Life After Debt: What It’s Like in the Third Stage of Personal Finance
Published on - August 12th, 2010 (by J.D. Roth) I paid off the last of my debt in 2007, quit my day job in 2008, and have been working to build wealth ever since. As I wrote early last year, I’m in the Third Stage of personal finance: I’ve paid off my debt, built a cash cushion in savings, and am maxing out my retirement accounts. And after doing all of these things, I have money left over to spend on comic books and travel. I’m a lucky man.
For the past year, GRS readers have been asking me to write more about the Third Stage of personal finance. What’s it like there? What choices does a person face? What sorts of things does she do with her money?
Though I’ve wanted to respond to these requests, I haven’t.
- For one thing, I’ve felt like there isn’t a whole lot to say. Mostly, the Third Stage of personal finance is like the earlier stages, but without the debt. I’m still pretty careful with my cash, but instead of saving to pay off past purchases, or saving my emergency fund, I’m now saving for other goals — like travel.
- For another, I’m reluctant to talk about some of my spending. It’s not that I think I’m making poor choices — I’m not — but that taken out of context, some of the numbers look shocking. It’s very difficult to put yourself in another person’s shoes, after all.
Today, though, I’m going to write a little bit about the Third Stage of personal finance. I’m even going to share some actual numbers. All I ask is that when you see these numbers, you understand that I’m making conscious decisions to spend this money, and I’m sacrificing other things in my life to make the purchases I describe.
The cost of fitness
Tonight was Guys’ Night Out. Or Geek Night. Or, as my sister-in-law calls it, Dragon and Troll night. Every month, my band of geeky friends gets together for some sort of activity. It started out as a chance to play Dungeons and Dragons, but it’s morphed into an ever-changing variety of events.
Tonight, for example, we headed into downtown Portland to watch the Portland Timbers take on the Minnesota Stars. The Timbers are the local pro soccer team, for which I bought a pair of season tickets last spring. (I paid $435 for two general admission tickets.) We geeks didn’t watch the game from the stadium, though; instead, we headed next door to the Multnomah Athletic Club. One of our group is a member, and he signed us in so we could watch from the club’s balcony, which overlooks the south end of the stadium.
The Multnomah Athletic Club is amazing. It’s posh — it oozes wealth. It looks like the sort of place where you might have to wear a suit and tie just to jog on the treadmill. Everything is dark wood and brass and wall-to-wall carpeting. The attendants at the door are in suits and ties. It’s not a very J.D. place.
“Wow,” I said to Josh as we waited for the game to start. “This place must be expensive.”
“I knew somebody was going to bring that up,” he said. “It is expensive, but my parents have been members for almost forty years. It only cost them $700 back then.”
“$700 for what?” I asked. “Per month?”
“No, $700 for the initiation fee,” Josh said. “I think the fee is getting close to $10,000 per family now.”
“$10,000?!?!?” I asked. “Just to join?”
“Yeah,” said Josh. “And there’s a waiting list to get in. Plus, once you do join, dues are about $200 a month.”
My mind boggled. I was about to say, “That’s outrageous!” when I realized: I’m paying $200 a month for my gym, too.
Whenever I talk about Crossfit and the amazing things it’s done for my health, I always leave out the cost. Yes, I’ve lost 30 pounds. Yes, I’ve dropped from a size 38 to a size 32. Yes, I’m stronger than I’ve ever been in my life. But this progress has come with a cost: $200 a month, to be precise. You know what? It’s a cost I’m happy to pay, and one I plan to continue paying. If this system is working — and it is — then it’s worth every penny. If I’m not fit, nothing else matters. (But again, taken out of context, this expense would look ludicrous.)
So, I admitted to Josh that I was paying just as much as he was for a gym membership. (But without any initiation fee, of course.) We stopped chatting as the match began.
The cost of fun
We watched the Timbers and Stars play to a 2-2 draw in front of a large crowd. As the game wound down, I used my binoculars to spy my seats for next year. In 2011, the Portland Timbers will join Major League Soccer, and last month I spent $1410 to purchase a pair of tickets on the mid-field line. I’m eager for the season to start, and the current season isn’t even over!
Walking back to my car after the game, I thought about that expense: $1410 for a pair of season tickets for a soccer club. A couple of years ago, I would have thought that was insane. I wouldn’t have been able to view it as a justifiable expense, no matter how much I had in savings, no matter what sorts of sacrifices I made in other parts of my life. I would have condemned it as lifestyle inflation.
Maybe it is lifestyle inflation. But it’s also an example of conscious spending. I love soccer, and I can afford the tickets. I’m meeting all of my financial obligations. When you’ve paid off your debt, saved for emergencies, and set aside money for retirement, whatever’s left over is yours to do with as you please, right? In my case, that means that if I want to buy Portland Timbers tickets, I can. I have no regrets.
These are the sorts of things I think about in the Third Stage of personal finance.
The cost of travel
There are still financial dilemmas in the Third Stage. Being here doesn’t mean I can afford everything I want. In fact, I’m always picking and choosing. (It’s just that the things I’m choosing between are sometimes more expensive than before.)
For example, Kris and I just learned about an opportunity to travel to Africa in February. Our college has put together a package tour for alumni that includes visits to South Africa, Botswana, Zimbabwe, and Namibia. It’s a 19-day tour and it costs $5600 per person.
Well.
I’ve been begging Kris to go to South Africa for a l-o-n-g time. I’ve wanted to visit ever since I read Cry, the Beloved Country. (Jolie Guillebeau doesn’t help by always reminding me that South Africa is her favorite place she’s ever visited.) Kris has always steadfastly refused to consider a trip to South Africa — until now. She actually wants to go on this tour, and so do I.
The problem is that even though we’re in the Third Stage of personal finance, $5600 (per person!) is a lot of money for a trip. Especially considering we’ve already shelled out a lot for our upcoming journey to France and Italy.
Can we afford to take on the expense of traveling to South Africa in February? And if we can, is it something we really want to do? As I drove home from the game tonight, I thought about it.
First, I considered how to come up with the cash. We’ve already funded our trip to Europe, so that’s not an issue. I just need to figure out how to come up with $5600 by February. (Because Kris and I keep separate finances, she has to come up with her own $5600. That’s not really going to be a problem, though. Remember: She’s always been the responsible one, and she has tons of money in savings.)
I considered my options:
- Last week, I canceled my Cycle Oregon registration. Cycle Oregon is a week-long bicycle tour of the state, and I’ve always wanted to do it. But after riding 100 miles in one day last month, I realized I have zero desire to bike 500 miles in one week. I’ll be getting back about $750, which I could immediately set aside to save for Africa.
- I could save up some of the money by going on a comic fast. I give myself a monthly comic-book budget, and if I were to reduce this to zero (or something near zero) for six months, I could accumulate a few hundred dollars.
- I could borrow from my Mini Cooper fund. Yes, I bought a used Mini last year, but since then, I’ve been saving for an eventual replacement. The car is running great at the moment, so it’s probably safe to pull some money from this account.
- Similarly, I could borrow from my tax account. I’m not sure I’ve mentioned it before, but I have a separate savings account in which I save for taxes due in April. (Because I’m self-employed, I’m responsible for setting this money aside myself.) I could borrow a few months of contributions from this account, and then double my savings efforts in the spring.
- And most drastically, I could conceivably borrow from my emergency fund. It sits at $20,000 now, which is more than ample for most short-term needs. If I drew it down to $14,000 or $16,000 or $18,000, odds are I’d be able to replenish it without a problem.
Plus, I could make sacrifices in other areas of my life: I could eat out less often, I could make better use of the public library, and so on. At its heart, this is the same sort of decision I used to make, but on a different scale. Instead of trying to scrounge up $500 per person to spend a week in Victoria, B.C., I’m now trying to find $5,000 per person to spend three weeks in Africa.
Again, is this lifestyle inflation? If so, is it wrong? And do Kris and I really want to spend this much money on a three-week vacation? I don’t know, and I’m not sure how to find an answer.
Life in the third stage
These are the sorts of things I think about in the Third Stage of personal finance. Yes, we’re still growing and canning our own food, still looking for cheap entertainment, still shopping at thrift stores, and still asking for discounts whenever possible. Now, though, these aren’t techniques to help me get out of debt. Instead, they’re the steps that allow me to spend $200 a month for Crossfit, $1410 for soccer season tickets — and maybe $5600 to travel to Africa.
I’d love to hear from other folks who have reached this stage. What sorts of things do you spend on? Do you sometimes think, “Man, ten years ago, I would have thought this was outrageous?” Do you still make sacrifices in order to buy the things you want? Do you still practice frugality? If you’re in the Third Stage of personal finance, what’s life like for you? (And if you’re not there, do you find this sort of spending inspiring? Or is it intimidating? Infuriating?)
Portland Timbers fan photo by Jenny Cestnik.
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I’ve been reading your blog for years but I don’t think I’ve ever commented, but watching you consider dipping into your structured savings accounts made me post.
I agree with the other posters that it’s a bad idea. I mean, some of the accounts are non-critical but self-discipline with your saving is what got you to where you are. Backing off on that discipline can be a slippery slope. If you think you’re overshooting your Tax Fund by a lot every year and its hurting your ability to use that money elsewhere, adjust your monthly allotment to that account, don’t raid it for an expense.
I see you’ve pointed out a pretty solid reason for wanting to go so soon, and that makes sense and makes it a little more reasonable, but I’d still be wary.
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This is my first comment on the site but I wanted to relay how happy I was that you were a soccer fan and supporting MLS, how jealous I am you are going to have an MLS team in your city (Portland is so deserving, though!) and that I can’t wait to reflect like this when I get my remaining 90k worth of student loans from pharmacy school paid off!
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Why don’t you stop allocating money to your savings/investments to fund your trip? Would that cover the trip?
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Even though I’m still technically in debt repayment mode, the slower plan I chose to follow has given me the opportunity to practice this sort of third stage decision making. I have my own weaknesses, which-much like your soccer tickets or trip to South Africa-probably seem unthinkable to people still in the midst of gazelle intensity debt repayment.
I handle these temptations/opportunities in the following manner. I set a strict budget that pays for the household expenses, funds our savings account, and pays back our debt. Anything outside of those figures is fair game, so if I do freelance work, get a little overtime, or if I simply cut corners on certain things like my weekly spending, the money can be spent on “fun”. Because I’m thoughtful about my spending now, I find that I’m extremely careful in what I choose to spend $$ on.
In the case of your examples, for the soccer tickets, I totally understand, as I hold season tickets to a WNBA team. One suggestion I would make, from experience, is that you might have considered a “Mini-Plan” of tickets instead. Even though my team only plays 17 games, it’s tough making all of them during the season. I had to miss the last 2 games bc of family obligations, and now I have to miss the next one as well due to another commitment. But, having said that, we usually can find happy friends to take our tickets if we’re unable to go, so it’s rarely a complete loss, and we earn a lot of goodwill through giving the tickets away.
As for the trip to South Africa, some of the things you are suggesting (ie borrowing from tax accounts/emergency funds) are pretty bad financial precedents to set. Speaking from painful experience, the spending with a plan to pay back at some future point is very dangerous–it’s essentially what you are doing when you use a credit card. You’re compromising the stability of your finances to fund a “want” and promising yourself you’ll get around to paying it back later. Trust me, you’ll enjoy the trip a thousand times more if it’s paid for free and clear than if you have to come back and scrimp to make up for it afterwards!
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Do you light your cigars with $100 bills too?
Just kidding.
I love this kind of post because it shows what happens when someone who makes a decent income can get their finances in order. Your “problems” go from how to make the next rent/mortgage payment to trying to decide which safari to go on.
Awesome.
Mike
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I like to go, and my husband likes to stay home. It is painful, trying to find a vacation that he will agree to. I was really startled when he wanted to go with me on a work trip that sent me to The Netherlands for a couple of weeks. It was an unplanned expense — and a big one — to buy airfare and train tickets for him and our child, to pay for extra hotel nights, to buy tickets and food and souvenirs. But I was all for it, even though it required pulling money from our general savings account.
We are in the third stage ourselves – retirement savings; college savings; emergency savings; and no debt except mortgage, which we hope to pay off within a year. And we give more than 10% of our gross income away, as we always have.
Yes, I could spend us right back into the first stage if we jaunt off to Europe every time one of us gets a whim. But we don’t, and you won’t. This is an exception. You know full well the danger of letting an exception become the new rule, and you won’t let that happen.
Someone’s already raised the old “saving is like dieting” analogy. Well, I’d say that when you reach the “3rd stage of dieting,” you know that you can go on a trip and eat the local specialties; and if you gain 5 pounds, it’s not a heartbreak – you know you’ll work it back off when you get home.
Spend your money! Enjoy it! Lord only knows how long you’re here. It’s hard to know the balance to strike between spending now and saving for later. I watched my parents retire, with my mom, especially, looking forward to a retirement full of travel. She and I got to go on one great trip together, but that’s all she got because she developed cancer and died. I have the money, I am responsible with it, and I’m going to use the excess to live NOW, because Now is the only time I’m guaranteed to live to see. And if my husband is up for an adventure, you BET we’re going to go. I think you should, too.
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Hello there,
Stage 3 for me is more about “Stretching my wings without adding pain”. Stage 1 and 2 instilled deep understanding budgetting, sensible frugality and actually loving every minute of it.
Stage 3 is all about, enjoying the fact that the instilled good habits become deep rooted and then tackle the 101 items list that I always wanted to do, but either did not have the time, energy or money. How does one tackle 101 things, is simply by adding what it will cost, what time and what does it really mean to me and take the top few items and work on it.
Some of them are:
- Building up on my vegetable garden
- Learning new home repair skills by taking a class or course
- Learning a new craft skill,
- and the list goes on.
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While I completely agree with being careful with using the emergency account for things like this, I would echo some of the other statements. What good is money if you can’t use it? It’s not something that you can have when you die. I think that is exactly the point of the second part of Dave Ramsey’s infamous quote “If you’ll live like no one else, later you can live like no one else.”
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Right now, we’re still paying off CCs and student loans. One thing I am proud of, though, is making two extra house payments a year- we’ve done that since we purchased our home six years ago. It’s really helped us gain a lot of equity quickly, so even if we have to sell at less than we paid, we’d make enough of a profit to ladder up. We’re also saving up to pay for attorney’s fees [about $1900] to set up a living trust, gaurdianship and other end of life paper work.
Ten years ago, I was living a very different life- barely affording rent, much less being able to afford to replace my shoes when they wore out. So when I heard of people paying about $100 for a pair of shoes, I thought, wow, that’s really outrageous. But reading this post made me remember that I spent $125 on my last pair of shoes [Dankso clogs, bought about 18 months ago].
We still make sacrifices, like a strict budget so we can save. I take cash out for groceries/cleaners, ect. and the only time I use my debit card is when I fill up the car on Sunday evening. I look ahead for the week and plan how to spend the week’s cash- it’s always the same amount, so I have to be creative sometimes, especially if we have a couple of prescriptions to refill.
We still are frugal but feel like we could do more. We use the library, shop mainly at thrift stores, eat in, ect.
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Thanks for sharing JD. Congrats on paying off your house, I thought you just refinanced it last year.
We’re in the third stage too – out of debt (except mortgage), have at least 6 months expenses saved and contribute to retirement (not the max though). For the past 5 years, all my wife’s pay has gone to pay off debt early, then to savings. We did this for 2 reasons:
1) to save enough to put 20% down on our new home last year
2) to practice living on my salary only for this summer when she quit work to stay home with our kids
Honestly, the hardest thing now is not being able to save the 35% of our pay we were saving before she stopped working. We got used to it and it was fun to see our net worth grow quickly. We don’t spend much money other than the essentials and a nice vacation here and there, so we’re making it fine. Sometimes I wonder if we’ve swung too far, but then when we do spend money on something and it’s not satisfying it feels even worse. It’s just a challenge to not see much progress being made right now. I also didn’t realize the added stress it would put on me as the sole breadwinner.
I think it’s harder too because our goals are uncertain and far away. When you’re paying off debt and saving for an emergency fund – those numbers are pretty clearly defined and not as long-term (in our case anyway). Now we’re saving for retirement and eventually college funds – but are we saving enough?
As to your specific situation – I wouldn’t “borrow” from my tax or emergency funds. I’d only take money out of those if my estimates for each could be revised downward and wouldn’t need to be replenished.
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$1400 right there on tickets to soccer club.
That is a classic example of lifestyle inflation.
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I’m in the Third Stage of personal finance and I’m just saving tons of money right now.
Recently I started revamping my business casual wardrobe after a long spell of not buying any clothing. I’m allowing myself to buy quality and trusting myself not to get out of control with quantity after a long spell of wardrobe frugality.
I travel a ton for work so my desire to plan travel for pleasure is minimal. And my BF is maybe at the 2nd stage of Personal Finance – so the person I want to travel most with couldn’t afford it. I’m pretty happy with long weekend trips with no hotel costs due to hotel points I’ve accumulated during work travel.
Part of me thinks that the Third Stage should include finding passive income investments vehicles – but with today’s crazy economy, there isn’t a bubble to invest in!
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$11000 for a trip to South Africa??
These numbers in this article are truly mind boggling.
And you are taking money out of your emergency fund to go on a vacation.
Sorry to say this, you might be in the third stage of personal finance but a lot of people coming to this site for your advice and to hear to what you have to say, are still in the first stage.
So all this talk of spending these huge sums of money is sending a wrong message to them.
I have stopped reading the article in the middle and dont intend to continue.
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It’s interesting that you raise the point about Crossfit as I believe that cost and convenience are two of the factors where many of the Crossfit affiliate models break down. For about $20 a visit (or between $200-300 a month for the affiliates in my area) you can go to an affiliate that has relatively static fixed times that you can work out in what is essentially a group fitness class. For less than 1/2 that price you can get a family membership to an all purpose gym that you can do the WOD at and that has other activities (yoga classes, a pool for the kids, etc.). Additionally if you schedule only lets you work out at some random time between 8 and 10 pm, this is very hard to accommodate at an affiliate. Many gyms don’t mind if you bring in your own gear, so you can buy your own rings and put them on a cage at a significantly reduced cost relative to the local affiliates. It’s not exactly the same (e.g. hard to find bumper plates, …) but the differences are often offset by the additions. If you like working out with a group, and if the added cost induces a higher level of commitment, then affiliates may be a good approach. However, in my mind they don’t necessarily represent a good value, which doesn’t bode well when the current round of hype dies down.
Also, a $10k initiation fee is not because it’s a good gym, it’s to keep out the plebeians. Normal gyms have a fee in the $100 range that is usually waved.
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I am by nature a frugal person, and I would say in the 3rd stage (but as a renter, so no mortgage has been paid off). I really haven’t changed my frugal habits much at all. The few things that have changed: 1)I will pay more for high quality items 2)Since I am from the states but am living in Asia, I’m taking full advantage of travel opportunities within the region without much thought (although I apply my typical frugality to trips) 3) I’ve also found myself able to more generously help out some family members when they could use a hand.
I don’t see this as being a time to rest on laurels or look around and wonder “what next” though — we just have new goals now that we are working towards: charitable giving, a down payment for a home, future kid’s college, etc. It is energizing to continue to work towards these goals!
JD — Maybe you could set a savings goal per continent! I agree with the others though — wait a bit for this trip to space it out from the France trip and feel more secure with it. Africa is amazing so don’t wait too long – there are lots of great tour companies out there, so don’t get too attached to your alma matter’s tour. The price you quoted is actually good for the number of countries you will be visiting — and I definitely think you should go the organized tour route for your first trip. No it may not be the most “authentic” African experience but you and Kris will want to feel safe and have good food and comfort when you are traveling, since the road journeys alone can be very hard.
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A trip to Africa is not an emergency! You’re thinking about breaking a cardinal rule!
Other than that, the Cooper fund and the cutbacks seem to be the best bet. I’d leave the tax account alone.
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I think the perma-debt notion of so many has them believing that life without debt is not possible. Getting out & staying out is a huge accomplishment…planning for the future is even bigger. You are an excellent example for us all.
Congratulations & good for you…spend as you please!
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I have not read all the comments. That said, my husband and I were at the so called third stage for many years. We never in our lives had debt except the house and a government credit card for the hubby. Our Government salary was in the ghigh five figures for a family of four (and then three). So yes, we spent what others would consider exhorbatant amounts on travel (we were stationed in Europe, after all), my husband skiid, husband and son played golf, and I bought quilt fabrics to my hearts content. Darling husband also had a fiat sports car. On the other hand, we always ate at home unless we were traveling, We always cooked from scratch, I bought discount or thrift store clothing and sewed, and we went to the movies once in a blue moon.
What we did not do was commit enough to savings, life insurance or emergency funds. My suggestion to you is to not “hack” those funds. My suggestion, if South Africa is the priority, is to reconsider postponingthe other trip ifyou can do so without huge financial loss. It sounds like this one is the more important (not sure why there is a fear of South Africa?? there are lots more countries I personally would be worried about, including Argentina, LOL). Not a huge Dave Ramsey fan, but I would consider a separate fund just for travel, a “sinking fund if you will. Separate from the EF. I would also consider doing more than maxing out my retirement, depending on your goals (spoken by one who has been the survivor of the catasrophe that can happen).
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I have always been in stage 3, because I save money pretty well and, between internships, family, and scholarships, I graduated without student loans. I never had to severely reduce my spending because I had the habits that never let it get out of control in the first place.
I then married someone in stage 2.6, with a little consumer debt (that he paid off before the wedding) and student loans. It panics me to see the savings account start trickling down, even when we’ve made a plan for how we want to spend that money, and I know what we are buying will last for the long run (hot water heater, bedroom set kind of things). It panics me even though I haven’t touched my emergency fund since a car emergency in college. (I’m 27 now)
Maybe it’s because, other than the obviously good example of my parents, I haven’t been able to find good resources for people wanting to live within their means who don’t have to pay down huge amounts of debt. Seriously – look at 90% of the financial blogs and they will tell people my age how to get out of debt. I’m not in debt, now what? What are good ways of prioritizing goals? How do I / Should I start investing in the stock market? Are 90% of the people my age really in massive amounts of consumer debt? Or are there others like me living (quietly) responsible financial lives? Where do I go from here????
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Traveling is a top priority with me as well. I found a tour company (EF) that lets me pay monthly so that’s be a great way to incorporate it into my budget without putting it on my credit card. Right now I’m going to try to take one international trip and one trip in the US a year.
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You know what I appreciate about you is the fact that you don’t come across as a blowhard, “look how much I just spent on fitness” type of guy that I so often see in posts from others across the web!
I love the fact that you’re still growing and canning your own food, but like you said – doing those things allows you to spend $200 a month on Crossfit!
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I would check out the trip entirely. As for those who comment that you should be helping the poor—you will be in Africa. Take money to buy those stupid things from the kids, give some dollars at a church, see the wardens working hard and tip them.
Our travels during our third stage was amazing- never looking at pay check to pay check to do it. Do we have as much in savings now? nope. BUT we have art from China, Vietnam, Saudi Arabia and numerous other places on our walls to recall the wonderful experiences.
We have traveled a great deal. Africa is on the list- but not this year. DH is headed to Alaska and I have been doing trips to the East coast to sure up our daughter. Travel budget shot- we are holding on. I would agree with checking with Kris- sometimes it is not good to push the partner in travel. We travel alone and together. I have to admit- while our alone trips were life changing…our together trips have made us a better couple in the long run.
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the whole point of accounting for your spending is to put your money where it is important to YOU!! good job- have a great trip- life is meant to be lived
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It is still really hard for me to spend money, even on things that give me enjoyment. So when I know in my head that I would really like making a certain purchase, but my gut rebels, I often dare myself to buy it anyway. I think of it as exercising my spending muscle. That is how I came to spend $100 on ThinkGeek’s tauntaun sleeping bag for my nephew, for example. For contrast, my family usually spends $40-50 on a birthday gift, so this seemed to me like too much to spend (and I worried a little about showing up my brother and sister-in-law) but it was so totally worth it.
Other things I have dared myself to spend money on and been happier for:
$4,000 trip to Mexico for solo travel& Spanish classes
$200 John Fleuvog heels (pretty AND comfortable, which I thought was impossible)
$500 cross country ski gear
$100/month on a monthly housecleaning service
$250 on a Herman Miller chair for my husband’s birthday (from craigslist, a huge discount, but still a large impulse buy)
Maybe some of these things seem modest to someone else. Or maybe they sound frivolous. Who knows. Like PMT says, I still try to work deals and spend time trying to get a good value. But each of these purchases represents a big shift in my personal approach to spending money, and one that I am still trying to work out.
*Of course* it is lifestyle inflation, but that’s not a dirty word (or, er, dirty words). I don’t understand that as a criticism. What is the purpose of going through the personal finance slog if not to give you the freedom to enjoy your life — in whatever way that means for you? It can’t just be about constantly delayed gratification, because at some point constantly delayed gratification becomes no gratification. Sure, I could have the same spending habits now that I had in college, and have tons more in the bank, but I do not believe that the constant acquisition of assets is a meaningful end in and of itself.
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@32 The mattresses themselves were under 2K, but they need a (wooden) bed with flats underneath (or an equally expensive box spring + frame). We didn’t have an actual bed before, just the $50 metal brackets. They *claim* these mattresses last 20 years, but I’ll believe that when I see it. So not really $2.5K/mattress. But yes, still pricey.
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JD,
I’ve always found it interesting to get other people’s perspectives on personal finance, because what works for one person may not work out well for another. Although I’m not currently in the third stage of my own personal finance, I look forward to getting to the point where I too can be torn on making purchases beyond the necessary. You save for a reason, but in the words of the Allman Brothers Band, “you can’t take it with you when you go.”
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First time commenter here – I love the blog! I love traveling and I say go for it if you can afford it, but I have an issue with your terminology.
If you really only *need* $15k in your emergency fund, why should it ever get above that amount? If I had $20k and I were in that position, I would have $15k in the emergency fund and $5k in a “slush savings fund.” If, on the other hand, you calculated that you need $20k in your emergency fund and you’re now justifying dipping into it, that seems like dangerous logic to me.
Same with the tax fund. I have had to keep a separate savings account for tax expenses in past years too. However, it’s pretty easy to project almost to the dollar what your taxes will end up being – you could even use an old version of Quicken or TurboTax to project forward, and save only that amount (while being sure to always save AT LEAST that amount).
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What on heavens is FI?
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I just wanted to say that I appreciated this post. I’ve paid off everything but my mortgage, make a good salary, contribute the maximums to work and roth retirement accounts and am still living simply while contributing to larger, long-term savings pools. It’s nice to see an article that deals with the intersection of a long-standing frugal mindset plus the kind of opportunities (like travel or larger investments) that are open to you once you’re financially comfortable. I would definitely be interested in seeing the third stage as a regular feature. It’s an under served area in personal finance blogs.
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@fantasma Financial Independance
” If you’re in the Third Stage of personal finance, what’s life like for you? ”
I know this is a simple answer -to get things that we want: We work.
Every thing we do is out of cash flow, as with you and Kris, we are at the third stage of personal finance also.
We make enough to just save from cash flow. By February, if I don’t have the money for Africa, I will take the rest from our savings. Put the money back after the trip. That is my advice to you.
We plan to visit the Caribbean this winter. All cash.
The third stage is the best stage for money!!!!!
Gotta love it
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Hi, my husband and I are on stages 2, 3, and 4 and at first when I saw the amount you were spending, my eyes got big and I was thinking “that’s ridiculous!” But then travel is very important to my husband and me and so is our health. I have been taking a boot camp that costs about $250 every other month b/c my motto is what’s the point of having money if you can’t enjoy it while you’re healthy. So we just budget it in and cut back in other areas. As far as travel, we just took a trip to visit my family overseas and when I look at the total amount of money we spent it was about what you’re planning on spending but the rewards were much greater than the interest we would’ve garnered had we merely placed the money in a savings account. Not only was I able to see my family after several years, but my husband met them for the first time and it brought us a lot closer and we felt more in love than ever. Of course all that changed after we got back into our daily routines (to a certain degree lol), but it was certainly worth it and I’d gladly spend it again. Traveling helps us to escape from the stresses of our daily lives and it helps us to rejuvenate not only ourselves but our relationship and I think that as long as it is budgeted for, the indulgence is usually worth every penny.
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We are also in the third stage of personal finance. We have no debt other than our primary mortgage and are fully funding both my wife’s and my retirement accounts. We also own a secondary vacation home in the Hood Canal area of Washington free and clear (after building it ourselves and paying as we went to avoid the debt). Currently, our budget keeps our monthly committed expenses to 47% of our after tax, after investment, income. That leaves us with thousands of dollars a month to spend as we like. The only problem is that I’m struggling to spend it. Even though we are meeting all of our financial goals, I’m still left with a bit of guilt about what we “should” do with the remaining money each month. (What does “should” really mean? It’s a very personal decision, I guess.)
The latest thing I’ve been continually thinking (okay, maybe obsessing just a bit) about is paying off our mortgage. While I’d like to take additional trips each year, or buy that new Mustang GT (Have you seen the 2011? I think it’s pretty sexy even though I’ve always been a European car guy), lately I think I’d get more satisfaction and contentment by seeing our mortgage decrease by a few thousand a month.
So, you might say, “Well then just put the money towards the mortgage and be quiet!!”. Unfortunately, I’m not sure that’s the right answer either. I think you may be in a much more intelligent place by recognizing that we shouldn’t be sacrificing everything today for a future date that may or may not ever come. I guess it’s the whole “moderation” thing where there’s really no right answer. For me, the answer is probably somewhere around paying additional on the mortage AND buying the car, or taking a trip. I should probably try to follow your lead and just let go a bit and realize that it’s okay to enjoy myself because I’m already meeting the main goals for a secure future/retirement.
All that being said, I think you are just fine with your current strategy for funding the trip. The reality is that you won’t charge yourself anywhere near the exorbitant interest rates that a bank would charge you to fund this trip!!
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fantasma:
FI = Financially Independent
It’s often combined as “FIRE”, meaning “Financially Independent, Retired Early.”
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I wonder if the recent family health emergency you were dealing with has made you more likely to “do it now” rather than put anything off.
And I’m not sure how I feel about that impulse — I know we are traveling more often and spending more when we do now that I have a very serious disease which will cause my death someday, so it is a very real factor in how one chooses to act.
But at the same time, even with this diagnosis it isn’t like we’ve decided to spend spend spend. I think because we’ve found the habits of many years of “stage 3″ financial stability pretty hard to break.
I think perhaps because you achieved stage 3 pretty quickly (many people take years and years to get where you are) it may be easier for you to not follow the frugal habits that got you there.
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Thanks for the inspiration! My partner and I are currently paying off student loans (we don’t have any CC debt), and are really happy with how we’re taking control of our finances. It’s awesome to see what our future could conceivably look like.
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In my 50′s and at the 3rd stage. We just bought a house with large/tall windows. I don’t sew and have always wanted beautiful drapes… so I did it. Got a seamtress, bought lovely fabric and paid ALOT of money. And I LOVE them! Now, on the other hand. I got a free dining table and chairs, refinished them myself for about $200. Same with the guest room furniture. It’s all a balancing act.
As for your cost of a gym… back before I hit stage 3 I decided to pay for a personal trainer. Best thing I ever did. Losing 50 pounds helped me look deeply at my life, leave a troubled marriage and move on. Decide what your dreams are and make choices… save money on this (not important) and spend money that (important to you). Use money as a tool to move life forward.
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Mini Cooper, taxes, or ER fund…doesn’t matter. The bottom line is you want to spend money you don’t have because you have to have it NOW. Is this really the third stage? Before you would put in on your credit card and worry about paying for it later. Now you’re taking money from your earmarked savings accounts and will worry about paying for it later.
Also, I am self-employed and I have to pay taxes quarterly. Don’t you?
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I agree with someone (I am sure there are more than few, I just haven’t read all comments) who said you are paying for experiences, not stuff. There was a post on another PF blog about it. I am all a bout experiences. I cut to bare minimum all but love to travel – whether to races, or to see places. I am not sure what stage we are officially in – we have no debt (I never had one to begin with), we max out all retirement plans, and we have a rather heafty saving account – 6 months worth of living, plus double that for a house downpayment. Since this is our second marriage, and we each left our previous houses to previous spouses, we rent, and one day we’ll buy – but the plan is to pay half in cash. So, where does it put us? Speaking of CrossFit pay – I pay $110 for Bikram classes and $22 for 24hr fitness a month. I wouldn’t trade it for anything. And I LOVED the comment on: getting to financial “whatever number” stage is like loosing weight: you got there, but still can’t relax much. I am in a constant work-in-progress on my body, never stops. Literally, take a week off – work 3 weeks to get back on track. Life is funny like that:)
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I don’t think raiding the emergency fund is a good idea.
That said, now that the debt is paid off, do you really need a 20k emergency fund? You might, since you’re self-employed, but it might also be worth looking at again. If the emergency fund was figured including $300/mo in minimum payments, then that’s $3600 that might not need to be there. (That figure is totally made up.)
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I’m not quite at the third stage of personal finance, but I’m very close. These are exactly the sort of things I expect to be doing in a couple of years.
I really enjoy these types of articles, the ones where you see the principles of personal finance in action.
I have a problem with your idea of borrowing money from your tax account. This is a terrible idea. Taxes are a committed expense, you have to treat that money as if it was already spent. Borrowing from the mini cooper fund seems like the way to go. If you borrow and then cant pay all the money back, you’ll just get stuck with a less expensive car, and no real harm done. If you suddenly cannot pay your taxes, that could be much worse.
Anyway, if you can figure out a way to accumuluate the money without raiding the tax account or taking too much out of the emergency fund, then I say take the trip and be sure to post pictures when you get back.
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Take the trip!
While for most people dipping into the emergency fund or tax fund is a bad idea, you mentioned that you and Nicole keep separate finances and she has a ton saved. So, IF an emergency did arise, I suspect you wouldn’t be as much at risk as it might appear.
I paid off the mortgage in May, so we are at stage 3. So far, I’m not sure what exactly to do with the money. Getting the mortgage paid off was a very focused goal and now achieved, while great, isn’t all that I thought it might be. I need to find the next goal to focus on.
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Just a word on weather in South Africa. I visited South Africa in April. February is towards the end of the rainy season. Grass is normally still high in the reserves. The peak season for going on a safari is May through September when the grass in not blocking the view. It depends on what you want to see of course. A great time to see some of the botanical gardens. They were nice in April and would be much nicer in February.
I had access to car and was able to get around South Africa by myself without too much difficulty (and help of GPS). Kruger lends itself very well to driving.
February is during school session in South Africa. Be sure you check school schedule if you move the date and try to visit when school is in session.
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Your costs for fitness and soccer are similar to our costs for theatre, football (soccer) and other festivals and events out here in London. But, then we didn’t move out here for a few years not to do them. It’s just a matter of prioritizing what is important to you and establishing a budget for those events that still fits within your yearly budget and retirement goals.
As far as Africa, both my wife and I have spent a fair bit of time overlanding much of Southern and Eastern Africa. You can certainly do it a lot cheaper on your own. Obviously doing in on your own takes a little more courage and you’d need a few more days. And, like a previous poster mentioned Africa isn’t going anywhere. So,you don’t have to do it next year, you can do it once you have more confidence and a few more trips under your belt. But, at the end of the day, it does just comes down to value. And for many saving a few thousand isn’t isn’t as important as not having to worry about it.
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I think you have–or will have–enough money. Two things to think about: first, these trips are offered ALL the time. I just got one for India from MY alumni assoc. Second, is it the best to go on trips so close together? The anticipation for the second would be diminished by the close proximity of the first.
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Back from the gym. Today’s Crossfit workout: Run 800 meters, then jump rope 100 times (or do 30 double-unders, for advanced CFers). Repeat this sequence for 30 minutes. I did six complete rounds. My calves are toast. Now, on to your comments…
@Randy (#44)
We do have a sub-account for travel, but it’s just been depleted to pay for our trip to France and Italy. I should have mentioned that regular contributions to this will add a few hundred dollars by February. Thanks for the suggestion to check out oattravel.com.
@Stephanie (#46)
Though it pains my trainer to hear me say it, I find the scientific and anthropological basis for the paleo diet unconvincing. I don’t want to say it’s hogwash, but I think much of it is wishful thinking and not based on hard evidence. So, no — I don’t follow the paleo diet. I know many people who do, and it works great for some of them. I think that’s awesome. For myself, I practice calorie restriction, and I do try to eat more protein than I would if left to my own devices. (My target is 150 grams a day.) And yes, eating healthfully is expensive. I’ve been eating a lot of fresh fruit, and those prices add up!
@Kevin (#49)
Hm. If you’re sensing “justification” in the post, it may be because I’m being pre-emptively defensive because I’m worried that others will judge my existing spending without being able to see the big picture. I’m confident that the Crossfit and the soccer tickets are reasonable and affordable. And the Africa trip is a sort of case-study. It’s an example of the sort of decisions I’m making lately. Note that I have not made a decision on Africa. It’s likely that we’ll go, but first I’m going to have to find ways to make it feasible. And, as I mentioned, I’d rather not tap the emergency savings, so I have to look at other options. As for separate vacations: Believe me, there’s some of that in the future.
@Fantasma (#53)
Yes, it makes perfect sense to re-direct savings earmarked for the Mini and other goals toward the Africa trip in the short term. But I will not compromise on the retirement contributions. For me, there are certain minimum financial standards that have to be met on a regular basis. One of those is retirement contributions. Another is a full emergency savings account, which is why I’m reluctant to tap it. (The difference between retirement and emergency savings is that the savings can be replaced; also, the savings is significantly over-funded, in that it could support me for almost a year of regular spending.)
I marked the comment from Shalom (#56) as a great comment simply because it gets to the heart of my thought process on the Africa decision. If you want to know how I’ve been sorting through this, read her comment.
@Raghu (#61 & #63)
Right. So, this is why I’ve been reluctant to share these sorts of things at GRS, and I think it’s a shame. Yes, one of my goals is to help others get out of debt. But it’s also one of my goals to continue my own journey. I’ve stopped writing much about my journey precisely because I’m worried that doing so will cause reactions like yours. But is that the right thing for me to do? Should I hide what’s really going on simply because some people won’t be able to relate? This post is “testing the waters” to see how people react. Most seem okay discussing these topics, and they seem to understand that I’m in a different financial place than I was five years ago…
@GV (#64)
My Crossfit trainer has talked to me about some of the stuff you bring up. He even has people sign up to learn the Crossfit exercises, and then they quit to build their own home gyms because they can do that at a fraction of the cost of sticking with Crossfit. For myself, I’m still getting a lot out of CF, and I love the 6:30 group, so I’m not about to stop. But you have a very valid point.
RE: The tax account
Yes, I pay taxes quarterly. And maybe if I explained my method, that would set some minds at ease. My tax account is actually way ahead of what I need. I’ve already paid my estimated obligation for 2010, for example. Now, over the past couple of years, my estimated obligation has been below my actual obligation, thus the need for the tax account. But even so, I’ve generally had a cash surplus in that account, which was precisely where I got much of the money to purchase the Mini Cooper last year. (After I paid taxes, there was a ton left over in the tax account.) This is why I’m not worried about drawing from it: my 2010 estimated obligation is already fully paid, and I have a nice chunk of change there for any excess taxes.
To everyone
This is a great discussion. I was really worried about sharing some of this stuff, and while I understand that not everyone agrees with my choices, I like that we’re able to have a productive discussion about the whys and wherefors of these expenses. And I especially love the stories from other folks who are in this stage. I don’t do a good enough job of getting those out there at GRS. I’d like to share more of them.
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I’m probably in Stage 3.9 after decades of living below my means. Health is my #1 priority because when I don’t feel well, I don’t enjoy much. After that, travel is an activity I truly enjoy. I think travel and level of comfort while travelling is highly personal. As someone who has now visited 61 countries (I loved South Africa and hope to visit Namibia, Botwana, etc.), I would only travel in Africa in the relative safety of a tour group. Reputable tour groups also show you the most you can see if your travel time is limited. I would go on the tour you describe in a heartbeat!
My guiding principle has been to know that I may not be able to afford everything I would like but I can afford (or can figure out how to afford) what I truly want. I don’t feel guilty about choices I have made mindfully and I don’t criticize the choices others have made mindfully (as long as we take responsibility for our choices and don’t harm others).
Best wishes for whatever choice you make regarding your potential African trip.
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I am in stage 3.
I just had my 15 year old camry totalled in an accident (no injuries, not my fault.) I received a small amount of $ from insurance and funded the rest of my new BMW purchase with my car purchase savings. The best part of stage 3 is when the unexpected event occurs, it is not a catastrophe. You have such flexibility in your life.
Side note: yes I have paid off the house. I have no debt whatsoever.
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Thanks for this article, JD. I graduated from college at the end of last year and started working full-time early this year. I’ve never had debt, so I’ve always been in a position of choosing between wants. But having a permanent full-time job with good income has afforded me options that I haven’t had before.
I am planning on buying a car in a few weeks and I will be paying cash for it. I had originally only earmarked $4,000 for buying a new car because I had anticipated financing it to add to my zero credit history. I don’t want to “buy” credit history with the insane rate that I would end up with, so I instead plan on emptying my house fund and borrowing a small sum from my emergency fund. It is sitting at $15,000, which considering that I have a permanent job, no partner, no kids, and no mortgage is a lot of money. I could have bought the car NOW, but I chose to wait until after my August 31st paycheck so that I’m only borrowing out of the emergency fund what I can pay back in 1 month, not 2 months.
I’ve always had a form of an “emergency fund”, but I don’t call it that. I call it “General Savings”. I have only had one financial “emergency” in my life and it wasn’t that dire and so I have always used my “General Savings” account as more of a buffer. Maybe this isn’t the “right” way to do it, but you know what? It works for me and I’m pretty good at saving and not overspending or paying money back that I borrowed from somewhere – I knew how to do that back at 15!
Anyway, thank you for this article. So many of your articles are geared towards people who are in the earlier stages, with debt, and this one really made me feel better that it’s not entirely a wrong choice to borrow money that is earmarked for something else.
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I think the best thing about being in stage 3 and having worked for it is that you do tend to know what you value. Frankly I still hate to go shopping and I think about every expense I make. Can I get by without this, can I get it cheaper somewhere else, will it really bring joy to my life, what will I do with this when it is used up/broken/ no longer needed? I ask all those question – so I don’t usually buy something that I don’t think will bring me joy or pleasure.
We’ve spent our money on a lovely home (bought in the depths of the housing recession about 2 years ago). I am fortunate enough to not work. I play a lot of tennis and probably spend good money there (although I haven’t joined a club), my husband’s vice is sports channels on directv and Carolina basketball tickets. I’m an avid baseball fan and go to lots of minor league games and a few major league ones each season. But all these activities bring us a lot of joy. It’s money well spent.
There was a very good article in the NYTimes this past Sunday about spending for pleasure. It said those who spend more on experiences rather than stuff are happier – I concur.
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I was very interested reading your account, and know where you’re coming from. I never got into debt, myself, and find myself in the same situation; maxing my retirement, saving money, paying cash, good cushion… and a lot of international travel.
When I visit somewhere (did Tallinn, Estonia all of June), I don’t have to look at the prices on the menu: if I like the place and want to experience it, there’s no worrying about budget or wondering if I have the money. I browse for “stuff”, but I don’t buy crazily. I can just afford the things I see that I -really- like.
It’s a very freeing feeling, and I want folks to not gaze enviously at such situations from a distance, but work to get here.
Imagine the lack of stress, and then the fun that staying there can bring!
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