Why Financial Independence with Children is Challenging.

Cullen Roche over at Pragmatic Capitalism writes a short (like always), reflective post which I thought may be something that interests some of you. (Read Needs, Wants and Why We Always Feel Unfulfilled)

He tries to link the recent change in his family dynamics to why many of us feel that life is tougher today than those who live in the past.

“By the age of 30, I was financially independent.

My business was self-sustaining, I enjoyed my work immensely and no one could tell me what to do. I wrote a best-selling book. I wrote some great research. I spent years training for and finished a full Ironman despite having never run more than a few miles just a few years before that. I had a dreamy marriage to a woman who is way out of my league. All of my needs were taken care of. Life had transitioned into what I wanted.”

In his mind, he was basically FI at a young age. I think that is remarkable if you think that you live in a culture where all your peers have more, making you want to have more.

It is not so easy to say that you have enough.

Some enough can be a misjudgement, and most are aware that they are prone to that error and would buffer for it.

“But as I get older I feel that the things I want are endlessly unquantifiable and so after years of feeling like I understood what was “enough” I began to increasingly fail to grasp what that meant for me.”

“This all multiplied when I had children. Children mess up your entire concept of “living standards” because they create so much future uncertainty. As soon as my first daughter was born I felt like I was back in the rate race. Not because I worry about what my neighbour has, but because I feel the need to take care of my kids in perpetuity. And yes, I know that’s not the goal. As Warren Buffett says, it’s better to give your kids enough to do something but not enough to do nothing. But can you quantify that concept? Because I sure can’t.”

Me: "Can she have some candy?"

Wife: "NO!"

Me: "Can we use her to get candy?"

Wife: "YES!" pic.twitter.com/pbtw8ciT7k

— Cullen Roche (@cullenroche) November 1, 2020

I wonder how many of you feel the same way about your children.

But I think many would agree with him that living with children is like having so many threads of uncertainty.

You don’t know how the future is going to turn out.

In investing, heightened uncertainty will cause us to default to inaction. The lack of sophistication in wealth management amplifies the issue.

And this may be why most of us default to living in present if we feel that our resources are stretched.

I do observe that those with ample resources, such as those with $500,000 in annual household income, have less of this problem and would initiate a conversation about planning for the future. This is because as much as their life expanded, they still have a lot of surpluses and after 3-4 years of those surpluses, you began to wonder what to do with that sum.

You feel more okay to locking up that sum of money (because in our minds the money is compartmentalized to be locked up). Not so, if you don’t have that margin of safety.

Cullen then explains that as smart and sophisticated as he is, he felt that he has no quantifiable measure of what is enough: “What is enough for my kids in 5, 10, 20, 50 years? This is what has happened to my brain in the last few years. And yes, I embrace it. I enjoy the hustle mentality and having something to look forward to. I felt shallow and empty in many ways before kids and they energized my purpose in numerous ways. But at the same time, I feel endlessly unfulfilled despite being someone with all the needs he could ever dream for. That’s because I am fairly certain I will never feel like I have enough because enough is a moving target that can never be pinned down.”

And so, if you have a family and aspire towards financial independence but think it is challenging, rest assured that you are not alone. Even some of the better minds struggle with it.

As a finance person, everything is math, but with the uncertainty of how kids will turn out, you don’t have a magic figure to pin in the future.

If you ask enough, many won’t turn back the clock of not having kids. I have enough friends who has the philosophy of not having kids but come to their late 30s and 40s, things change.

Shallow and emptiness may be real.

In the footnote, Cullen shares with us the nuances of why planning with just yourself and with kids is so different. “This is most apparent in modern-day parents. I am an incredibly simple man. Overly simple. If I had it my way my kids would wear the same outfits every day, they’d have the most basic stroller and gadgets, etc. But that’s not the world we live in. My daughters have hundreds of outfits. They have dozens of bottles. They have a $1,000 stroller. They have their own iPad. And on and on. The amount of basic stuff they have that makes life easier for the parents is truly absurd. We invest so much time, energy and resources into a modern day child that I think a person from 100+ years ago would have a heart attack if they were transported into the modern world. Are we better off treating our kids this way? I honestly don’t know, but that’s where we’re at.”

Progress in life does two things:

1. Most of our needs are taken care of
2. What we need changes
   • Healthcare and education were rare for older generations, but they are necessities now.

What I appreciate about Cullen’s sharing is his model of this problem.

1. He acknowledges that planning for a single person’s FI is easier because our minds are mature enough and can be stoic enough to be simple when needed.
2. But even for ourselves, many of us don’t want to live that simple life in FI.
3. Children brings along an uncertainty because of our lack of sophistication in knowing the threads of life they could live through, how much it cost, and in wealth management how we deal with it.
4. Progress changes wants to needs.

I feel that these problems do exist whether you choose to pursue or not pursue financial independence. You want security (mostly to address a large part of #1).

If you have the resources, you want to do the right thing to make sure your children are well taken care of by optimizing the use of your current and future financial resources. (largely #3)

The solution to this would still be

1. Listing out the life needs in terms of the monetary requirements (e.g. my children confirm plus chop will go primary, secondary, tertiary and need pocket money)
2. Re-arrange your life needs in terms of your spouse and your priority.
3. Then try to fund it with your existing surpluses layer by layer. Set aside some money for those high-priority goals, then over time, just keep adding to those high-priority goals.

The reason I like Coast FI so much is that some prioritize their future traditional retirement high enough, earn a good income and wish to take care of it today. We know based on the end-of-history illusion that we might not know exactly what our future self needs forty years from now, but if that kind of security is important to you, you could save up for it first.

If your kids are important, what is stopping us from saving up the major cost for them today? For example, we know that if inflation is consistent today, a local 4-year degree will cost $40,000 today. If you add in the living cost, it’s $20,000. Have $60,000 and invest it in a balanced fund and that will do reasonably well. If you are more conservative… add $20,000 more. If you don’t have it immediately, builds it up over the years. Even if you don’t have that amount, it at least takes care of 2 of those 4 years!

But if your child is a degen and you are worried about him or her and would want to take care of him or her with your money, then that is a different thing. Still, in the realm of FI, we have a solution for that.

The question is whether can you fund and are you willing to fund that amount.

And if you give a degen child that, will the child become even more degen?

FI planning looks daunting if you squeeze all your expenses in one ball and squeeze the time period into an even bigger ball.

Then you will have the impression that you cannot have it.

Not having FI is ok.

But you will still need to optimize your resources well.

Looking at everything together doesn’t help. Break the problem to smaller pieces.

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