I use paper towels for cleaning, microfiber towels for polishing & waxing. then I throw the used microfiber towels in a bag until it's full enough to wash them. To wash, I sometimes throw them in a bucket of cold water to soak for a little while, then throw them in the washing machine with detergent, cold water, extended soak, and 2nd rinse (obviously, these depend on whatever your washer is capable of). Heat=bad for microfiber towels. So, when they're all nice and clean, hang them up to air dry.
You may end up with some wax residue in the washing machine, so just run it again. I'll usually throw in some vinegar and baking soda along with it.
I probably only do this maybe once or twice a year in order to conserve water. I got several 24 packs from amazon, so I have a pretty good supply.