Our Biggest Secret for Financial Independence Might Be the Hardest One to Swallow

Reaching a point to step away from full time work is not an easy journey. It has taken a great amount of discipline and hard work. But there is one secret to building wealth that might be incredibly difficult for some to acknowledge. Yet, it does not make it any less true.

One of, if not the most important factors in us achieving financial independence has been our decision not to have children. Here are some of the statistical reasons why this decision impacted our financial life.

Kids Are Expensive

Caring for Kids or Staying at Home

Daycare or stay at home parenting? It is a big decision for families where both spouses work. If you pause for a second to remove all the emotional rationale in this argument and merely look at the facts, either of these decisions has a direct impact on financial independence.

The average annual cost of center-based child care in 2018 was $14,760. Obviously that number compounds based on the number of children. Many parents wrestle with the financial reality that working part time often merely covers the cost of paying someone to watch the kids during that work.

Yet the choice to stay home is not an easy economic decision either. According to the US Census Bureau, the median household income in 2018 was $63,179. Giving up that income for a mom/dad who chooses to stay home is likely a challenging emotional decision, but it has catastrophic consequences to the financial independence calculations.

Here’s an example which shows how the choice to have children impacts financial independence:

Let’s say Graham and Sara get married at age 24 and have their first child at 25. Prior to children, they were both earning the median income of $63,179 for a combined household income of $126,358. If they chose to not to have children and lived off of one income, saving the rest in an index fund that produced an 8% growth, they would have invested $631,790 and their portfolio would have grown to $988,466 in ten years.

If they chose to have children and have one of them quit their job for ten years while saving nothing and living off one person’s full income, they would obviously have zero in savings by the time they turned 35.

Here’s a recap:
Kids                               No Kids

$ invested 25-35           $0                                 $631,790 ($63,179 per year)

Account value at 35               $0                                 $988,466[1]

This seems like an extreme example, but is it? The median income data supports the possibility for both Graham and Sara to earn this amount of money. And is it reasonable to live on that amount of money and save the rest? Absolutely. Is it easy to do this and be disciplined? No. But that doesn’t make it impossible.

One key reason why we have been able to reach financial independence at a younger age than some has been our decision to not have children and both work full time jobs. It might be a hard one to swallow, but it is a reality. We do not suggest that people should choose not to have children to instead achieve financial independence, but merely suggest that this choice makes an impact on the pace of savings and growth. Core values should always drive decisions, whether that be to have children or not have children.

[1] https://www.capitalgroup.com/individual/planning/tools/investment-calculator.htm