“We offer a 401k” was probably the most exciting thing I’ve every heard. Only a little of my pay goes away each month, and years from now I’ll earn a lot in interest. And I’d have jumped on it sooner, had I known my company matches.
~ Eric

Saving anything is better than nothing. But, aiming for a goal of at least 10% is enough to actually jump-start your retirement fund, get you into a good savings habit.

Brokamp is a retirement editor at The Motley Fool, a multimedia investment education company. Visit www.fool.com.

No one ever looks back and says, “Gee, I wish I’d saved less.”

How to save at least 10%

Saving for retirement works kind of like this: You put money into a retirement savings account, usually through work or on your own, and you get certain tax benefits from doing that, like being able to put pre-tax money directly into savings or getting to take tax deductions when tax time comes around once a year. Over time, your money continues to grow.

The more money you save and the earlier you start, the more money you have in the long run. The most common mistake young people make is waiting to start saving for retirement, which can mean losing out on thousands — even tens of thousands — of free money. To be a savvy retirement saver, the best rule is to start now.

• See also: Retirement

Do it in three simple steps:

• Learn why waiting is a huge waste of time.

The money you save grows over time because of a small miracle called compounding. You put the money in a bank account or investments that earn income each year — at first, it’s probably not much. But then compounding starts to kick in. The next year, you’ll earn income both on your savings and on the income. Imagine your invested savings earned you 5% in one year. So if you had $1,000, you now have $1,050. Great, you earned $50. Roll forward another year at 5% and you’ll earn another $50 but also an extra $2.50. It keeps building that way, with a little more tacked on each year. With compounding, the amount you put into savings just keeps getting bigger every year. The earlier you start, the longer it has to build money and the more you earn.

The biggest tragedy in our culture is that too many people wait to save. The later you start, the more you miss out on. If you put $1,000 away every year from age 20 to 30 into a retirement account that grows at 6% each year, by the time you are age 67 that will be more than $120,000. If you put the exact same amount away, but waited until you were 30 to start — you'd only have about $90,000. That's $30,000 of free money that you missed out on, just because you waited too long and missed out on earning compounded interest.

• Choose a place to save and automate your transfers.

Your ultimate goal should be to save at least 10% of your paycheck for retirement every pay cycle. Now, if you have any debt or if you live paycheck-to-paycheck, you need to first focus on paying off debt and building a small buffer in your checking account so you don’t run out of money at the end of each month. There’s no point saving a ton in retirement if you’re racking up credit card and high-interest loan debt. Once you’ve gotten rid of bad debt (it’s okay to have lower interest student and home loans), set an initial goal of saving at least 10% of every paycheck for retirement in a retirement savings account. This is in addition to any saving you do for big purchases, like a car or vacation, or to build an emergency fund.

• See also: Emergency funds, Retirement

• Enroll in your employer’s retirement plan or open an individual retirement account.

You can choose to fund your own retirement in an individual retirement account, called an Individual Retirement Arrangement (IRA). But, before you do this, you should check to see if your workplace offers you retirement benefits. The most common retirement benefits plans are 401(k)s and 403(b)s.

If your employer offers you a retirement benefits plan, you should invest in it and do so through payroll deduction (automatic transfer of money into the account before your paycheck). Also, find out if they offer an employer match and do everything to take advantage of this free money. Once you have your employer plan figured out (or if you don’t have one), then look at other options like also putting money in an IRA. All of these accounts come with tax breaks that let you save more, and let your money grow faster.

• See also: IRAs, 401(k)s, 403(b)s and 457(b)s

Words to know

Unsure about something you read? Many of the financial terms you came across in this article are defined in our financial glossary. A-Z Glossary

Revisit this Essential during these Life Events

These life events are great chances for you to look at your emergency savings and make sure you have enough or are budgeting to save up:

• Evaluating a job offer
• Starting a job

Next up: Limit your debt

You've mastered this lesson, so now it's time to learn about limiting your debt.