Recently, a friend came to me for advice on how to tell her 25-year-old daughter about the importance of saving money. The daughter had just gotten her first career-focused job, but felt she wasn't making enough money to save, especially for retirement. My friend knows how important saving is - and saves as much as she can herself - however, she didn't have enough information to have a substantive discussion with her daughter.

This made me think about the bigger picture surrounding savings. It is essential for everyone to understand not only the general concept of saving, but also the particulars of how much to save, where to put your money, and how to prioritize your savings.

The low savings rate in America is the subject of much concern and debate in economic circles. Perhaps where this hits home most dramatically is the finding from the 2007 Employee Benefit Research Institute that almost half of workers saving for retirement report total savings and investments of less than $25,000 (not including the value of their homes or a defined benefit plan).

Given this grim reality, here are some things to consider - and do - to make sure you (and your loved ones) are on a positive savings track.

WHAT YOU SHOULD BE SAVING

When it comes to saving, you need to consider three important factors: time, the amount you save and your rate of return. While you can strive for a certain rate of return, there are no guarantees. I'm going to focus on the first two, where you have the most control.

Let's first talk about time. It's a simple equation. Start young and you have more time to save and take advantage of the power of compounding. Compounding occurs when your earnings are reinvested back into your original investment to continue earning. Over time, these compounded earnings can really add up.

As I said to my friend, when you're young, it's more about how long you have to save rather than how much. Her daughter needs to realize the value of her youth. Because she has time ahead of her, even if she sets aside a small amount every month, it can pay off in a big way down the road.

When it comes to the 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 keep to receive potentially big rewards. Conversely, the longer you wait, the larger amount of your salary you're going to have to put away each year to make sure your money will last as long as you do.

So how much is enough?

Here's a general guideline:

- In your 20s: Start now and you can feel pretty secure if you save 10 percent to 15 percent of your annual salary for the rest of your working life. You won't have to increase that percentage because, as your salary increases, you'll automatically be putting away more dollars.

- In your 30s: If you're just getting started now, try to save between 15 percent and 25 percent of your yearly income.

- In your 40s: If you haven't started yet and you're still looking to retire at age 65, you'll need to save between 25 percent and 35 percent of your income for retirement.

As you can see, the challenge increases the longer you wait. But no matter when you get started, there are some tactics you can use to make saving easier and more effective.

WHERE YOU SHOULD SAVE

A regular savings account is a good place to put your emergency fund or your savings for a short-term goal; you won't earn a lot of interest, but you'll have easy access to your money. A tax-deferred account like a 401(k) or an IRA, on the other hand, is designed for retirement savings. Your earnings can grow - and compound - income tax free. The power of compounding, together with tax-deferred growth, can create the potential for a significantly larger nest egg than with a taxable account.

Again, I encouraged my friend to give her daughter a simple example to show that it doesn't have to cost a lot to save in a tax-deferred account. For instance, even in the 15 percent tax bracket, a $100 contribution "costs" just $85 when you factor in the tax deduction.

Once you understand that you really can afford to save, it's easier to focus on the type of retirement account that's best for you.

Here are some options:

- Contributing to a 401(k): If your employer offers a 401(k) or other plan, start there. Your contribution generally comes right out of your paycheck, making it easy and automatic. Also, if your employer offers a company match, take advantage of it. It's virtually free money, but look into the details.

Today, many employers offer automatic enrollment in a 401(k) at low initial contribution rates. Don't settle for the lowest. Up your contribution to the amount that's right for your age and goals.

Choosing an IRA: This depends on your own tax and income situation, so it requires a little more thought. It's probably a good idea to talk with your tax adviser about the IRA that's right for you.

Here are some initial things to consider: Continued...