When you become a parent, the rationale behind your financial decisions will likely change, as you will now need to plan for the financial future of your child instead in addition to your own. This becomes even more apparent when it is time to save for their education and your retirement. It might seem like you have to choose one or the other, however, it is very possible save for both by implementing effective money management and cost-cutting strategies.

Work on Cutting College Costs
The studies show that the cost of attending college increases each year. However, the cost can be reduced with educational scholarships, athletic scholarships and community service scholarships. If your child has a school that he or she wants to attend, check with the school to find out about the scholarships that are available. You can work with your child to help ensure that he or she is eligible for one or more of those scholarships. Alternatively, your child can attend a college with lower tuition costs for the first two years and complete his or her college education at his or her preferred college later. Your child may also be eligible for grants, which the college would determine based on the information provided in its Free Application for Federal Student Aid (FAFSA).

Choose Student Loans
According to the College Board Advocacy and Policy Center, tuition and fees at private nonprofit four-year colleges averaged $28,500 for the 2011-2012 academic year. This is a 4.5% increase from the previous year. Take this into consideration unless you can comfortably afford to finance your child's education and have enough left to finance your retirement. It may make better financial sense to have your children use student loans to finance the cost of education that is not covered by grants and scholarships. If you choose to do so, you can help your child repay the loans if you can afford to.

Saving for Both at the Same Time
Saving for your child's education while saving for your retirement can be an ideal solution if you can afford to do both. Under this option, the majority of your savings can be allocated towards your retirement nest egg . Consider that if you only put $200 a month towards your child's education, and assuming a rate of return of 2.5%, you would have saved about $54,400 after 18 years. This amount can be added to a 529 Plan, where earnings grow tax-deferred and are tax-free if distributions are used for qualified education expenses. If your child does not use the amount that you save in an education savings account or 529 Plan, the balance can be rolled over to another eligible child's account.

Save in a Retirement Account
You can add money to a traditional IRA and/or a Roth IRA, where earnings grow tax-deferred. If you are eligible, you can even claim a deduction for the contributions made to your traditional IRA and receive a nonrefundable savers tax credit. These are retirement savings account, which means that amounts are intended to finance your retirement. However, if you find that you have no option but to make withdrawals from these accounts to cover educational expenses for your child, the amount that you withdraw would be exempted from the 10% early distribution penalty even if you withdraw the amount before you reach age 59.5.

The Bottom Line
The main thing that you should remember is that, financially speaking, you come first. Your children have more options to finance their education, including loans, grants and scholarships. On the other hand, your only option for financing your retirement is your retirement savings and Social Security income if it is still available at that time. Therefore, if it ever gets to the point where you have to make the choice between your retirement and your child's college education, you should choose your retirement. A financial planner can help you to decide the best financial path you should take towards both options.

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