I recently read an article from U.S. News & World Report with the title Are You Too Broke to be a Parent? The article highlighted some facts and responses from a survey conducted by the New York Times, including:
- The number of kids being born in the United States is declining.
- One of the key reasons people are having less kids is because they believe they are too expensive.
- The cost of child care, worries about the economy, and a person’s own financial instability were the main reasons given by those surveyed on why they are having fewer kids than they desire.
Kids are expensive and they do make achieving financial independence more difficult. One 2018 report by the U.S. Department of Agriculture showed the average cost of raising a child through age 17 could a little over $230,000. My wife and I have two kids, ages 7 and 9, and they account for a good part of our monthly budget. The kids are eating more by the day, they are outgrowing their clothes at a rapid pace, and the cost of youth sports for our kids is outrageous. They go to a good public school but the cost of after-school daycare always put a dent in our monthly budget. Achieving financial independence with our kids was definitely more challenging but we did it by getting our financial house in order before we had our first child and today we make sure we educate our kids on money and our financial choices.
For those thinking they do not want kids because they are too expensive – the kids are my greatest joy, my time with them is invaluable, and I hope anyone that wants financial security does not consider kids incompatible with the goal of financial freedom. It will take you longer to achieve but we did it and so can you.
Here are my recommendations for navigating your goal of financial independence with having kids:
Recommendation 1: Get your House in Order before Having Kids
Do not rush having kids
My number one recommendation is do not rush to have kids – the extra time, besides increasing the chance that you find the right partner, will also give you time to get your financial house in order before you start a family. I worked for ten years before getting married and for the most part I used this time to start to get good start to my finances and my career. I followed the advice I share on this blog when I was single without kids and it gave me a good financial foundation.
Grow those skills that grow your income
Whether you go to college or decide to enter the work force after high school you should start identifying and developing the skills that will make you more valuable to employers so you can grow your income over time. Adding relevant skills over a period of time should lead to pay raises, promotions, greater commissions, larger bonuses, etc. I believe this is the number one reason I was able to achieve financial independence despite having two kids because my growing income was able to outpace the increase in costs from having a family of four. I made $38,000 per year with my first job out of college but from the beginning of my career I worked hard to develop relevant experience and a unique skill set that made me more valuable to my employers. As my income grew I could still save a good percentage of my income and also support a more expensive lifestyle.
Save, save, save before kids
You should live as conservatively as possible once you are on your own so you can save a good chunk of your after-tax income before you have kids. I would definitely work on saving 50% of your after-tax income while you are single – that way when you have kids you can still have a good chance of saving 30% or more of your income after kids even if your income does not grow as fast as you want. I saved a lot of my income during the first three years of working and after those first three years I had enough savings to make a down payment on my first home. That home almost doubled in value after a few years and my journey to financial independence was underway. I got lucky with the value of the home going up as much as it did but I made my luck by being financially disciplined and saving the money for that down payment.
Avoid the big expenses before kids
Most people do not make a lot of money early on in their career and one way to wipe out your savings or add unproductive debt is to spend a lot of money on things like your first car, you schooling, or your wedding. I am not saying do not have a car or do not go to school but you can buy used cars for a few thousand dollars and you can select the right school to minimize the cost of your education. Try to avoid those expenses that are going to put you in a big financial hole.
Get your basic investment plan implemented and set a target to achieve
If you have grown your income, kept a healthy savings rate, and avoided the big expenses, you may get to the point where you are generating consistent and meaningful savings before having kids. If so, make sure you optimize your savings by getting financially literate, implementing a basic investment plan for those savings, and setting a reasonable target regarding the amount of your savings/investments you want in place before starting a family. The target could be arbitrary (e.g., a $100,000 in investments) or meaningful to you (e.g., $48,000 for the down payment on the home you want to live in after having kids). If you can hit your savings/investment target with your partner you will have likely have begun to develop the financial habits you need to continue to work towards achieving financial independence even after having kids.
Recommendation 2: Set the Correct Priorities After you Have Kids
Do not feel pressured to keep up with your neighbors and what they buy for their kids
A fairly recent report by Merrill Lynch surveyed more than 2,500 American parents and found that approximately 70% of parents felt the cost of kids was so high party because of the need to give their kids what other kids had in terms of clothing, technology, entertainment, etc. If little Johnny next door has the latest iPhone than do you feel your kid needs to have one? If that’s the approach you follow then kids might be more expensive for you than they really need to be. Educate your kid early on about money, how it is earned, and how there are trade-offs to buying something now versus investing the money. Do not buy things for your kids out of guilt or a need to keep up with other families. Our kids do not have phones, they do not have gaming consoles, clothes are often hand-me-downs, and with their sports we do not get the latest and greatest soccer cleats or golf clubs when their teammates or competitors get those things. We always explain why we make certain financial decisions and why these decisions are important for the family. Our kids get it and I think your kids, over time, will get it as well.
Include the kids in your discussions on the family financial plan – explain the value of financial independence
A few years ago my wife and I started discussing my plan to achieve financial independence, work less, and spend more time with our kids. They knew from a young age that I worked a lot, travelled a lot for my job, and sometimes had to give them a kiss goodnight after they had already gone to bed but after I finally got home from work. We started to discuss how we had a plan to free up my time by being a little more conservative with how we spent our money. We had this discussion probably every 3-4 months for a few years before I became financially independent and it was amazing to see how our children became supportive of the goal.
If you want to achieve financial independence with kids and have a plan then I suggest you find a way to share the goal and the plan with your kids. It will help them understand why you make some of the decisions you do regarding purchases, etc. Without context, your kids see their friends having more stuff but they do not understand why that is the case. Loving your child does not mean giving him/her everything he/she wants – this is a point we drive home to our kids all the time.
Do not sacrifice your long-term financial independence for the kids when they get older
In another survey from Bankrate, over 50% of parents surveyed financially help their adult children even though it is putting their retirement at risk. The survey also found that parents are becoming more willing to pay the bills of their adult child until at least sometime into the child’s mid-20s.
If you have helped your kids their entire lives then helping them financially when they are older may seem natural but you should not sacrifice your own financial security to support your child’s financial choices. This whole blog is about setting financial goals and, through discipline and consistent implementation of a plan, achieving financial independence and adding more meaning to your life. The earlier you do these things the better it will be for your financial future. It is the same for your kids. Teach your kids financial literacy and set expectations early on that they will need to find a way to be financially self-sufficient after a certain age. It is much better to teach your kids how to fish instead of just providing them with a lunch every day. It will be beneficial to everyone involved if you set financial boundaries for your adult children and allow them to find their own way to being financial stable.
Leave a Reply