at a different bank because the Federal Deposit Insurance Corporation (FDIC) as of March 2010 insures a maximum of $250,000 per depositor, per insured bank. To keep your deposits safe you may have to open multiple accounts. 

A credit union is a non-profit organization, founded to serve a specific membership or group. You can join the credit union only if you are a member of the group it serves. When you join a credit union, you are considered a member rather than a customer. As a member, you have voting privileges when electing the board of directors and a say in how the credit union operates. Credit unions do not answer to stockholders, but rather to their members. When a credit union is profitable, the profits go to members in the form of dividends rather than paying dividends to stockholders who may or may not be customers of the bank. Credit unions typically offer more favorable interest rates on loans and savings accounts than banks, and they charge fewer fees. 

A bank is generally run by a group of investors and the bank exists to make money for those investors and anyone else who holds stock in the bank. Because a bank is more profit driven than a credit union, it generally offers lower interest rates on savings, higher interest rates on loans and charge more fees. Anyone may open an account at a bank, but you are a customer of the bank, not a member. You have no voting privileges or say in how the bank operates. 

If you can avoid it, you should never pay any bank fees other than those for special services such as safe deposit box rental. Shop around for banks or credit unions that offer free checking accounts and free ATM usage. These banks are out there, but you may have to think in terms of smaller, local banks instead of the mega-banks. If you do have to pay fees, shop around for the best deal and then try to minimize fees by keeping the required minimum balance in your account, limiting your ATM usage and avoiding overdraft fees. Before opening any account, make sure you understand exactly what sort of fees you'll be subject to and that they will not cause you undue financial hardship. 

It depends on your current goals. When interest rates are down, the interest rates on mortgages and other loans are much lower, making it a good time to buy or refinance a home or make other large purchases. However, when interest rates are low, the interest paid on savings accounts and CDs is low. If you're trying to save a lot of money or if you have CDs reaching maturity that you want to renew, lower interest rates work against you. There are positives and negatives to both high and low rates and the benefit to you depends on what your financial needs are at the current time. 

When you start saving at a young age, you get to enjoy the full power of compound interest. The power of compounding means that you can save smaller amounts when you are young, yet still end up with more at retirement than the person who starts saving larger amounts at an older age. Here's an example of how compounding works:

At age 19, James begins putting $2,000 per year into a retirement plan that earns a return of 12 percent per year. He does this for eight years, or until age 26. Then he stops contributing altogether and never adds another penny. At age 65, through the power of compounding, he has $2,289,000. John begins saving $2,000 per year at age 27 in the same type of account earning the same 12 percent rate of return. He contributes $2,000 per year for the next 38 years, until age 65. At age 65, John has amassed only $1,532,000, or almost $800,000 less than James.

When you wait to start saving, you have to save much larger amounts to make up what was lost by not starting young.

While there is no best age to start saving, you do want to start as early as you possibly can. Tuition rates are soaring and some people start saving even before they have children. The earlier you start, the longer that money has to grow and outpace tuition increases. However, you do not want to save for college at the expense of your own financial security. You need to be saving for your own retirement and have your debt load under control before you commit large sums of money to college savings. As the saying goes, "Kids can get loans or work their way through school, but there are no loans for retirement." Start saving for your child's college as early as you reasonably can, but don't jeopardize your own financial plans. 

A 401(k) is a retirement plan offered only by an employer and the employer controls it. In 2010, you can contribute up to $16,500 to your plan. Your investment choices are typically limited to a selection of mutual funds chosen by the plan administrator. All of your contributions and earnings are tax deferred, meaning you pay taxes only when you withdraw the money. Some employers will also match a portion of your contributions, giving you free money.

An Individual Retirement Account (IRA) is an account that you open and control. You may invest the money in CDs, mutual funds, stocks, bonds or in a simple IRA account that earns an interest rate similar to a savings account. How much you can contribute is determined by your income and your contributions to other retirement savings plans. Unlike a 401(k), contributions made to an IRA are made with after-tax income. However, you are allowed to deduct some or all of your contributions on your taxes. Your earnings are tax deferred until you withdraw the money.

The first step is to educate yourself. Read books and magazines about investing and watch TV channels like CNBC to get a feel for how the market works and the terminology you'll encounter. You might even want to practice by picking some stocks or mutual funds and tracking their performance on paper before you commit real money. Once you understand the basics, you can start investing through your 401(k) at work or through an online brokerage that caters to the small investor. As you get more comfortable, you can increase the amount you invest and branch out into different types of investments. 

You can, but the penalties and taxes you will incur vary depending upon the type of account you're tapping. If you have a Roth IRA, you can withdraw any of your principal contributions at any time, just as if you were withdrawing from a savings account. Any earnings you withdraw will be subject to taxes and penalties. If you have a 401(k) or a regular IRA, you must pay taxes and penalties on any money you withdraw before retirement age. (There are a few specific exemptions but unless you qualify, prepare to pay penalties and taxes.) These can add up to substantial sums, so consider carefully whether or not it's worth it. Some 401(k) plans allow you to take a loan from your 401(k) that avoids the taxes and penalties, but if you leave your job (whether voluntarily or involuntarily) that loan must be repaid within 60 days or it is considered an early withdrawal and becomes subject to taxes and penalties. 

You need to start saving as much as you can as soon as possible. You need to start young so that your money has the maximum time to grow. Since you're retiring about 15 years earlier than the average, you'll also need to save much larger amounts of money to make up for the additional time that you won't be working and earning. Not only do you need to begin saving when you are young, you need to save some of your money in investments that you can tap at age 50. You can't touch a regular IRA or 401(k) until you're 59 1/2 without penalties and taxes. You can tap your principal contributions to a Roth IRA at any time, but you cannot touch the earnings penalty-free until age 59 1/2. You don't want to retire early only to find that much of your nest egg is unavailable to you, so you need to put some money into taxable investment accounts, savings accounts or CDs.