Want to gain financial independence sooner rather than later? Well, you can gain financial independence the hard and honorable way by doing everything yourself. Or you can gain financial independence the easy way by depending on your parents for money.
When I graduated from college in 1999, a bunch of my fellow first-year classmates at GS proudly proclaimed they had either found a great one bedroom to rent or had purchased a condo somewhere in Manhattan.
At the time, I always scratched my head and wondered how they could afford to pay $2,000+/month for rent or $500,000 for a condo when our base salary was only $40,000 at the time.
As I got to know my classmates better, however, I learned many of them came from very wealthy families. There was a disproportionately large number of classmates who went to private universities.
One classmate’s dad had been the Prime Minister of Canada. Another classmate’s parents were GS Private Wealth Management clients. To become a private client, the minimum to be a client was having $25 million in investable assets.
Here I was, sharing a studio with my high school buddy for a total of $1,800 a month because neither of us wanted to spend over $1,000 a month on rent. A year later, my roommate abandoned me because his parents bought him a one-bedroom condo near the United Nations building for $260,000. Now that was a good buy.
Over time, I’ve come to realize there is no one specific way to achieve financial independence. Many people actually view having their parents buy them cars and homes after graduating from college as perfectly normal. As the bull market rages on, there will probably be even more support for adult children.
Although it feels GREAT to make your own money, the slog is often extremely difficult to sustain. Relying on your parents to get ahead is a much easier way to go.
Gain Financial Independence By Depending On Your Parents
Let me share a wonderful example of how one married couple has gained financial independence by depending on their parents. The example comes from a comment to my post, Never Ask To Borrow Money From Friends Or Family.
Nona, who lives somewhere in Europe, writes,
“Oh boy, we just asked my husband’s parents for money to be able to afford our 4th rental unit. Do I feel like a loser? Hell no! We are a family with three young children and we chose to be financially independent, without a ‘real’ job, as they say.
Problem in our country is that rent doesn’t count as income. And if you don’t have a ‘proper’ job, banks won’t give you a mortgage. So, even though we had 90% of the money we needed to buy the property, just sitting there in saving accounts, our bank wouldn’t allow us the mortgage for the remaining 10% of the money.
So we politely asked my husband’s parents if they would be willing to help us out, and they did! We agreed to pay the full sum within 24 months back. They didn’t want us to pay any interest (I’m grateful for that!).
The parents are happy they could help us out. Our investment properties are part of the inheritance we want to give to our own kids. We are grateful we could get the loan from our parents. Now we get the freedom to pay as much/ as little as we can, within the given time period.
So no, I think it’s great if people can help each other financially. I plan on helping out my own children when I feel the money will go to a good cause.
Financial Independence Overview
Nona’s comment is very insightful. She has shown that it’s not that hard to achieve financial independence with three kids. Nor is it hard to afford your 4th rental if you can politely ask for money from your in-laws.
I used to think that having a job was vital for being able to get a mortgage or refinance a mortgage. Without a job, we are dead to banks. But my mindset is slowly changing.
For men out there who might feel too embarrassed to provide for their families, don’t be. Get your wife to ask your parents for money for you. This way, you can save your ego from taking a hit. You can also soften any of your parents’ disappointment in you.
Gain Financial Independence By Having Wealthy Parents
I also got feedback from another reader who proudly explained that she had saved $100,000 by the time she was 25. She’s 27 now.
Leanna writes,
“Sam, I know you harp about not going to a private university due to the cost. But I’m here to tell you that I was able to save $100,000 by the age of 25 and so should more recent college graduates if they work hard and diligently save. I’m well on my way to financial independence by 35, if not much sooner.
I went to the University of Portland where the tuition is now roughly $47,000 a year. After food and lodging, the total comes out to be around $67,000 a year for students entering this year. Despite the cost, I was able to get a $1,000 a year scholarship towards tuition. My parents did pay for everything else.
But I made a pact with them. I wouldn’t go on an extended European vacation like many of my classmates after graduation. Instead of going to the Amalfi Coast or Mykonos, I decided to stay back in Portland and look for a job.
I landed a job in publishing as an assistant editor for $38,000 in Portland. Three years later, I worked my way up to $52,000 a year after one job change. Due to my frugality, I was able to save on average $15,000 a year for three years. I lived with roommates, didn’t eat avocado toast every day, and didn’t own a car.
My $45,000 in savings was mostly invested in the stock market. As a result, it grew to about $60,000. Yes, my parents also gifted me $15,000 a year for the past several years. But I’ll happily accept the gift tax-free over having them pay a death tax when they pass.
Financial Independence Overview
Although spending $47,000 a year in tuition may sound like a lot, 16 years from now I expect to face over $100,000 a year in tuition expenses if my son chooses to attend a private university. At this stage in my financial journey, I’m not comfortable paying that sum of money.
Given the massive bull market we’ve experienced for decades, we shouldn’t be too surprised if there aren’t more people like Leanna who’ve been able to amass a tidy sum of money while still in their 20s. The Boomer and Gen X generations are rich as heck. It’s only natural they’d prefer helping their children while alive, then after they’ve passed.
Finally, I do commend Leanna for being frugal and investing the majority of her savings in the stock market while young and unencumbered. That is huge!
More Wealth Out There Than You Know
The point of these two examples is to show that there is more wealth out there than we all realize.
You can gain financial independence on your own, or you can gain financial independence by depending on your parents. You can also gain financial independence by finding a supportive spouse. Choose the easier route.
You do not get extra brownie points for achieving financial independence on your own. Instead, you might just get burnt out. You’ll see your friends getting way ahead and wonder how on Earth can they have it so good when you’re just struggling. You might even get jealous and angry.
Just know that it is highly likely that if your friend bought a $500,000 home at age 25 or a $2 million home at age 30, they probably got help from their parents. Doing simple math makes it really obvious they couldn’t have bought their property on their own.
The sooner you realize parents are helping their adult children with many of life’s largest expenses, the less agitated you will be. You must also realize that it is becoming more common for people to believe they earned all their wealth, instead of attributing most of their success to luck or help from parents.
Once you recognize and accept how society is changing with regard to wealth accumulation, you can then 100% focus on building as much wealth for yourself and your family as possible.
Gain Your Own Financial Independence
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Gain Financial Independence Through Real Estate
One of the best ways to gain financial independence is through real estate. Once you’ve convinced your parents to help you out with a down payment on a primary residence, you really should try and build your own wealth. One of my favorite ways is through real estate crowdfunding. Here are the two best platforms today.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
Both platforms are free to sign up and explore.
I’ve personally invested $810,000 in real estate crowdfunding to diversify my holdings and earn income 100% passively. After I had my son in 2017, I wanted to simplify life as much as possible.
This article is interesting, because I do feel that others resent that fact that my parents helped me. I think if you provide help to an adult child and do it responsibly, then you are setting them up for future success. My father lent me $200k for a house. I was able to pay him back much quicker than a bank. (and save the interest) However, that loan was a great start but I would imagine does not account for the $1.7m net worth I have with my husband and 5 kids at age 40! I think help is great if your adult kids are already hardworking and frugal.
$200,000 is a nice loan! At what age did he give it and what were you doing then for work?
Independent means not dependent upon others or autonomous. Simply by the act of asking parents, or anyone else, for money, the child wouldn’t be considered independent.
One would think. But that’s not why many adult children who receive massive financial benefits from their parents think, as I’m trying to demonstrate with the two examples in the post.
Handed my recent graduate $15k last year, and another $15k earlier this year.
He saved me 6 figures in after-tax dollars by applying to and being admitted to a military service academy (USA) for his undergraduate education.
Military pay is initially low so my gifts allow him to save 30% plus in his Roth TSP as well as $6,000/year in a Roth IRA…hopefully a good jump on retirement.
Like some of your other commenters, I can’t tell if this is satirical or not. From my perspective, I have never liked the idea of handouts from parents and think it’s more admirable to achieve FI on your own. If you’re already FI, what’s the point of pursuing more? But this is also because I paid for my own education and haven’t had any help from parents at all. Admittedly, it does make me a bit envious sometimes to see how easy others have it. I could never act like I bought a house when I didn’t, you know. But on the other hand, I realize that this is the hand they have been given and I would take it if it was available too. Interesting read.
Essentially the lazy man’s way to get wealthy. Even if they use their own spouse to save their own EGO!!
“For men out there who might feel too embarrassed to provide for their families, don’t be. Get your wife to ask your parents for money for you. This way, you can save your ego from taking a hit. You can also soften any of your parents’ disappointment in you.”
This is sadly pathetic.
Work hard to play hard. Not work hard to live off of other peoples’ fortunes from their hard work. What a blood sucking leach mentality.
Great article and other one that made me think when do you stop supporting kids.
A couple of years ago my Dad and I were having a conversation, and he personally thanked me and my brother for never asking for money. He told me all of his friends kids have asked for(and received) money in the last couple of years. I was almost 50 when I had this conversation and was SHOCKED. My parents and there friends are mostly upper middle class, but they are all retired and most had to take money out of retirement accounts to help them. I did realize that when comparing myself to the other “kids” that I seemed equal or a little behind. I didn’t know that they were receiving money from mom and dad to inflate their lifestyles!
This is actually a good and valid article. The fact is, many people are born into privilege and able to leverage the network and wealth by their parents to make things happen.
Meanwhile otherwise are looking for ways just to stay afloat.
I’m 30 myself and know maybe one or two people who are TRULY self-made. Everyone else had major handouts and got lucky with them as a result. For example, people getting a house they were able to sell for double the price while others were working just to stay afloat.
Or people who were given a stipend to try and get a business of the ground for a year or two. The reality is that for most people, those options are nonexistent hence the financial strategy should also be different. I myself am always wary to discuss this topic because I find that many people who received major financial handouts get really poopie-pants about it and want to validate their self-worth by convincing that they did it themselves. Whatever.
I’ve been a reader for years and this has got to be one of the best articles that Sam has ever put out there for sheer entertainment value. Three things:
1. People can and will see situations however they want to be the “hero” of their own story. Almost everyone does this. I have a good friend who lives rent free in a house that was completely paid for by his wife’s parents in Silicon Valley. They live there by themselves. He informed all of us that he does not get free housing because he contributes his labor to maintaining the house. Keep in mind that houses like this routinely rent for $6,000 a month easily. Since that’s post tax money, that’s $72,000 a year post tax, probably at least $100k, per year, pretax.
Lesson – You can believe anything you want if you tell it to yourself enough times. Absolutely anything.
2. Getting lots of money from your parents, at least anecdotally, will make you a nicer more positive person. If you do not need to strive, sacrifice, or work as hard as others to obtain the same goods and services. However, if you decide to go this route as a parent make sure that you can continue this practice throughout the life of the beneficiary. Again, at least anecdotally, when the money runs out it will hit them much harder as they did not develop the life skills to compete with others who were not similarly funded.
Lesson – It is very possible that you can influence the outlook and demeanor of your children and relatives by providing for them. But if you are going to do this, make sure you can continue this throughout their life. You are not doing anyone favors if you support them until they are 26 and then cut off the funding.
Would just like to point out that there are outliers who really can afford things on their own at a young age…There are also those who went into trades and gained 4 years of income over their peers who went to college and gained student debt. I have a friend who became a chemical plant operator in field at 18, making about $40k per year out of high school. Not sure if his salary has gone up, but if it didn’t, his total income by the time he’s 22 would be $160k. He lived with his parents during that time so all spending was discretionary. They are not (nor have they ever been) wealthy. Meanwhile if he went to college and took out student loans, he would be worth something closer to -$100k. Another guy who worked straight out of college now has his own crew and small business hauling dirt and excavating. He just built a house in New Braunfels, TX worth over half a million. Is he in massive debt? How would I know? But the point is, life isn’t so black and white and there’s no point worrying about everyone else.
True about no point worrying about other folks. Although it is fun to see how other folks are doing for self-assessment purposes.
Everything is rational in the end! If you want it bad enough, you’re going to take enough action to get it.
Sam, I have been an avid reader of “Financial Samurai” for the last few months after being referred by a colleague. Congratulations on your new addition! I am in your target demographic group (maybe a bit too old for FIRE, but not too far off) and love your blog. Certainly, I see your parody/sarcasm in the article, but also ask how you are preparing to support your children without giving them a sense of entitlement and undo advantage? All kids need to fail on their own to learn life’s lessons, but we don’t want them to fall to far…
I have 2 ½ concerns about the financial future for my high school senior daughter. The ½ concern is that she has a well-funded 529 (~$200k) that with well-earned academic scholarships will either match her needs for a private college, or have significant excess left over for a public university. We can certainly re-direct any excess as we deem appropriate, hold it for potential future grandchildren, or cash it out with taxes and penalty. While my wife and I worked our way through undergrad in the late 80’s and had fellowships for grad school in the early 90’s, those options are not as easily available for kids entering college today, so no serious regret for saving for her college, thus only the ½ concern of not making her work for it.
The first full concern is that we started a custodial brokerage account for her a while ago. As luck would have it, investment choices in her account have done quite well compared to our overall holdings. She will have ~$180-$200k available to her when she turns 21. I hate the thought of her getting this “lump sum” but don’t want to lose money in the account, nor know how to delay what has been set up. My best hope is to help educate her before she turns 21 to start her on her own journey for investment. The challenge is that teenagers can be somewhat uninterested in their parents when they are about to graduate high school.
The second full concern is bigger. With the provision for funding of the SECURE Act that inherited qualified accounts (IRA’s, 401k’s) will need to be distributed to heirs in 10 years is truly scary. While we will direct non-qualified assets through a revocable trust with good planning for distribution requirements, most of our assets post-retirement will be in qualified accounts. Obviously, we hope to live very long lives; but if we don’t, she will need to take several hundred thousand-dollar taxable distributions for a decade. If this is too early in her life it could be disastrous for her.
I know, these are undeniably “first-world” problems and concerns and I am not looking for any sympathy; I truly appreciate how blessed our family is. Thanks for your consideration and advice.
You can name a trust as the primary or contingent beneficiary of a 401K.
If she isn’t yet 18 (or 21 depending) you can take the $200K out of her custodial account and put in a trust in her name under the same spendthrift provisions but you still need a trustee to manage the funds if the assumption that both parents are gone.
The two key things about wealth transfer is transparency and education.
IANAL or a CPA. Talk with yours to make sure what I stated is correct for your state but it’s what I did/am doing for my kids.
Well mine is a little more complex…I elected to start a family LLC rather than do a trust. A little bit overkill at the moment but with a little grace (and a normalish stock market) I hope to have a nice little pot of money to carry forward for the next couple generations.
Hopefully each kid will have $200K, a condo and ownership units in the LCC that provides some additional passive income where the principal is protected for the future generations.
I still need to find a corporate trustee I like.
‘Nona’s comment is very insightful. She has shown that it’s not that hard to achieve financial independence with three kids, nor is it hard to afford your 4th rental if you can politely ask for money from your in-laws’
Sam, this sounds a bit bitter, doesnt it? Situations are always more complex than you think.
We helped out the inlaws with a loan of similar value 10 years ago, when they bought their appartment. We re talking about some 10000€ s, not a million. Thats silly! We re financially independent, not rich like most of the people reading your blog. I m sure your hottub costs more than that. Hell, I m sure your new house costs more than our 5 properties together!
Beeing financially independent is not about how whealty you are, its about what you do with your money. Its a state of mind.
It feels as though people dont believe in your accomplishments, as soon as they hear you got some help from family.
So our family works like this: you need money and we have it? Ok, we ll hapilly lend it to you! And if we need money and you have it? Ok, we ll be happy to accept the same loan.
I never said it was easy to become financially independent with three kids.
Hope this helps to put things in perspective,
Nona
Hi Nona, I don’t think my response sounds bitter. I think it sounds hopeful.
For the past several years, I’ve struggled with believing maintaining financial independence with kids is possible, given how much work it takes to take care of young children and the cost of raising them here in San Francisco.
I shut my mind off to the financial help from my parents and decided to come up with an Early Retirement Master Plan. But this master plan is going to take so much work that I feel that perhaps during my time of exhaustion, it’s better to just ask my parents and my in-laws for whatever remaining money they have left. I feel bad doing so, given they are retired and should enjoy the fruits of their labor, but your example and other examples have given me more some courage.
Like I said in my post, we get no extra brownie points for achieving financial independence ourselves. So I want to thank you for giving me the courage to ask for help. I haven’t gotten there yet, but maybe when things get really painful.
Without your comment, this post wouldn’t have been created. Nor would my follow up post: A Real Estate Goal Every Investor With Kids Should Consider
Please keep your comments coming! All thoughts and ways of life are welcome on FS so we can find better ways to achieve FI!
Hi Sam,
I agree with this strategy under two conditions. First, the children must be financially disciplined. Second, the money given by the parent must be small percentage of their net worth.
Nona asking for a loan for her 4th property demonstrates her financial abilities.
Leanna parents are getting great ROI on both the money invested in her education and the annual gifts to her.
Unfortunately, I have seen situations where the children are not financially disciplined. The parents must continue to provide money to keep the kid’s head above water. It can become a never ending cycle of gifts. Additionally, it can put a strain on their relationship.
I recently published my own post on gifting money to children.
Gifting money to children makes perfect sense under the right conditions.
lol @ nht who:
1) maintains that the advantage of someone with a Leanna-type background over someone whose parents made $32,500 is minimal
and
2) thinks that a “successful” individual whose parents funded their entire early adulthood is just as “self-made” as someone whose parents didn’t (and if you think otherwise you need to “get over yourself” and stop patting yourself on the back)
yet will still
3) brag about their kid being a normal person and joining the workforce after college instead of burning cash on an international trip like it’s something special.
Sorry you didn’t have rich parents to give you stuff when you were younger. Neither did I but it didn’t make me bitter.
But to recap:
1) just being born in this country is a huge advantage that dwarfs pretty much everything else.
This is a sufficiently large advantage that folks are willing to risk death to get here.
The poorest 20% of this country has higher consumption per person than the average consumption of all the citizens in many OCED countries.
2) the differences in all that “funding of early adulthood” you bemoan is minor. A private mid grade university vs a public mid grade university. Impact to salary is minimal.
A fancy wedding vs a simple wedding.
Picking a major and career based on desire rather than ROI. That’s a nice one but if you FIRE by 35 you can put up with a high ROI career till you are FI and can go do what you like.
It’s sure nice to have some of these luxuries but at the end of the day it’s not anything that keeps someone from success or automagically makes someone successful.
It’s all still dwarfed by just being here in this country.
While my family was on the lower end of the financial spectrum it wasn’t as poor as my cousin’s because my parents had education.
My cousin and his wife worked restaurants and cleaned hotel rooms. And yet their daughter went to Princeton. Daughter of a dish washer and cleaning lady goes to one of the top private universities with all the rich and famous kids.
This is why folks are willing to risk death to get their kids here and why all the advantages of a “Leanna-type background” you are so jealous of is just noise in comparison.
As I said in another post the rags to riches story isn’t just possible here but common.
It’s really not until you get into mid to upper end of the VHNW category that the money advantage eclipses the pure advantage of just being in the US.
And many VHNW families go from shirtsleeves to shirtsleeves in three generation so the advantage is transient. Even UHNW families can fail to hold wealth.
3) While I grew up in a poorer neighborhood, my kids are in a HCOL area with great schools and affluent school mates. It’s real easy for these kids to think money grows on trees.
So yes, as I said, it’s a wonderful acknowledgment that your adult child has learned delayed gratification and some level of frugality. They passed the marshmallow test as an adult.
Not eating the marshmallow because you didn’t have any doesn’t mean you passed the test…it just means you never took the test.
That you don’t get that isn’t a poor reflection on Leanna or me but a poor reflection on you.
I’m not bitter, nor am I jealous. I simply pointed out the lack of awareness of somebody who was handed almost everything in life to make statements like, “I was able to save $100,000 by the age of 25 and so should more recent college graduates if they work hard and diligently save.” And then you made this conversation all about me (more accurately, your assumptions about me). Have a nice day.
This whole article made me prickly like cactus, and I will wholeheartedly admit that I discount people’s stories of greatness when I know their parents provided above and beyond into adulthood. Maybe I’m a bit jealous, or simply know that it’s easy to be smart when you have funds to fail with.
I grew up with a single mom in an affluent town, and worked since I was 14.5 to support the extras like drivers school, a car, insurance, and clothes that I really wanted but my mom would not buy.
She let me live at home “rent free” when I went to college. I took out student loans and worked during school. I did not seem to find the joy the other kids had in college. I wasn’t attending parties or going on trips. I was under a huge amount of pressure and stress.
Fast forward 22 years, and I own 5 rental properties and have mortgages on them all. I still have student loans that I defer from time to time to pay for a surprise rental expense or non paying tenant. Sometimes I carry balances higher than I should on my credit cards because I simply need the float for whatever reason. All in all, I’ll be ok, and should get to retire. My mom passed away when I was in my second year of college and I needed to assume her mortgage. I left school to do so, and didn’t finish my degree until I was 30.
I never sold my mom’s house as I made a committed to hold onto something my mom struggled to keep during her illness.
Am I fortunate? YES! Do I work, stress, and sometimes get annoyed with those who appear to have it eay? Yes!
My circumstances gave me grit, and my accomplishments are intrinsically felt. So are my failures.
Being self made is pretty easy to define. Did you sacrifice? If your investment didn’t work out, would you be homeless*
Sorry for the rant, but these stories of sacrifice while parents give 15k a year gifts make me want to vomit.
Yet according to some — like nht, whoever he/she is — the difference in advantages between you and someone who gets $15k a year from mommy and daddy is negligible.
“Affluence—not willpower—seems to be what’s behind some kids’ capacity to delay gratification.”
The marshmallow test was debunked (see The Atlantic, June 1, 2018).
The flaw in executing “Gain Financial Independence By Depending On Your Parents For Money” as financial strategy is the human’s nature.
Most of you have “never have enough” mindset. If your parents have deep pocket, you will become addicts to their money.
In turn, You will never achieve Financial Independence because money becomes the Conditioned Stimulus (as in Pavlov dogs experiment).