Save for College or Retirement?

Being the good parent that you are, you want to send your budding Madame Curie or Herr Einstein to the college of her or his choice. But does that mean saving for school should be your No. 1 financial priority?

Paying for school is an important goal, but it's only part of a broader financial plan. And given the cost of raising kids these days, parents in particular have to weigh priorities, make tough decisions, and possibly eat your children's scraps. While developing your saving-for-school strategy, keep these other goals in mind.

Pay off high-interest debt: It doesn't make sense to earn 4% to 10% on your college savings when you're paying 11% to 20% on your credit card debt. If you owe more than $500 on any loan that charges double-digit interest, pay that off first.

Build an emergency fund: You need a stash of accessible cash available to extinguish the potential hazards of unexpected expenses. If you don't have the money available when the furnace blows up, the roof falls in, or your department gets "downsized," then you'll have to turn to the credit card, retirement fund, or college cookie jar. This is not good. Keep three to six months' worth of expenses in a money market investment.

Get adequately insured: Purchase a 10- or 20-year term life insurance policy to replace the income (or child-rearing and home-keeping services) of any members of the family who join that great frat party in the sky. Also look into disability insurance, since it is more likely that a worker will be temporarily out of work (because of an injury or illness) than permanently (because of kicking the bucket).

Save for retirement: It may sound selfish, but put your golden years before your kid's diploma years. If you don't have enough to cover tuition, your student can apply for financial aid and borrow money. However, there are no scholarships or loans for retirees. If you haven't saved enough to retire, then you can't. (Check out our Rule Your Retirement newsletter service if you want to make sure you're saving enough.)

If you feel conflicted about putting yourself ahead of your offspring, consider setting aside money in an IRA. You can use the money for qualified higher-education expenses as long as you follow the rules. But if you don't need to use that money when the tuition bill comes due (perhaps because your little genius earned a scholarship) then you can save it for retirement.

Robert Brokamp is very proud of his budding Broadway star (age 13), quarterback (4), and ballerina (3).He's also the editor of theRule Your Retirementnewsletter service, which you can test-drive free for 30 days. The Motley Fool isinvestors writing for investors.

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