What to Do with Your Money at Life's Major Milestones

When you reach a milestone, you've also hit a turning point for your finances. Make the right choice, and it will pay off big in the end. Make the wrong one, and it can cost you. Why? Because everything from your tax scenario to your income to your benefits to your spending may change, and that means it'll pay to give the new environment you're in a little thought.

If you're one of those people whose finances stay on the back burner until an important event strikes, then milestones also present an opportunity.

Here's how to respond to the ones you're likely to encounter decade by decade over the years:

• Marriage
• The Birth of a Child
• A New Job
• Your First House
• Death of a Parent
• A Graduation

Soon after you tie the knot, you need to do a benefits audit. Does it make sense to swap your singles health plan for family care? It may if your spouse works at a company where the employee contribution is very small. Taking the time to weigh the cost of two single plans against family coverage could potentially save you about $400 a year. Do the same for other services, like your cell phone bill. You can also commute together, which may allow you to get rid of a car.

Once you're married, file your taxes jointly. If you don't, you'll lose some big tax benefits—particularly if your incomes are pretty disparate. If one spouse earns $75,000 and the other $15,000, filing jointly can help you save about $1,500 in taxes a year. (If you're not sure about your particular case, ask your accountant.)

Bringing a kid into the world means you need to prepare for the future. Let's get the nitty-gritty out of the way first: Write a will, if you don't already have one, and name guardians to step up in the event something happens to you. Then boost your retirement savings by putting $200 a month in a Roth IRA. I know, what about college? A Roth IRA is an alternative that will allow you to pay for your own retirement, as well as—or instead of—college. Remember that there's plenty of financial aid for college, but not for retirement. But to ease your mind, open a UPromise account that will deposit a percentage of your everyday purchases into a 529 account for college.

And don't forget to claim the child tax credit. Through 2009, it's worth a $1,000 credit per child under age 17.

You can boost your new salary by making a couple of smart choices on the first day. Start by enrolling in the 401(k). The average company these days will match 50 percent of your contributions up to 6 percent of your salary. That's $1,200 a year for someone with an annual salary of $40,000—free money you'll leave on the table if you choose not to contribute. If your company offers it (many do), open a flexible spending account that you can use to pay for up to $10,000 in healthcare and child or eldercare expenses. Because you deposit pretax dollars, you'll save one-quarter to one-third of the cost on things like braces, over-the-counter medicines and daycare.

Deduct your job-hunting expenses. If you itemize on your taxes, remember that job-hunting expenses can be deducted. This is a deduction, not a credit. But it can include the cost of outplacement or headhunting services, travel expenses if you traveled to an interview and mileage added to your car as you drove around looking for a job. Potential savings: $100 or $200.

That 30-year mortgage seems like it'll be with you forever, doesn't it? Reduce the term to 24 years by making just one extra payment a year. In interest alone, it'll save you a bundle of money: On a $440,000 mortgage at 6 percent, if you make just one extra payment, you'll save $12,000 over the life of the loan. Do it every year, and the savings jumps to $104,000.

To save even more on home-related expenses, raise the deductible on your homeowners insurance, then do an energy audit by finding areas in the home where air is leaking, insulation is not working or windows need caulking.

Allow yourself the time to grieve, then do a little housekeeping. First, get essential paperwork in order. You'll want five to six copies of the death certificate so you can apply for life insurance benefits or financial accounts. If it seems like there are missing accounts, turn to checkbook registers, bank statements and past tax returns for clues. If nothing turns up, head for the state comptroller's office, or try websites that work as intermediaries, like MissingMoney.com. Remember to let an employer, pension provider or Social Security know of the death within a few days, and get an accountant on board to start working on the final tax return.

If you received an inheritance, put it on ice for six months in a money market account while you think about your long-term goals or consult a financial adviser. "Just breathe for awhile. Most people, when they get a check, freak out because they suddenly have access to something way outside of their norm," advises Jeanne Brutman, a financial planner in New York.

Last week you were a student, and now all of a sudden you have a salary, investment options and a day job. Stay on track by first committing to spend less than you make. Sounds like a no-brainer, but most people can't meet the challenge. Then use the extra money to take advantage of that 401(k). "Most people think of this as running a marathon, not a sprint, so it's okay to pace yourself and do a little bit at a time," says Brian T. Jones, author of Getting Started: The Financial Guide for a Younger Generation. If you contribute just $100 a month until retirement and your employer matches with half, your investment—if it grows at 8 percent annually—could be worth more than half a million dollars in 40 years.