Children are expensive. The more you love your children, the more expensive they will likely be. Therefore, you should have a net worth goal before having children. This way, you can provide them the world without getting overly stressed about your finances.
You will want to give your children the best of everything, which can sometimes cause you to go overboard. The more you can strengthen your finances before having kids, the better.
Now that I’m a 45-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 ~$1.8 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 Before Having Children
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 In Having Children
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 When Deciding To Have Children
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.
Related posts about having children:
The Average Net Worth For The Above Average Married Couple
When To Have More Children Based On Logic And Heart
The Cost Of Having Many Children Isn’t Just The Money
How To Get Into A Great Preschool Or Private Grade School
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One thing that I personally am considering when it comes to having children is how satisfied I would feel if I put all of my time, energy and money into having a kid that turned out to be a less than stellar adult, if I were anything less than financially independent in my older age. Meaning, if I were financially independent or at least close to it by the time I have a child (with a very high level of certainty that I ultimately would be, if not), then I would be much more okay with having less than stellar adult children because I would feel like I at least accomplished something in life; not that money in and of itself is an accomplishment, but it is likely a result of being successful at something along the way or over the course of your life.
We can’t even save $1k annually because of school debts, car debts ($12k modest used car), both working full time, guess having children’s not in the cards. Not everyone’s VP’s working in finance, buddy. I wonder what % of the population (in the USA mind you, not mentioning other countries where it’s much more difficult) earns enough to even save anything after just the cost of living and taxes. If everyone only had children based off of this, the population growth would be much less, which might be a good thing.
When you factor in your NW requirement, do you factor in things like equity in your home and equity in your business, or is it just straight savings?
We did not have any net worth goals before we decided to have our beautiful daughter… luckily, I was able to get pregnant & deliver at 39 without having to resort to expensive infertility treatments / procedures! Whoo! To be honest, feeling financial stable or having a steady cashflow was always a concern. My husband and I don’t have family here so daycare would have been another concern once we had her! 2x-3x our income would have been a good plan.
Living in Honolulu, my personal goal for the family was to buy a home/condo. We were renters for many years in affordable housing, but I always dreamed we’d get a piece of the pie ‘cause it’s so worth it to own real estate in the islands if you find property that works! (And we live not far from downtown)
Glad we bought a home, but steady cashflow keeps the peace at home. Our first year was rough as new parents and me having to stop work….being self-employed is having to plan way more for life changes if you bring in some of the $$.
My husband and I really have to work as a team financially and emotionally so this works. I’ve seen people with lots of net worth get into trouble for other reasons… but that’s another topic altogether. We have a friend who was stressing out big-time over his pre-nup before he got married… so not enough or too much is all relative. We are just so glad we had our daughter, even though we weren’t the best planners. And life has settled down a bit so we can focus on becoming FIRE.
The $250 number you reference is for the first child. The cost of raising children decreases with each child. There are several articles on that topic. I’d love to hear your thoughts on this. We’ve found the cost of childcare basically stays constant once you reach 3 kids. So now at 4 kids, I’m not “losing” any more of my income.
Reading how much you enjoy spending time with your son is fantastic.
Makes sense that there are cost synergies with multiple children, but you would know more than me since I only have one kid. There’s a lot of variability with how much you can and want to spend on kids. The sky’s the limit really!
Glad the cost of childcare has stabilized for you!
I’d like to point out that from the female perspective, it actually makes more sense to have children earlier, rather than trying to hit a net worth goal first. This is primarily for two reasons:
1. Having babies later and potentially needing fertility help can end up costing a lot in terms of time/money/mental health.
2. Stepping back from your career in your late 20’s/early 30’s may have less of an impact on your earning potential than stepping back in your 40’s.
I believe the ideal timing is to work for 10 years first (save up, acquire skills that people will pay you to use from home or part time), have babies relatively early (stepping back if necessary or desired), then get back into it before 40. Not coincidentally, I had my first child at 29, second at 30, and third at 32. So I didn’t quite hit 10 years working before kids, but we did hit $1M net worth by 35 because of the money I had saved up early on. Like the poster above, I’m also an engineer and was hooked on saving because of a Calculus professor who made me learn about compound interest when I was 16.
I found this to be a provocative post! I had my older daughter when I was about to turn 34. At the time, my wife and I had purchased an apartment and were both doing a good job funding our retirement accounts and paying down our student loans.
But we were focused on cash flow and not really thinking about net worth (a mistake, in retrospect – what gets measured gets improved). But becoming parents was what really spurred us to take action with our finances; by the time we had our second daughter, I was 37, and our net worth was at 3x our gross income.
Having kids should be based on a few intangibles:
* You’re in a loving, stable relationship.
* You have a decent income stream (decent being relative to where you live and what your
expenses are). Or are committed to obtaining a decent income stream.
* You want to have children.
Part deux (ideal but not required for success to start a family. Required for success later)
* You have eliminated credit card debt and have some money saved in an emergency fund.
Establishing goals for net worth, salary, etc. are irrelevant. You can attain these along the way adhering to a disciplined plan with your partner.
A rigid set of goals to attain prior to having a small human misses the point, which is living your life. As the immortal Bruce Lee said in Enter the Dragon (1973 Warner Bros co-starring John Saxson and Jim Kelly, directed by Robert Clouse):
**scene is Lee providing a kung fu lesson to a student. Student is not comprehending Lee’s instruction on kicking**
“Don’t think! feeeel! It’s like a finger pointing away to the moon. Don’t concentrate on the finger or you’ll miss all that heavenly glory!”
Translation – don’t focus on the small things or you miss out on life. If you’re in love and want kids, have them. Chances are they will inspire you to achieve more.
These are all good goals that everybody will agree on. But they are also all fluffy goes with no concrete ways to measure. If you know how, let me know! As this is a personal finance site, Logically using money as a measurement.
Im not sure I’d qualify the goals as fluffy. Its the principle as opposed to the number that matters. If a person establishes a budget, spends less than what they earn, carries no consumer credit, and has a job that provides an income, I’d speculate they are stable enough to have a child. I cannot put a figure into the equation. They have demonstrated money skills and behavior that can support a family. It may not be easy for years, but it should not deter people who want a family simply because they have not attained (x) amount of wealth or assets.
If they maintain that money behavior over time they will do well. Defining what doing well means is a moving target depending on the person. For me would it be an emergency fund, no car loans, funding tax advantaged accounts at 15% or more, paying off your mortgage early, funding 529 plans, and doing so for the long term (20 – 30 years).
If someone is debating kids but they spend every dollar they make, have $45,000 in credit card debt, or owe $35,000 on a car, and are prone to gambling or drug use, hopefully they stop there. Get your house in order prior to embarking on parenthood.
There are no monetary figures you can come up with or algorithms you can develop indicating you are now ready to have kids. Develop disciplined behavior with money and you are ready for the long haul. That is my point distilled down.
Be well,
Jeff
There is a reason to have children earlier — it is easier when you are younger. It took us 3.5 years to get our beautiful baby boy with experiences we could write a book about. We started seriously trying when my wife was 35. At that point we felt financially secure and mature enough to raise another human being. However, given what we went through, we would have tried earlier would we be able to have another go.
Not too many people realize how common infertility problems are. Three quarters of our closer friends have had at least some level of problems. All tried (and fortunately finally did) have a baby starting at ages 32 to 36.
The point is that there is a great downside on getting kids later. You take a gamble between financial security and your ability to get a baby in the first place.
I agree. Which is why I feel the ideal age is 32 to have a baby. If the ideal age is 32, then you need to be trying at around 30 years old As it takes on average eight months to succeed if you have no infertility issues, and often years if you do.
>Given I believe the ideal age to have children based on biological and economic reasons is in your early 30s
If you’re a male, maybe… female fertility declines dramatically after 30.
The reality of having kids is that it’s never “the right time”, but at least for females it’s almost always going to be better to have them sooner rather than later. This obsession with chasing your career and chasing money and having a million dollars before you have child, which is arguably the most important thing you’ll ever do in your life… I dunno, it’s just sad.
Sure, don’t have children if you can even afford to live on your own. But waiting until you’ve accrued some semi-arbitrary amount of wealth, especially something absurd like a million dollars, good God… you’ll be waiting forever for that.
Interesting take on how much to have before kids. I think it depends a lot on where you live. Some places you may need a $1 million. But in many places where the cost of living is low, you don’t need much at all. Or if you live in a country where there are lots of social programs and parental support, you’re probably won’t need a $1 million.
I also think that kids are expensive if you agree to pay for their BMW and tuition, but I don’t believe that’s good for the kid. Why would you bother working hard if the bank of mom and dad are just going to pay for everything? That just distorts the value of money. If I end up having kids, I’d definitely want them to have skin in the game. If they want a car, they’ll have to work and pay for at least 50% of it. Ditto with tuition. I don’t think I would’ve worked as hard or become as employable if my parents had just paid for my tuition.
As for “Imagine how traumatic it might be for your child to be removed from a safe and familiar environment.” Again, it depends on your personality as a parent and your kid. I’ve met many World Schooling families on our travels who believe familiarity is overrated and exposing their kids to different cultures and languages is a good thing. They believe in teaching their kids to solve problems and challenges early on in life, and having to adapt to their changing environment is a big part of that. As a result, some of these kids are the most precocious people I’ve ever met. They start their own online business, coach other kids, speak multiple different languages, etc, etc. I love these out-of-the-box thinking type of people.
So though it would be nice to save $1 million before having kids, that’s largely dependent on where the reader lives and what type of parent they plan to become.
I love the idea of slow traveling with kids and living in a particular country for 1 to 4 years at a time. I’ll publish a post about this in the future.
The disruption is more about having to move In the middle of the school year, or having to move to a different neighborhood and a different school because of finances or what not Unexpectedly. I grew up living abroad and moving every 2 to 4 years. It was tough to move, but it was easier because I expected to move.
Great perspective Sam. Here was my favorite line: “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.” The same goes for grandchildren, I expect.
On the whole, I don’t resonate with the idea of waiting for a certain net worth before having kids. I think it can cause people to wait until too late — when you might miss your opportunity to have them at all. My wife and I had our first child at age 27 (before finishing graduate school), following by subsequent kids at ages 30, 32, and 35. It hasn’t been until recently that we’ve felt financially secure. But we’ve always had enough and we’ve made it work. The kids don’t have a good sense of whether we’re rich or poor, I don’t think.
If you’re a career oriented person, like most readers of this blog, there’s no perfect time to have kids. I’d advocate for having them when you can, with a person that you love, while you’re still young and able, and then you’ll make life work around it.
In other words: family first, finances second. Too backwards? :)
It’s really great you had the belief and not so much worried to be able to provide. I don’t know, I saw so much suffering growing up overseas with so many family struggling to provide for their kids that may have permanently scarred me into wanting to be a stable provider.
I’m very cautious when it comes to big life changes because so much is at stake.
Interesting! I don’t think my wife and I ever seriously contemplated the scenario of not being able to provide for our kids. I always just figured that worse case I’d have a job that would pay for them, and/or they would be fine if we raised them with lower financial means. Maybe that was naive, I’m not sure. I would probably have a different view if I spent time in Malaysia like you did as a kid.
We probably wouldn’t have had a 3rd or 4th kid if we weren’t succeeding financially. So the ability to provide does play a factor.
Here’s a question to contemplate: if you never got your job in finance and never got to $1M net worth (impossible for the financial samurai, I know!), but imagine that’s true: would you recommend against having kids at all? For me, no way Jose! I’ve always wanted kids, even if my financial outcome were worse.
Great article, in any case. FS Jr is in good hands and has a bright future.
Now that I have a kid, I do believe children are one of the greatest joys in life. But I don’t know if I would feel secure enough to have one if I didn’t meet my net worth goal.
I just witnessed too much suffering by kids when I traveled for work and lived overseas to create one of my own. I think I would’ve been more inclined to adopt, which I have thought about since I was in high school. From my perspective, even though I didn’t have the financial means, at least I could provide love.
I’ll stick to the 2 to 3 times annual gross income as a net worth target in this post before folks should have kids. Some parents manage better than others, but I think for the sake of the kids, having this minimum financial foundation is important.
All good thoughts! Keep on writing on these topics!!
I don’t necessarily think you need a million net worth. You could have a million net worth (be house poor) and have poor cash flow. I think a million nest egg is reasonable. I do agree working at least 10 years out is good before having kids. I am about 70% towards 7 figures (just me not including husbands net worth) and I feel like I would have liked more before having kids but my biological clock was ticking!