Can you succeed financially with kids?

Recently, I caught up with someone I hadn’t seen for a long time. Two decades, in fact. And they asked me what I’ve been doing. I gave them the canned version of events, ending with my most recent news (that my husband and I had left our jobs a year and a half ago and are traveling the world). Their response? ‘It’s much easier when you don’t have kids.’

My post today is not only for those who have kids or who want kids, but for those who don’t have children and who hear comments like the above, that it’s ‘much easier when you don’t have kids’.

Is it easier to be financially free if you don’t have children?

Of course, this is true.

But the same could be said of many factors.

For example, it would have been much easier for us if we’d had much higher salaries. If we lived in a city with lower housing costs instead of one of the most expensive in the world. Maybe if we’d trained in finance-related fields earlier on. Or if we’d simply gotten started earlier.

It would have also been much easier if we’d known someone who had retired early that could advise us. If we had families who gave us a house, or a so-called ‘loan’ that didn’t need to be repaid. (As recent reports reveal, the ‘Bank of Mum & Dad‘ is now the 5th largest lender in Australia.) If we’d inherited a fortune. Or if we won the lottery.

In other words, there is a whole slew of factors, both under your own control, and out of your own control. Having or not having children is not the only factor. I’d argue it’s not even the most significant one.

The vast majority of Double Income No Kids (DINKs) couples do not retire early. Clearly, simply not having children does not guarantee financial freedom. Even more importantly, there are many couples, including single income couples, who have children and retire early. So the two are not mutually exclusive.

So… how can families be financially free?

I find that many financial resources are aimed at either the so-called ‘typical’ family, or at the hard-core saving, indeed, ‘extreme’ single or couple, with not much in between.

For this reason, Paul Terhort’s Cashing in on the American Dream: How to Retire at 35 is a refreshing read. It devotes an entire chapter to ‘Retiring with Kids’. This now sadly out-of-print book begins its chapter on families with a very familiar and depressing picture of the ‘average’ family in the 1980s. And it doesn’t sound like things have changed much! Everyone in the family, Terhorst says, was living in their own bubble (and we couldn’t even blame iPads back then!).

Terhorst drives home the message that ‘your kids need you now’, making a good case for retiring early if at all possible. Mr. Money Mustache, who is both a parent and an early retiree himself, makes many of the same arguments.

Budgeting for early retirement for a family begins the same as budgeting for a couple or single – and it starts with working out a daily spend amount. Terhorst budgets US$11 per child ($14 AUD), or $5,000 ($6,300 AUD) per year.

Now, I know some will complain this is clearly ludicrous, and Terhorst himself acknowledges that some people will spend $5,000 on a 6-year-old’s birthday party alone.

Surely $5,000 a year is impossible now?

Although Terhorst was writing in the 1980s, and prices have certainly increased, he was targeting the top 20% of income earners. As a result, the figures hold up surprisingly well for those of us who aren’t in this category. Incredible as it may seem, many of the parents on the Simple Savings forum I know manage this. It’s also important to consider that the poverty line in the US for a single person is $12,060. For a couple, it is $16,240 (so just $4,180 more). And for a couple with a child, it is $20,420 (another $4,180 again). So $5,000 per child is approximately 17% higher than the poverty line.

Mr. Money Mustache, raising his son in the current decade, calculates that between the ages of 0-2, it cost him and his wife less than $300 a month (or just $3,600 a year) to take care of their son. Nowadays, their entire family budget comes in at around the ‘poverty line’ figure for a couple with a child. (Although they live a very upper-middle-class lifestyle).

So it is possible to have kids – and raise them well – on a budget. Here’s Mr. Money Mustache’s advice on the real cost of raising children.


Financial independence and kids

The one piece of advice I had trouble with in this chapter was on ‘paying for school’. Now, I know we (at least currently!) have quite a different system here in Australia, but I don’t agree with Terhorst’s suggestion that readers ‘have a heart-to-heart talk with Johnny’s grandparents. They may be willing to pay for Johnny’s education’.

Terhorst acknowledges ‘it’s a safe bet that Johnny’s grandpa and grandma would rather see you keep working’. I don’t think this is unreasonable. In fact, I think it would be rude to ask. Remember Terhorst’s book targeted the top 20% of earners of its time, people who were earning $100k+ a year back in the 80s.

The schooling being discussed is not public schools or colleges, but $10k per year boarding schools, $40k per year private colleges, and $80k per year prestigious universities (double those figures and then add some to get a handle on what that equates to in today’s currency). It is not as if the parents need to beg for help from the grandparents to provide the basics. Rather, they are begging so their kids can have the best, while they do the least.

In my definition of ‘financial independence’, relying on others to cover most or part of your spending might be considered a degree of financial independence, but it’s certainly a long way away from true financial freedom.

Terhorst’s other advice on schools seems pretty useful though – including how to select a school overseas, how to find out what the social climate of a school is like (and become involved), and how to discover how much specific knowledge children pick up.

If you are a parent interested in financial freedom, or even just securing the future of your kids through life’s ups and downs, I really recommend trying to find a secondhand copy of this book.

The main message of the chapter – and the takeaway message of today’s post – is that early retirement can be used to build quality family life.

A postscript

Anyone offering advice on raising children without first having kids of their own is likely to be told ‘You don’t know until you’ve have your own’. To a certain extent, this is true – as it is of anything in life. You don’t know what it is like to suffer from a severe illness or to lose a loved one or to have a high pressure career or to struggle financially or to be hungry or to fear for your life unless you have done so yourself. You might have empathy for anyone in these situations, but you’re still relying on your imagination. Even so, the vast majority of people who have not been in parliament have no issue with telling everyone how they think the country should be run!

I’m sure we can all agree a biological contribution or piece of paper does not a good parent make. While the majority of parents love their children, there are parents (biological and legal) who abuse their own children horribly. And conversely, while there is certainly wisdom that comes with experience, there are people who are not mothers or fathers but are more knowledgeable about children than most parents. This is especially the case when it comes to specialisations. I, for example, am only too happy to admit that I know relatively little about raising children in general. But it frustrates me when parents who know very little about language development try to lecture me on the topic.

That being said:

If you have children…

  • Consider what money messages you may be teaching them through books, toys and games.
  • Let your children be your inspiration to achieve financial independence (whatever that means to you), not your excuse. Don’t look at others and say ‘It’s easier if you don’t have kids’. Instead, look for positive examples of both people with and without kids, and ask ‘How can I do this too?’

If you are thinking about children…

  • Consider the true cost of raising children, and how many to have, and who will look after the kids.
  • Think about what goals you want to achieve before you have kids – saving an emergency fund, or buying a house, for example (play around with some lending calculators – you will find that your borrowing capacity reduces substantially for every dependent you add and every income you subtract).

And if you don’t have children…

  • Ignore the cries of ‘It’s easier if you don’t have kids’. Be proud of your achievements. There are plenty of people who don’t have kids who still don’t achieve financial freedom. Enjoy what you have earned!

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