The average cost of raising a kid in the US these days in a whopping $233,610 – and that doesn’t even include sending them to college (or taking care of them at all after the age of 18)! That makes saving money extra hard for parents.
But one woman is sharing her trick to retiring early while putting away millions for the future.
J.P. Livingston is the woman behind the blog The Money Habit. One might argue that running a blog isn’t exactly the retirement that some people dream of, but Livingston was able to step away from her NYC finance job at the age of 28.
Livingston was making $100,000 by the end of her first year in the industry, so her goal was a bit easier to attain than it is for most.
But despite living in one of the most expensive cities in the world, she was also able to set aside a mind-boggling 70% of her take-home pay. Out of that 70%, she invested 40% and saved 60%. She also saved her year-end bonuses instead of spending them.
Her blog is now her major source of income, though she insists she only spends about 5 hours a week on it.
“I didn’t expect it to make any money at all, because there are a million blogs out there, but it eventually got big enough that between the hosting and email bills I decided I should figure out how to monetize it enough to pay its own bills.”
And monetize she did – the blog made over $62,000 in its first year!
The money comes from affiliate commissions (where a blogger advertises a product or business and receives either a percentage of the sale or a flat commission from a company if a reader makes a purchase). Selling ads on her site earns her an extra $1k-2k a month.
Not bad for 5 hours of work a week!
Even when Livingston had her baby and was offline for 3 months, her blog earned $14,000 with no effort at all (she had scheduled some posts ahead, but most of the money came from the older posts’ affiliate links).
Because her time in the corporate world left her so burnt out, she says if she had known how much money she could make from her blog, she would have retired even earlier.
Livingston’s success has made her a source of advice for thousands of other people who would like to follow in her footsteps. But her savings advice is quite strict.
In a story for Business Insider, she suggested that families should take the money they would normally spend on things like summer camps and excessive toys and gadgets and invest it on behalf of their child instead.
That might make for a disappointing Christmas, but she insisted that parents could make up for it by putting the money in a low-cost index fund that could be worth up to $1 million by the time their child is 55.
It’s clear that Livingston lives a vastly different lifestyle than most Americans, but she does make some interesting points about how much money parents could save if they choose investment over short-term spending.
She recommends thinking of the long-term implications of gratuitous purchases. For example, children need clothing that fits, of course, but she wonders if some of that money wouldn’t be better off invested.
“So what is going to better your child’s life the most? A $20 cute romper, or that money tucked away in an account for them when they’re an adult, so they can give their dream career a chance even if it doesn’t pay much to start?”
Her article asks some even more provocative questions:
“Spending $4,000 on a fancy summer camp for your kid every year from age six to 18 would be worth $487,000 for them at age 50 (taking into account inflation). So what would they find more valuable overall in life: Summer camps or having half their retirement taken care of completely?”
Some parents would argue that the long-term relationships and socialization skills a child develops at summer camp are an investment of their own.
Of course, she admits to breaking her own rules.
“When I think about how much I can spend on my kid in a given month, I’d like to take 30% and put it away for his future (college or retirement).”
For those interested in cutting back (and able!) in order to make their money go farther (for themselves and their children), Livingston has some specific recommendations, ranging from the drastic – such as sharing rooms (so parents can buy or rent a smaller, cheaper home) and cutting back on expensive extracurricular activities (having them choose between playing a sport and music lessons, for example), to the relatively benign – like buying them older generation electronics and fewer holiday gifts.
Of course, not everyone has the luxury of making these choices since they have to stretch their budgets to accommodate even the most basic expenses. And, to be fair, Livingston recognizes this:
“I don’t mean to suggest that this is easy or that everyone has a lot of fat to cut in their budget. But I think many of the things we purchase thinking they are needs are in fact luxuries, and identifying them as such gives us options where before they were simply a default we spent on but didn’t appreciate.”
But she remains strict in her approach to saving money.
“Less luxuries as a kid means safety, peace of mind, and freedom for them as an adult.”
For those who can cut back and save, Livingston recommends a 529 plan if you’re saving for college and a brokerage account (from a bank like Ally) if you’re saving long-term.
Her closing salvo provides some food for thought, but might not sit well with those who value in-the-moment experiences:
“What better gift could you give your kid in an uncertain global economy besides capital? That capital can help them re-tool for a promising career, purchase a home for their family, lower their need for a high-paying job as it compounds to provide for their retirement…the list goes on. The tea sets, magic cards, and fancy sports equipment can wait.”
While it’s hard to argue with providing your child with money to pursue their dreams, one can argue that tea sets and fancy sports equipment can’t wait. After all, you’re only a kid once.
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