I have $30,000 I recently inherited and am trying to figure out the smart thing to do with it - pay down mortgage, pay off a HELOC, save for education (2 kids who will be starting college in 1 and 3 years), invest in stocks.
Just follow Dave Ramsey's steps. Save your baby emergency fund of $1000, pay off the HELOC, save 3 - 6 months emergency fund. After going in that order, invest 15% for retirement, save for college and put all the extra towards the mortgage.
You should be doing everything at once. You can save for retirement while still having debt. One thing I would look out for is the education. Take the airplane advice and put your own oxygen mask on before your kids. Paying for their education will mean nothing if they need to support you later on. This isn't a question so much of what to do with the money as it is how to apply it towards reaching your goals. If you don't have a retirement fund, first thing you should do is maximize your annual IRA contribution. I strongly recommend a Vanguard Target Date fund.