Solving An Equation With Two Unknowns: Financial Independence And Children

Not too long ago, the Banker On FIRE family was blessed with a new addition.  Even for those who have been down this road before, the arrival of a little baby is always an exciting affair. 

­­First, there’s the magic of the pregnancy and the creation of a brand new, little human being.  Then, a rushed trip to the hospital and the adrenaline-filled experience of birth, followed by a blur of the first minutes, hours and days. 

All of a sudden, you find yourself at home, trying to figure out how to best settle into a routine – ideally one that involves more than four hours of sleep a night.   

And if you happen to be pursuing financial independence, you probably ask yourself: What happens now?  Am I still on track?  Did I just bury my FI dream under a mountain of financial obligations?

Solving for children AND financial independence can sometimes feel a bit like solving a quadratic equation back in school.  You might get two answers.  You might only get one.  And sometimes, the discriminant is negative, and you end up without a solution. 

To make things even more complicated, there isn’t a simple mathematical formula that will spit out the answers you are looking for. 

As those who aspire to FI tend to be quite numerically driven, there’s a natural temptation to approach the problem from a budgeting perspective.  But because every child has a different set of physical and educational needs, doing more than a directional prediction of your child-rearing expenses can be a bit of a pointless time-sink. 

A much more effective approach is to stop framing the problem in purely mathematical terms and answer two simple questions instead: 

  1. Do I have enough time?
  2. Did I create enough leverage?

And yes, you’ll have to read on to see what I mean. 

It Really Is A Matter Of Time

Love it or hate it, but when it comes to having children, we simply don’t have all the time in the world.  For women, fertility starts to drop off rather meaningfully after the age of 35.  At 40, the likelihood of infertility finally exceeds the likelihood of conceiving, and things get rather more complicated from there.

The male biological clock isn’t quite as ruthless, but that doesn’t mean you get a free pass.  After all, conceiving a child is just the very first step in an extremely long – and enjoyable – journey.  However, big stretches of that journey involve chasing around energetic if unruly children and dealing with stroppy teenagers. 

What seems like a breeze in your thirties and hopefully not much harder in your forties may well become a real challenge once you pass the mid-century mark. 

Finally, there’s the ultimate bookend of life expectancy, which currently stands at 79 years for UK males (surprisingly, it’s only 76 years in the US).

The more you delay having children, the less time you will have to see them grow up, prosper – and have children of their own. 

Life expectancy

When you have financial independence in your sights, it’s easy to convince yourself that you should postpone having children until you are further along on the journey.  But make sure to keep the stats above in mind if you want to avoid running out of biological runway before take-off. 

And assuming you still have a fair bit of runway left, you need to think carefully about making the most of it.  In other words, how do you create the maximum leverage between now and the time you have children?

Which brings us to question #2: 

Give Me A Lever Long Enough…

When I was a junior investment banker, children were the last thing on my mind.  I barely had enough time to sleep, let alone care about another human being.  A seemingly relentless sequence of client meetings required endless preparation and volumes of analysis.  

Every so often, I would work on a live transaction and the intensity would spike even more as our clients expected us to complete all of their requests on ridiculously short deadlines. 

I put my life on hold and worked.  When you are running a marathon and hit the wall at the 5k mark, it’s best not to think about the long road ahead.

But with time, things began to get easier.  Because I didn’t screw up very often, the people I worked for realized they don’t need to check my work as much – or as thoroughly.  I no longer was the most junior person on the team, meaning I could outsource some of the most time-consuming tasks and go home earlier. 

I started speaking up in meetings and slowly became the clients’ go-to-person on deals.  Most importantly, some of my colleagues moved on to other banks and all of a sudden, I had a pretty solid network of contacts across the City.  I now had leverage. 

Leverage is everything

If you are a lawyer, an accountant, a consultant or a doctor, you will recognize the pattern above.  I call it building a reputational advantage.  It takes about five to seven years of back-breaking labour, but once you’ve gained enough momentum, it’s like cycling downhill while everyone around you is pedalling like a madman. 

You still have to navigate the sharp turns (and some sharp-elbowed colleagues), but it’s more about finesse than brute force. 

Building wealth

At this point in time, you may not be as well-off financially as your job title or tenure may suggest. 

However, provided you don’t make any massive mistakes, you are now in an enviable position to start monetizing your reputation rather rapidly.  Your pay will keep going up even though you no longer have to put in so many hours.

When it comes to being able to afford children, it can be very tempting to think in terms of the number in your bank or brokerage account. 

Yes, you do need a certain financial cushion before you start procreating.  But if you happen to be in a profession with a long gestation period (pun intended), waiting to have kids until you hit a discrete number in your savings account can be a dangerous strategy. 

You may get to 35 and realize that conception is tougher than you thought. 

Life may throw a curveball your way and you’ll end up taking a long time to find a partner.  Or you may have thought you’d be perfectly content with just one child and subsequently realize you want more kids – only to be out of time. 

Because we didn’t want to take that risk, my wife and I decided to start trying for a child much earlier than conventional logic would dictate.  But we knew that I crossed the Rubicon at work and that for at least the next couple of years, I had a clear path to working less – and making more.

After our first child was born, we took the financial hit of a year-long maternity leave, some very chunky healthcare costs and the usual increase in spending that comes with having a baby. 

Yet, by the time we had our second child three years later, our net worth has grown to well over $1m.  We had created enough leverage. 

Figuring out the best time to have children is never easy.  It can be even tougher when you are trying to square up children and financial independence.  But asking yourself the two questions above (ideally as early as possible) can go a long way in helping you achieve both. 

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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.

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2 thoughts on “Solving An Equation With Two Unknowns: Financial Independence And Children”

  1. Hey Damian,

    I was just going to propose this as an idea but I found it with a quick search, very nice read!

    We both have a couple of years left till 30 but children are definitely in the plan sooner rather than later, for the reasons you mention and we also just love kids. 🙂

    I guess what might be interesting as well would be some more detail on the actual budgeting in London, what you planned as expenses and what they actually ended up being (pre-school, school is another subject you’ve already written on). Is having 2 kids 2x the cost (I’d imagine so for nurseries)? Perhaps also each need their own room? Although might not be a thing while they’re young with a small age difference.

    As usual, thanks for the great content,

    1. Cheers A.

      Good question – but so individual, that it would be tough to generalize. I would think the answer would differ materially even depending on where you live in London (nurseries in our area are 20-30% more expensive than what our friends pay elsewhere).

      Let me add to the list of post ideas and noodle on it.

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