FIRE with Kids: How to Achieve Financial Independence While Raising a Family
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Disclaimer: I am not a financial adviser, and this content is for informational and educational purposes only. Please consult a qualified financial adviser for personalized advice tailored to your situation.
Introduction
This personal finance blog aims to increase your financial literacy and guide you on the path to achieving financial independence. Achieving financial independence (FI) involves saving effectively and making smart investments so you can eventually live off your investments and gain freedom from traditional employment. For many, financial independence is typically achieved at traditional retirement age, allowing them to live off a combination of pensions, savings, and investments. However, with strategic planning, financial independence can be achieved much earlier.
To be clear, in this blog we don’t advocate for early retirement as a form of escapism. Instead, we focus on meaningful societal contributions. As Vicky Robin eloquently wrote, when we stop working for money, we may be out of a job, but we will never be out of work. There are countless ways to meaningfully contribute to society outside the structures of paid employment. Similarly, as advocated by the ancient Greeks, enjoying a healthy amount of leisure is essential for a well-rounded life, allowing for intellectual and cultural pursuits that are integral to personal and societal development.
In today’s post, we will explore whether–and to what extent–raising kids impacts your journey to financial independence. I will provide my personal experience so far and share some insights that hopefully will be useful for would-be mothers and fathers wishing to enjoy the benefits of financial independence.
Can You Achieve FIRE While Raising Kids? Here's What We've Learned
Our Journey to FIRE: From DINKs to DIWKs in Europe
Our household started pursuing financial independence (FI) in earnest towards the beginning of 2019, although I was vaguely aware of the FIRE concept (Financial Independence, Retire Early) several years earlier. I live in Europe, where it is not uncommon for university students to graduate in their mid-to-late twenties. I have a post-graduate degree, and, after a couple years of work, decided to pursue a PhD in Germany. Needless to say, I transitioned to the job market very late, even for European standards. Most of my circle of friends would have been earning salaries for a full 5 years earlier.
We are on our sixth year of pursuing FI, which I consider to have officially started in 2019, even though I worked in Switzerland for 2 years prior to my PhD. During that time, high salaries made it relatively easy to save a decent amount as a recent graduate, but I wasn’t familiar with the FIRE concept back then. In regard to our kids, our first son arrived in late 2020, and now, fast forward to today, we have three little humans under our roof. Reflecting on our journey to financial independence so far, we can clearly divide it into two distinct periods: two full years as DINKs (double income, no kids) and four years as DIWKs (double income, with kids).
As further background, we are both professionals with above-average salaries, but none of us works in a leadership role or owns a business that would merit unusually high incomes. My partner works in a public sector ministry and I work as a consultant. Over the last three years, we have chosen to reduce our working hours to achieve a healthier work-life balance with family. This decision has been largely enabled as a result of following the principles of financial independence.
Photo by José Carrillo on Unsplash.
Raising Kids in Germany: Affordable Options and Financial Benefits
For me, the motivation to pursue financial independence did not change when kids came into the picture. I still focus on maximizing savings, building investments, monitoring our savings rate, and making decisions with the FI framework in mind. I’m also grateful that raising kids in Germany is more affordable compared to neighboring countries in the region: we enjoy high quality public schools for free; kindergartens are heavily subsidized (the cost depends on your income, but it is caped at around €250 per month per kid); health insurance is very affordable; and public transportation offers extensive coverage and is cheap. On top of that, everyone receives Kindergeld, a child benefit provided by the German government to help cover the costs of raising children. This represents roughly a flat €250 per month per kid until the child reaches adulthood or completes their education. Of course, I am aware that none of these benefits are really free, but come from a relatively high taxation system. In a future post, I intend to expand on this and also to cover in more detail different aspects you should be aware of when pursuing financial independence in Germany.
Smart Strategies for Keeping Kids' Expenses Low
The first year of expenses after our son was born felt very manageable. During this time, we would spend substantially more time at home than we would have otherwise. In our experience, some increasing baby care expenses, including food and health-related costs, were largely offset by spending more time at home. It is a very family-focused time our your life, where you don’t feel the need of rushing around doing things. With our first born, we also had sufficient space in our flat, so there was no need to move.
Other typical expenses people tend to report for this age are baby-related furniture, gadgets, and clothes. Thankfully, Germany's robust second-hand market culture offers affordable children's clothing, often priced between €0.5 and €3 per item. It is fairly common to see kids in completely miss-matched, second hand clothes here. Nobody will raise an eyebrow, so it is probably easier to go down the frugal route than it would be in other countries. When I visit friends in southern Europe, I notice kids are generally dressed more formally–it may be trickier to pull off this frugal tactic in such countries.
By combining second-hand clothing with hand-me-downs from friends and family, you can significantly reduce these costs. Here it definitely helps to be organized–we regularly track local flea market schedules to plan second-hand purchases in advance. I don’t think we’ve ever bought new clothes for our kids, and we try to apply the same principles for other baby gadgets and furniture. In Germany, popular platforms like Ebay Kleinanzeigen and Vinted are excellent for finding second-hand deals.
Photo by Ilya Pavlov on Unsplash.
The (Not So) Hidden Costs of Parenting: Housing, Insurance, and More
With one kid and until this point, I would say that, if planned smartly, kids don’t have a significant effect on your timeline to reaching financial independence. However, this did change substantially for us now that we have three… The largest expense increase was having to search for larger living arrangements–we simply felt it was getting crowded fast and needed more space. Resulting from our move, our rental costs went up overnight by around 40%, which of course is very substantial. Renting a larger space naturally increases your expenses, though in our case a significant part of this increase also had to do with the timing, when inflation had strongly affected rental prices in our city. As expected, the decision to upgrade to a larger apartment is also compounded by other accompanying expenses–for example, a higher heating and electricity bill or “needing” more furniture to accommodate a larger space.
Another important expense increase I’ve noticed in our post-kids phase relates to insurance. When you become a parent, your perception on the importance of insurance changes fast! At least it did for us. Our childless selves didn’t consider too many insurances beyond the basics, for example, health and liability insurance. Fast forward to today, though, and we’ve added a few others–including life insurance (not too bad) and occupational disability insurance (quite bad). The latter is known in German as Berufsunfähigkeitsversicherung. We should have known that such a long insurance name was never going to be cheap.
A final important expense that has clearly changed is holidays. A big component of travelling cheaply is proper planning, but headspace is exactly what you don’t have with 3 toddlers running around. This is something we are working on to improve, but at the same time the nature of the holiday also changes. It can go fast from lower-cost adventurous travel to all-inclusive hotels. Frankly, our past selves might frown on us but actually our present selves are tired, so just give us a break. When you are tired with toddlers you may feel less inclined to cook during your vacation.
In spite of the increased costs related to housing, insurance, and travel, I still feel like we are making smart(ish) choices, at least if we compare with those around us. At this stage of life, many friends and social peers didn’t just upgrade to a larger apartment rental, but decided to take on a mortgage to buy a house, including its accompanying expenses. Some readers (e.g., US-based) may be nodding their heads in agreement (“of course, buying a house is the natural thing to do”), but, as we discussed in a previous post, real estate near major German cities often has high price tags compared to renting costs. In my view, buying a property here can pose important implications for those wanting to retire early.
Otherwise, we’ve managed to stay relatively frugal. We drive but don’t own a car, we are careful with our food bill, and generally very intentional with our day-to-day spending. Alright, let’s see how our savings rate has changed during these years.
How Our Savings Rate and FIRE Goals Shifted with Parenthood
Since the beginning of 2021, I have consistently tracked our monthly income and expenses, spanning nearly four years. Looking at our data, I can clearly see two distinct periods. With one child, between 2021 and mid-2023, we maintained consistent income and expenses and averaged a 50% savings rate during this period. Today, we are making a concerted effort to sustain a 35% savings rate. Our gross salaries have grown substantially in relation to 2021, but at the same time we both decided to reduce our working hours to balance out our family responsibilities. We are very grateful to be in a position to do so and still aim for a reasonable financial independence timeline.
Our financial independence number–the amount of money invested in our portfolio where we’d be comfortable with potentially leaving our jobs–has increased by around 38% in relation to early 2021 (and probably a bit more in relation to 2019, though I don’t have those records). While most of it is related to family expenses, larger accommodation, and other factors mentioned earlier, there has certainly also been some degree of lifestyle inflation taking place in the last 6 years. I think this should be a clear warning to younger readers pursuing FI that are open to starting a family–consider whether it is realistic to project your current savings rate consistently over time or whether it makes sense to consider a more adaptive and conservative financial planning scenario, i.e., a decreasing your savings rate over time.
Photo by Yan Krukau on Pexels.
Current Progress Toward FIRE: Balancing Family and Financial Goals
Overall, I am grateful to be in the position we are in. We feel secure and our pathway to FI still looks clear, despite experiencing some bumps and changed expectations along the way. To answer the question of today’s post, I think it is safe to say that kids (note, >1) have definitely had a significant change on our financial independence projections. Our expenses have increased substantially and without kids we would likely be working more hours and taking home a larger income.
Still, I estimate we are approximately 6-7 years from reaching our target number, based on a 5% safe withdrawal rate (SWR). Before you throw your hands up in the air when reading about our SWR, please take a look at the dynamic, guardrail withdrawal strategy we’d pursue in the event of both of us dropping our jobs. But, importantly, I feel that this is a very unrealistic scenario–it is highly likely that one or both of us will continue to bring in some form of income. My partner doesn’t really share the Retire Early part of the FIRE acronym, so she will continue to work on a part-time basis, and I will likely take on carefully-selected consultancy opportunities here and there. In addition, we are open to the idea of pursuing other unconventional business ventures that we find both fun and meaningful.
Enjoyed this post? Don’t miss our insights on reaching your first $100K investment milestone and our post on flexible spending rules for early retirement.
