Children are expensive. The more you love your children, the more expensive they will likely be. You will want to give your children the best of everything, which can sometimes cause you to go overboard. Hence, I suggest having a net worth goal before having children. This way, you might save your family from financial stress and perhaps save you marriage as well.
Now that I’m a 43-year-old father of two young children, I’ve been reflecting on whether the financial goals I set in my 20s were necessary in order to have children. I have a couple of friends whose families were ruined because they were always under monetary stress.
The average cost to raise a child is around $250,000 from 0 – 18 years old. In an expensive coastal city, you may have to budget closer to $1,000,000 for the first 18 years. If your kid goes to college for four years, add on another $100,000 – $400,000.
Further, if your kid expects you to pay for their BMW and starter home as an adult, you’ve got to add yet another $200,000 – $2,000,000!
A Net Worth Goal Before Having Children May Be Necessary
I knew all the statistics regarding the cost of having children before I had children. Living in San Francisco, where the median-priced house is now ~$1.6 million, requires a health income and solid net worth.
The last thing I wanted was to have children and feel financially strained every day. Further, I didn’t want to have children and still have to work 60+ hours a week and travel a lot for business.
As a result, here were my goals before having children:
- Have a $1 million net worth
- Own a three bedroom, two bathroom house in a safe neighborhood
- Be in a stable career by age 30 or at least be on the right track
I clearly remember having these goals because a buddy at my first job told me about his $1 million net worth goal before having kids. He was a old 24-year-old first-year analyst at Goldman Sachs because his parents had held him back one year. He’d gone to an expensive prep school and then attended Yale.
To him, he needed at least $1 million before feeling ready to be a dad because he wanted his kids to go the same educational route as he – prep school, private university.
As for me, I didn’t know exactly what I wanted. All I knew at the time was that I had a chance to make a good amount of money through my career if I survived the finance industry.
As an impressionable young man who lived in Manhattan, a net worth goal of $1 million sounded good to me, so I went with it.
Too Aggressive A Net Worth Goal
Because I had a $1 million net worth goal, I logically focused on my career, saving, and investing. There was no time for family.
I don’t remember ever once thinking in my 20s that I wish I had a kid. All I thought about was how big my year-end bonus was going to be and whether or not I was on track to get promoted to Associate, Vice President, Director, and finally to Managing Director (MD).
Despite all my focus on climbing the corporate ladder, I never got to MD because I worked in a satellite office. The head of my desk worked in New York City and wasn’t even an MD. Instead of relocating to Hong Kong or New York City and then waiting for years, I decided to leave as a third-year Director at age 34 with a severance package.
Now that I’m a father, I think how crazy it would be not to have had my son. I wish I hadn’t focused so hard on my career so I could have had him sooner – ideally three years earlier.
Given your kid will be one of the people you love most in your life, you will naturally wish you had him or her for a greater percentage of your life.
Too Much Delay
My aggressive net worth goal was one reason why I delayed getting married until I was 31, even though I knew my wife since I was 22. Before 31, I didn’t feel financially stable enough to support a family, especially if my spouse decided to be a stay at home parent. There’s no way I wanted to go into a marriage without a strong feeling of financial security.
At the age of 28, I had assumed a massive $1,300,000 mortgage because that’s what it took to finally buy a three bedroom, two and a half bath house in San Francisco back in 2005 (goal #2). As a second-year VP, I had also taken on a lot more client responsibility, which meant a lot more stress to perform. Then, of course, the financial crisis hit me like a tsunami.
But it’s funny because we got married right in the middle of the financial crisis at the end of 2008. I figured I had waited long enough, and losing lots of wealth made me want to hold onto the very person who was there since the beginning.
The memory that sticks out the most from the financial crisis is our 16-person wedding party on our favorite Oahu beach.
Have A Reasonable Net Worth Goal Before Children
Looking back, having a $1 million net worth goal before having children was completely unnecessary. My parents raised my sister and me just fine without being millionaires. Why the hell did I ever think I needed $1 million to be a competent father?
Answer: Peer pressure and the high cost of trying to achieve a middle class lifestyle in an expensive city. Be careful about letting other people’s lifestyles influence your own, including mine!
That said, I do believe having your financial house in order is important before having children because raising a child is truly one of the hardest things you’ll ever do. You’ll be constantly tired, worried, and stressed. You’ll lose your “me time,” and some romance.
Plenty of couples divorce after having kids, even though they know happily staying together is best for the people they love the most. Think about that folks. They couldn’t work out their differences for the sake of their children, even though they love their children more than anything in the world. Relationships take work!
Combine Biology With Finances
I believe the ideal age to have children based on biological and economic reasons is in your early 30s (32 to be exact). Therefore, let’s look at my handy-dandy net worth target by age chart to see what a more practical net worth target should be before having children.
If you have a baby between the ages of 30-32, I suggest having a net worth of between 2-3X your gross income. If you want to have kids sooner and can still accumulate 2-3X your gross income at a younger age, then great.
For those of you who end up having a baby later, at least you can find comfort in a potentially higher net worth. As older parents, not stressing as much about money and your careers can really be very beneficial for a happy household.
Net Worth Examples Before Having Children
Let’s say two of you make a combined $100,000 a year and live in San Antonio. You’re both 31 years old. Having a combined net worth of between $200,000 – $300,000 will give you some breathing room in case one parent wants to take a three-to-five year break to care for the child before pre-school or kindergarten. The median-priced home in San Antonio, Texas is $205,000.
Let’s say two of you make a combined $300,000 a year and live in San Francisco. Both of you are 35 years old and really want to have a baby within a couple years. Having a $1,500,000 net worth (5X household income) may sound excessive, but maybe not given the median-priced 3/2 home with a backyard costs $2 million. Then there’s $24,000 a year for preschool to consider.
If you’re a single parent making $250,000 a year and live in Manhattan, having a $500,000 – $750,000 net worth might be necessary because you will need to hire a lot of help. It’s either hire help or ask your parents for free support. The median-priced condo in Manhattan is $1,300,000.
Want more than one child? Then continue to follow the gross income multiples in the chart. If you just don’t feel fiscally responsible enough to have a net worth target before children, then consider moving to the heartland of America where the cost of living is so much more affordable.
Geoarbitrage is a great way to make your dollar last longer. Thanks to the rise of th work from home trend, geoarbitrage is more possible than ever.
Financial Stability Is Key
Having a child helps crystallize the value of homeownership even more. When you have a child in school, you don’t want to be at the mercy of a mercurial landlord. Imagine how traumatic it might be for your child to be removed from a safe and familiar environment.
Now that millions of us are staying at home more often due to shelter-in-place, the intrinsic value of your home has gone up even more.
Having money and a house is all about stability. The more stable your environment, the less likelihood for conflict and divorce. Money will always be one of the top stressors in a relationship. But an overall lack of stability will inevitably torpedo even the strongest bond.
You most certainly can rent and have a lower net worth before having children as many people do. I’m just trying to provide a financial guideline to help give couples who want children a better chance to survive the chaos.
Providing for a family and being a present parent is already hard enough. Let’s not add excessive money worries into the equation.
Coming up with a net worth target before having children can be fun and extremely motivating to build wealth. Before having children, at least talk about your financial plans with your partner. Your children desire financially responsible parents.
Recommendation To Build Wealth
Manage Your Money In One Place. Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better net worth tracking, run your investments through their award-winning Investment Checkup tool. It will show you exactly how much you are paying in fees.
After you link all your accounts, use their Retirement Planning calculator. By pulling in your real spending and saving habits, you get a great estimation of your financial future. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time. Stay on top of your finances!