Three years ago my wife and I attended the Dave Ramsey Financial Peace University class through our church. My wife has led a class each Summer since then. In fact, her 2007 Summer class wraps up tomorrow evening. I am not an investment expert, but I'll pass along Dave Ramsey's recommendation. There are other views, I'm sure, but I've generally found Dave's advice to be sound. With the disclaimers out of the way...
First, focus on paying off all debt, with the exception of your first mortgage. Your mortgage payment should not exceed 25% of your take-home pay.
Then build up an emergency fund equal to three to six months of expenses. Why do this before beginning retirement savings? If all of your savings is in retirement accounts, when an emergency hits (serious illness, job layoff, final drive failure on your LT), you will raid your retirement account. Bad, bad idea caused by a lack of planning.
Now you are ready to begin retirement savings, your goal is to put fifteen percent of your income into retirement. Dave recommends choosing retirement vehicles in this order:
If your employer offers a match, contribute to the 401(k) up to the amount matched.
If your employer does not match, or once your contribution exceeds the match, move to a Roth IRA (yes, it's after tax dollars but the growth is tax free). Contribute to the Roth until you max it out.
If you have not finished your fifteen percent, return to the 401(k) until you are done.
If you want more information go to www.daveramsey.com