Financial Planning for Newlyweds

When starting a new life together, couples should focus on saving for retirement, paying off debt and preparing financially for any children. Here's how to set your priorities.

We're newlyweds in our early 20s, and we both work. We'd like to start saving for retirement, but we don't know where to begin. Should we start saving or pay off debt? What about life insurance? Any special retirement tips for couples planning on having kids?

You'll get your marriage off to a good start if you pay off all the debts from your past lives (and old relationships) as soon as possible.

Start either with debt that has the highest interest rate -- usually credit cards -- or with accounts that have the lowest balances. That way you'll feel as if you're making progress. Once you've paid off one account, you can move on to the next.

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Even if you're tackling debt, you should each save at least a little for retirement, either through your employer's retirement plan or a Roth IRA -- especially if your employer matches your contribution. Setting money aside gives you financial security, and saving early for retirement gives you a big head start.

If you change jobs (as people in their twenties are likely to do), don't cash out any retirement savings you've accumulated with your employer. Depending on how much you have in the account, you'll have three choices: leave the money with your former employer, transfer it to your new company or roll it into an IRA that you open with an investment company. Any of those options is better than spending the money.

One thing you probably don't need to spend money on right now is life insurance. You only need life insurance if someone is dependent on your income -- for example, children.

Once the kids come, figure that as a rule of thumb you'll need life insurance equal to about eight times your combined annual income. Buy low-cost term insurance, and you can probably purchase all you need for just a few hundred dollars a year (try

Think of insurance and retirement savings as two separate pots of money. Buy the insurance you need, if any, and invest for retirement independently.

When you have children, keep your priorities straight. It may sound selfish, but saving for your own retirement should always come first -- even before saving for college. And you always have the option of tapping your Roth IRA to pay college bills.

Last week: Savings Advice for Newlyweds

Janet Bodnar

Janet Bodnar is editor-at-large of Kiplinger's Personal Finance, a position she assumed after retiring as editor of the magazine after eight years at the helm. She is a nationally recognized expert on the subjects of women and money, children's and family finances, and financial literacy. She is the author of two books, Money Smart Women and Raising Money Smart Kids. As editor-at-large, she writes two popular columns for Kiplinger, "Money Smart Women" and "Living in Retirement." Bodnar is a graduate of St. Bonaventure University and is a member of its Board of Trustees. She received her master's degree from Columbia University, where she was also a Knight-Bagehot Fellow in Business and Economics Journalism.