A commonly-repeated statement in the FIRE community is that financial independence is only possible without the burden of children. But the myth that you can’t retire early if you have kids simply isn’t true.

The FIRE movement is saturated with the voices of millennials, most of them single or double income, commonly with no kids. Families are under-represented such that it’s often thought that it’s impossible to reach financial independence with children.

It’s no surprise - kids are expensive. No one in the history of mankind has ever gotten rich simply by the virtue of having children.

Needless to say, there are many more important things in life than pursuing financial independence. If we don’t take the time to experience the joys of life in our youth, then what’s the point of life itself? For some, that might mean a life well-travelled, reaching a certain point in their career, or establishing a passion project. For others, it’s the experience and enjoyment of having children.

There are many components to consider when factoring children into your life. This chapter will focus on the financial component and how to adjust your plans to reach FIRE! We'll focus specifically on:

• Changing mindset with kids in the picture
• How much children cost
• The big impact on families' budgets
• Expenses for kids
• Each family is different
• Ideas to save money
• Impact of raising kids on FIRE
• How to achieve FIRE with kids
• Enjoy the journey

Changing mindset with kids in the picture

One of the biggest differences in pursuing financial independence with kids is the big shift in mindset.

As parents, our top priority is to make sure that our kids are in a safe, loving environment that allows them to thrive. It’s no longer just about you; it’s about what’s best for the family. Kids are little humans that have their own needs and wants. You’ll now have to balance what they need to succeed against your own personal goals.

FIRE can still remain a priority, but it won’t be the only priority.

I’ll be very blunt: if your sole focus is to achieve FIRE, then having kids isn’t going to be the best financial decision. Kids cost money. They may not cost as much as a mansion in Double Bay, but the outlay won’t be zero either.

You might also find that you’ll start making decisions that are at odds with your FIRE goals. Your appetite for risk may be diminished. You might find yourself wanting to spend more time at home rather than at work, even if more money was on the table. This might affect your progress to FIRE. But it could be a trade-off you’ll gladly make if it means that you’ll have the opportunity to create more happy memories with the family.

Having kids is an immensely personal decision, and this book isn’t the right place to talk about the advantages and disadvantages of having offspring. There are many factors that go into the decision to have kids - money only being one of them. But if you do decide that kids are going to be part of your life at some point, then you might want to consider how you’d go about achieving FIRE with them in the picture.

How much children cost

In 2018, the Australian Institute of Family Studies (AIFS) estimates that a low-paid family’s budget would come up to approximately $1,173 a week, or about $60,996 a year.

Chart produced using data from the Australian Institute of Family Studies (AIFS)

According to the researchers, this figure represented items that were ‘necessary to guarantee that all family members could achieve a full and healthy life, albeit one that involves a minimal level of outlays’.

The breakdown of costs depended on the child’s age, and how many children the family had. A six year old girl would cost about $137 per week. Costs for a ten year old boy were $206 per week. Families with two children would benefit from efficiency in scaling, with the budget for two children (minus the parent’s cost) coming up to $340 a week, or $17,680 a year.

This is a generalisation of course, and may not be representative of your personal circumstances. But there is plenty of anecdotal evidence that the costs of raising children vary quite widely, and can be significantly higher than benchmarked in this study.

The big impact on families’ budgets

The cost of care in the early years

Many families have reported that the biggest expense, next to their mortgage, is the cost of childcare. This is no surprise. Young children who are not old enough for school require full-time care. Unfortunately in Australia, there is no publicly delivered early childhood care (unlike the formal school system).

Some parents may choose to outsource this, paying hefty childcare fees to long daycare centres or other care providers. According to a 2018 Mitchell Institute report, the median weekly out-of-pocket cost for formal early childhood care came up to $154 per week ($8,008 per year). In some places, this is more than the cost of sending a child to a private primary school. It’s not uncommon to find childcare costs ranging from $90 to $150 per day (before rebates) in expensive cities like Sydney and Melbourne.

Families who prefer not to put their children in care will still have to pay the cost of childcare, though this is experienced through the loss of income. One parent may have to take time off work, either temporarily or permanently, to look after the children. A family may find themselves living off reduced income for years, depending on how many children they have, and the length of time between kids.

Impact on careers and future earnings

The parenthood penalty does not end after the child goes to school. The primary carer (typically the mother) may also face the ‘parenthood penalty’ in the form of reduced super balances. And then there’s the wage gap (estimated at 7% in a Workplace Gender Equality Agency report) when returning to work after taking parental leave.

Those who spend a significant time out of the workforce also report some difficulty in re-establishing their careers when they try to return. Some may never get back to earning what they used to before having children. This could be due to various factors; the most common include returning on a part-time basis, or no longer wishing to climb the career ladder in favour of reduced responsibilities and more time with family.

Housing and schooling

These two are related mutually because the old adage about real estate (location, location, location) applies to both. Due to strict school zoning rules, parents may find themselves having to pay a premium to buy or rent in suburbs with sought-after schools. Some parents may find it cheaper to stay where they are and shell out the extra for private school. Conversely, families with multiple children may find it cheaper to pay the housing premium so that their kids can go to a highly reputable public school.

Housing can also be a pain point the more children you have. Whilst a two-bedroom apartment may work fine up until primary school, it’s a different story with teenagers who will need their own space. Given the high cost of housing in Australia, you will need to weigh up the costs of settling in a property early for the long haul, or moving only when the need arises.

Expenses for kids

Basic expenses

Just like adults, kids’ expenses can be categorised as discretionary and non-discretionary.

Non-discretionary costs are fairly standard across all families. Kids need food, clothing, and shelter, and care. To a certain extent, families can reduce these costs simply by making frugal choices. We’ll cover this a little bit later.

Your basic costs will also increase over time. It’s probably obvious that things like your grocery bill and utilities will increase. The cost of transport could go up as well, if you have to upgrade your vehicle to fit the entire family.

On the other hand, discretionary costs are highly variable. It’s impossible to predict how much a family can spend on their kids. Some families can spend close to nothing, and others can spend a few thousand a month! It really depends on the kids’ interests and what the family is willing to spend.

For example, you might have a budding musician on your hands - and so you may choose to pay for music lessons, state or national competitions, instruments and the like. All of which may amount to thousands of dollars a year. Or your child might be interested in an activity that overall, may only cost a few hundred a year with change to spare.

We touched on schooling earlier - and to an extent schooling can be as discretionary as you like! Education might cost nothing in public school (except for school uniforms and books) or run in the tens of thousands in fees for a private education.

For a child, birthdays and celebrations are the social highlights in a year. You might be able to control how much you spend on your own child’s birthday, but then there are their friends’ parties that they may want to attend (and buy a gift for)! There’s also the cost of holidays, or special occasions that you may want to indulge your kids in.

The not-so-obvious costs

The added complication with children is that as they grow, their behaviours and interests change. What may pique their interests today may not be so next year. Then there’s the unexpected - stuff that even you may not have thought you’d need to prepare for.

For a child, birthdays and celebrations are their social highlights each year. You might be able to control how much you spend on your own child’s birthday, but there are also their own friends’ parties to attend. You might have to make some decisions about how many parties and gifts you can reasonably pay for before it starts getting too much.

Busy parents may also find themselves paying for the cost of convenience without realising it. Parents strapped for time may end up choosing the easiest or quickest option, rather than the cheapest when it comes to all sorts of daily needs. That might be ordering takeaway on evenings when both parents are too exhausted to cook, or opting for a cleaning service in order to catch up on precious sleep.

Kids get sick an incredible amount of times. Apart from medical costs, you may also have to take time off work to look after them - which may cost you money.

Aside from the usual illnesses and maladies that plague many a kid's childhood, sometimes life might drop you a curveball. Unexpected medical expenses may turn up, lasting months or years. Unfortunately, you’re going to have to roll the dice with this one unless you have a highly reliable crystal ball. Luckily we have universal healthcare in Australia, but you may still be up for some out-of-pocket costs.

Each family is different

As you can probably already guess, the cost of raising kids varies widely. It’s inherently difficult to plan right down to a tee how much kids will end up costing you. The best one can do is to estimate and refine as you go.

There is no right or wrong answer with kids’ expenses. Like all things FIRE, it comes down to what you value, the cost you are willing to pay, and the benefit you get. It is really no different with kids, though it will now be a more complex decision. Because you will also need to consider the child’s interests, and balance out the cost to you, with the benefit and enjoyment that the child gets.

It’s also important that you tread your own path. Each family will have their own priorities, which could be vastly different from your own. Parenting is already a tough enough gig without adding this whole FIRE business to the mix. Do yourself a favour and use your own values as your benchmark, instead of comparing yourself to others.

Ideas to save money

Whilst kids might cost an arm and a leg, there are many ways to reduce the cost. Here are some ideas to help you save some money while raising children:

Food

• Breastfeed babies if possible. Not only is it free and convenient, but it also provides babies with antibodies to fight off infections.
• Cook at home instead of eating out. Kids eat a lot!
• Take advantage of ‘kids eat free’ promotions if you do go out. When kids are young, consider sharing your meal with them rather than ordering their own portion. Not only will it save you money, it will also help to broaden the child’s palate.

Clothing

• Buy clothes second-hand instead of new. Kids grow at an alarming rate; what fits today will most certainly not fit in a few months’ time!
• Use cloth nappies as an alternative to disposables. It might be a bit more work, but it could save you some money. And it’s also kinder for our planet.

Equipment

• Consider getting these items second-hand: cots, prams, change tables, kids’ furniture. They’ll only be used for a short period of time.
• You can also buy used car seats. Make sure that it meets the AS/NZS 1754 standard, is not more than 10 years old, and has never been in an accident.
• If you must have a baby capsule, consider hiring instead of purchasing. Most babies will grow out of capsules by the time they are 6 months old.

Entertainment

• Toys and entertainment can be bought cheaply second-hand. It’s fairly easy to find used bikes, mud kitchens, cubby houses on classified sites like Gumtree. Like clothes, kids grow out of toys quickly too, so it might be more cost-effective to buy used instead of new. The same goes with technology, teenagers don’t need the latest phone or tablet. An older model will work just fine.
• Be creative with activities! Younger kids are often just happy going to the local park or the beach for the day. Save expensive trips (like Disneyland) for later when they can remember it.

Childcare:

• If you have family who are nearby, ask (nicely!) if they are willing to provide some care for your kids, and pay them accordingly. Depending on what you pay for formal childcare, this could save you quite a bit. The grandparents may enjoy the extra time with the kids too.
• Utilise your employer’s flexible work policy, if it exists. For example, you could ask for flexible start and end times to allow you to do the school run. Or you could work a compressed week (40 hours in 4 days rather than 5), giving you a day off to spend at home.
• Consider saving up annual leave prior to going on maternity or paternity leave, and using it creatively. Perhaps on your return to work, you could take a day off each week (rather than taking a whole block at once). This would give you 4 days of work but you’d be paid full time.

Impact of raising kids on FIRE

We’ve talked at length about how much kids would add to a family’s bottom line, so I hope you haven’t been scared off kids (and if you already have kids, it’s far too late to back out!). But I want to stress this again: the cost of raising children should never be the deciding factor when choosing to start a family, or when pursuing FIRE. If it is, then don’t have kids.

Here’s the good news. You can absolutely FIRE with kids.

It just takes a little longer.

How much longer it takes depends quite a bit on your anticipated expenses and your savings rate. For example, let’s suppose that the minimum cost to raise a child is $203 a week (based on the AIFS data) for a minimum period of 18 years. This means the total cost of the child will be $190,008. Let’s also assume that you think you’ll be able to put aside $2000 in savings each month.

Courtesy of Physician on FIRE’s Time to FI calculator, the results are below:

Based on the table above, your additional time to FI would be anywhere between 5.9 to 7.4 years, depending on the performance of your investments.

You can do your own calculations if you’d like to know how much longer it’ll take you to FIRE with kids. Simply enter your estimated monthly savings and how much you think you’d spend on your kids into this time to FI calculator.

How to achieve FIRE with kids

There really isn’t any secret to achieving financial independence with kids. The principles of FIRE are the same irrespective of whether you’re doing it alone or for a family of ten.

If you minimise your expenses to a standard you and your family can live happily with, you will reduce your time to FIRE.

If you can increase the amount of money you earn or save each month, that also helps to bring your FIRE date in.

If you invest in a well balanced portfolio giving you a rate of return higher than inflation, that will help get to FIRE quicker.

That said, there are a couple of approaches that you can use to plan your FIRE journey with kids in tow.

Include the cost of children into your overall expenses

As we’ve mentioned earlier, it can be hard to plan exactly how much you will spend on kids, particularly if they don’t exist yet. And even if they did, there’s no guarantee that these expenses will remain the same on an annual basis.

The simplest option might then be to assume a base expense figure, per child, and roll that up into your FIRE number.

For example, you may have had a target of $40,000 in passive income which will fully fund your expenses. That means you’ll need a portfolio of $1M, returning 4% net each year.

If you think a child will cost you an additional $10,000 per year, then your new target portfolio should be $1.25M. This will give you $50,000 a year, enough to fund both you and your child’s expenses.

It’s not the most optimised way to go about it, but it’s the best way to do it with so little information at hand. You can always revise your FI number as you know more. The worst that can happen is that by the time your child flies the nest, you’ll have more money than you need to fund your retirement. This honestly isn’t a bad thing at all!

Medium term, goal-based investing

Sometimes you might already know what you want to spend on, and how much it might cost. You can use goal-based investing to save for that expense only, with the intention of fully drawing it down by a certain timeframe. It’s similar to calculating your FI number, only on a smaller scale.

Let’s say you intend on sending your child to a private school in their teenage years. The total for one child might be $150,000 in today’s dollars ($202,000 in 2030 dollars after accounting for inflation). You have 10 years to save up the full amount before you plan on drawing it down.

So the goal is to invest such that you will have $202K to spend in ten years’ time. Assuming you invest $13,700 a year for ten years with a return rate of 7%, you will end up with $202,535 in 2030 dollars.

You can use savings calculator like this to work out your target investment balance and annual contribution, whilst also taking into account your tax rate and inflation rate.

The benefit of this approach is that you can account and save for expenses that you know will only apply in the short to medium term. In the example above, you’ve effectively separated out a big expense from your annual FI number. This means your FI number will now only include the minimum non-discretionary expenses needed to support your family. Your final FI number will therefore be smaller than if you had rolled up all of your children’s overall expenses with your own.

Enjoy the journey

The pursuit of financial independence is a constant balancing act; this is even more so with kids in the picture. We do our best to spend on the things we value, and cut out things that we don’t. We also find a balance between making enough money to support the family and having enough time to spend with them.

Having children can also be an incredible motivator to reach financial independence sooner. Kids grow up in a blink of an eye, such that you may want to find a way to slow life down. The good news is, by reading this book, you’ve got a blueprint to get yourself there.

As parents we all want the next generation to be better than us. What could be better than sharing the financial lessons and discipline you have learnt with your kids? Whether you decide to leave them an inheritance or not, your kids will already be better off simply by getting a solid financial education from you. They’ve already got time, the biggest advantage in the quest for FIRE - and these lessons will hopefully inspire them to pursue FIRE for themselves.

Children and financial independence do not need to be mutually exclusive. Having both makes for an epic life journey - and just like any adventure, there might be bumps and twists en route. But despite the challenges of seeking financial independence with kids, I wouldn’t dream of having it any other way.

As an aside, if you'd like more information on investing for your children, check out this resource from financial adviser Ben Nash.

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About Ms FireMum from A Family on FIRE | afamilyonfire.com

Hi, I’m Ms FireMum. My husband and I are seasoned investors, having started our investing journey early in life, but we’ve only recently discovered FIRE! So we’re now on a mission to turbocharge our nest egg and achieve financial independence by our mid-40s. I write about our journey at A Family on FIRE – with stories on being frugal, saving, and investing - all while bringing kids along for the ride!

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