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Conventional wisdom tells us college is very, very expensive, and we'd better start saving if we want our kids to get an education and a good job. A year of undergraduate study at a private college can easily top $40,000, and even in-state public universities cost more than $12,000 per year. Few people can fork over that kind of money without planning ahead.

But are we really in deep trouble if we don't have a college fund set up for our 5-year-old? How should we balance saving for college with other financial goals?

Sometimes, putting money into education funds can be a mistake -- or at least not the best use of your money. Here's why:

1. You can't get a loan for retirement

Other financial goals come first. It's heresy to some, but it's true: Your retirement plans are more important than your children's college funds. Your kids can get through college somehow, and you will probably find a way to help them, but it's more important to plan for your retirement. Remember, your kids can get student loans, but there's no such thing as a retirement loan.

If you have to choose between putting money in the kids' college funds and buying a house, buy the house. You may be able to pay tuition with a home-equity loan when the time comes.

2. Education funds aren't always the best investments

Typical education savings plans may have drawbacks, such as:

  • Limited investment options. Many education funds pay only interest; others let you invest in the stock market. You can't use the typical education fund to invest directly in real estate or start a small business, for example. Compare the rate of return you expect with what you could receive in alternate investments.
  • Difficulty predicting future tax benefits. Tax rules change, and it's hard to predict future income levels. Sometimes by the time kids reach college age, their parents' income level is too high for certain tax advantages they'd been counting on.
  • Financial aid considerations. Students are expected to contribute a higher percentage of their savings to their college education than their parents are, so placing money in your child's name may hurt his or her chances of getting financial aid. You may be better off keeping the money in your name.

3. Students should invest in their own education

Every year, a number of freshmen trek off to college on their parents' hard-saved money, only to spend more time the first few semesters partying than studying. Would they crack the books more if they were paying the bill? Even the most responsible kids seem to do better in college when they help pay for it.

Helping your kids through college is wonderful and demonstrates that you value their education. Give enough to help, though, not enough to lessen their investment in the outcome.

4. Education doesn't have to cost as much as we're told

One college can easily cost twice as much as another, but is it worth it? Not necessarily, according to Kiplinger's annual college values report. (See the 2011 list of public colleges here and private colleges here.) The best education is not always the most expensive.

Students can start at a community college at relatively low cost. After two years, a student can transfer to a four-year college and graduate with the same degree as a student who started there.

Recent trends, such as taking courses online or earning college credits before graduating from high school, can also help cut the total cost of a degree.

5. You may find it easier to pay for college when the time comes

It's great if you can start saving for your kids' college tuition 10 or 15 years before they need it. But the early years of raising children can be the most financially challenging. Parents' careers are not as far along, and one parent may stay home full or part time. You may be just getting into a home or starting to invest.

There's a high probability the family will have more disposable income when the kids are older, especially if both parents plan to work full time then.

6. College is not the only route to success

One of the biggest reasons not to put all of your investing efforts into your children's education funds is that your kids may choose not to go to college. Will it be OK with you if they decide to pursue a career that doesn't involve college, or if they drop out to start a business? Don't put so much emphasis on saving for college that you unintentionally create a conflict if your kids choose to do something else.

A child who reaches age 18 without a college fund can still get an education. Here are two examples:

  • Steve was the third of five children, and although his parents encouraged their kids to get an education, they couldn't afford to help pay for it. After Steve graduated from high school, he spent a year working in a furniture factory. If he hadn't wanted to go to college before, a year of mind-numbing labor would have persuaded him to sign up. He saved his money and then went to community college for two years while working part time. He transferred to a state university and graduated with a business degree.
  • Jan started college with her savings and some help from her parents. Halfway through, she got married and had her first child. She has never returned to school -- not because she can't, but because she is too busy running her own business. She educated herself about running a business and continues to keep up with industry trends and practices.

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Steve and Jan are successful, financially and otherwise. They didn't let the lack of an advance college fund stop them from reaching success.

If you decide to set up education funding for your children, ask your tax professional about the options that will give you the most flexibility and the best after-tax return for your situation.

Remember to pay attention to your own overall financial picture first, however. It's a good idea to keep some investments accessible for projects such as paying college tuition, but designated college funds are not the only way to go. Whatever your family's needs may be in the future, the best way to be sure you can meet them is to put yourself on the right track for all your financial goals.