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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Emergency fund: I don’t understand why people are such sticklers about not drawing from $20,000. There’s no golden number here–it’s all about statistics of extreme events, which are hard to estimate accurately. You’re in the best position to judge the extent of your capacity to handle an emergency, and you get to define what would constitute an emergency in your life. It’s silly to have a categorical imperative about not ever withdrawing from an emergency fund when the basis of the fund is potentially not so well established. The marginal loss of (perceived) financial security could easily be exceeded by the benefits of a vacation, in my opinion.
Vacation to S. Africa: Have you priced out similar, ‘reputable’ trips? There are some that are more oriented to building up local capacity than alumni funds.
Charity: I did international development in an extremely poor country for a year. I would have a very, very hard time experiencing vividly on vacation the irony of valuing my own enjoyment/health at *many* thousands of dollars more than the residents’. However, it’s what almost all of us who read this blog do daily, just less consciously. And if going to a developing country with your alma mater gets you thinking about and concerned for the welfare of other people, then it’s absolutely worth it. (After all, one still plunks down much more regularly into mortgages and other things.) As far as giving effectively, check out GiveWell. Their purpose is to assess how charity dollars can be spent with maximum beneficial impact. For an intellectually rigorous discussion about the issues involved in giving to others, including practical financial strategies, you might be interested in Peter Singer’s book, The Life You Can Save.
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JD, thank you for sharing. You don’t have to justify your spending to anyone.
I have always enjoyed reading about your journey and am looking forward to reading the blog growing series AND one major element missing from both is health insurance costs. For most Americans, the cost of HI continues to rise and, without employer assistance, becomes unattainable.
I believe you are covered under your spouse’s governement-employer provided HI program? Do you reimburse your spouse for that cost or full value? If not, your spouse’s employer is underwriting your success hugely. If you had to purchase your own HI, what would it cost you?
For our family, our HI costs over $22,000 a year (currently covered 90% by an employer). That is over $1800 a month – making that gym membership look like chump change. This year, we also added the cost of braces (for two) so add another $8290 (paid over two years and coming out as a pre-tax deduction).
To even mimic your ‘financial independence’ and maintain the same coverage, we would start out with roughly a $25,000 per year cost on top of our standard living expenses.
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JD, I say go on that vacation. Yes, South Africa will always be there, but life is short. If this is something you want to do than do it. Sometimes we have to cut back on other expenses to do something we really want to do.
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Reader confession: we are in stage 2 but live like we are stage 3. We have a 150,000 mortgage and 80,000 in student loan debt that is all being repaid on a 20 year plan. But we eat out and drink wine and travel a lot to see friends and family. We have about 10,000 in an emergency sludh fund, and frankly are not willing to put ‘the good life’ on hold for the 3 or 4 years it would take to dig deep Ramsey style and get out of the hole.
I think it’s okay – the savings balances grow, the debt accounts shrink, and the retirement contributions go up every year. And the fun goes up every year. We’re well insured and my employment is basically garunteed, so financial disaster is unlikely.
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wat would yor millionare next door think of you diping into yor e.fund for that trp?he might break a limb off an use it on you jd.wats wrong with you boy?ha ha,that money could be compounding…wat about yor book money?
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To those of you who mentioned Kiva – I think microfinance charities are a great idea. What you need to be aware of in the case of Kiva, however, is that the way they set up their lending is somewhat misleading. The woman in Peru you think you are lending to has already been given money and paid back whatever amount. They set up an artificial lending scenario to make it seem more personal to the charitable giver. There is no urgency to lend to the woman in Peru, considering the transaction has already past. It’s the same with organizations in which you sponsor a child. I imagine in those situations, families across the US are all sponsoring the same child. It’s just a way to make givers feel like they have a more individual stake in someone’s lives.
I don’t think charities that do this are necessarily wrong, but I do think they insult my intelligence a bit. Plus they create more administrative fees, which directly takes away from money they could be giving.
Note: Heifer is much more open about this. They have a disclaimer that says clearly that the money you give is not going to ACTUALLY pay for those chickens in Romania or whatever.
But back to the issue at hand. I have no idea what stage of finance we are in. Perhaps we are in the third stage, since we have no other debt but mortgage and have a good emergency fund and contribute a decent amount to retirement. But since we have two young children, I will not feel comfortable spending a lot on travel (even though I love it) or other things for a very long time. Perhaps that means we are not in the third stage yet!
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Jane(@#206)
As I was the one who mentioned Kiva, I suppose I should comment. It is true that Kiva was criticized for that very reason, but while I’m not sure if they have made it easy enough for those new to microfinance to understand (because it’s a bit complicated idea), they do now disclose part of the way it operates is pre-disbursal of the funds and back-filling them with the money users loan.
At any rate, I’ll post below one of the exchanges between a critique and the Kiva ceo/co-founder about this issue, just for your info.
Critique:
http://blogs.cgdev.org/open_book/2009/10/kiva-is-not-quite-what-it-seems.php
Response:
http://blogs.cgdev.org/open_book/2009/10/matt-flannery-kiva-ceo-and-co-founder-replies.php
Obviously, if one decides (yes, his or her decision) s/he wants to help, there are many routes to do microfinance or charitable denations other than Kiva, and I believe it is best people make choices that feel right and comfortable for them, according to their research, personal values or situations.
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@Jane @ 206:
I think what KIVA portrays they do is very close to what is actually done. Even though the money is technically back filling a lone it is somewhat specifically linked through the KIVA marketplace. For example, if certain types of cases or certain loan officers make loans no one wants to fund (or take a long time to fund) they will probably stop making those types of loans in the future. Plus you actually have oversight over what loans that specific loan officer is giving out.
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I didn’t have time to read all the comments, however:
1. I think $6k for a 3 week trip to Africa is a great deal (just remember to include all the extra vaccines, mosquito netting, etc. that you will need). I think the CDC has a website about traveling to Africa.
2. If you can afford it and it makes you happy, who really cares what anyone else thinks? The title of your blog isn’t “Stay Poor and Feel Righteous About It”
3. Spending that much per month for a gym is a bargain if it keeps you healthy longer (fewer Dr.s visits/medications/pulled muscles, etc.)
4. If you look at the season ticket price for NBA or NHL teams (a Detroiter here!) $1400 doesn’t seem ridiculous for soccer tickets.
I guess everything has to be put in perspective. Just be happy knowing your smart(er) decisions in the past have allowed you to make even smarter ones now. Only you can decide if they are smart though.
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I have read most of the comments but I have not seen another option for where you might find the money for the trip -
You mentioned that you and your wife have separate accounts, that she is a saver and has the money for her portion of the trip –
Is it an option to get the money from your wife and promise to replace it by a certain date?
I must admit that I do not read your blog a lot so I do not know if this option is off limits.
I agree with others that this was a great post. Thanks.
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If you don’t go to South Africa will you regret it? I was in stage 3 and made the conscious choice to liquidate everything to help my grandaughter get her “optional” liver transplant. I regret many things but even though I now find myself back in Stage 1, that will never be one.
As far the demand my some for your hard earned cash as the best way of giving back. I donate my time to LOCAL organizations who do not send me glossy 4 color brochures. I do get a 20 percent discount at my local food coop and volunteer a lot of my time. I consider those as payment and any time I give is extremely valuable. Every minute you live on this planet is precious. Treasure each moment, those you share it with and live like you mean it.
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JD I think you should take that trip! We are financially secure and have no debt and yet we still dont really feel free to do things like that. My husband and I are both in our fifties but our last two kids are only 9 and 13 years old. It’s sort of frightening to think about tripping across the globe right now.
By the way I have started my own business. Go take a look at my blog for an update on how Im doing. I want to talk more about this with you at the family reunion!
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I agree with whomever said you should have some sort of slush fund for when the “emergency” fund gets too big.
A $20,000 emergency fund is a little larger than what most people have, hence, I assume the trigger reaction to keep it solid.
I would take the trip while Kris is into the idea if I really thought I would regret it down the line.
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sorry about the bad email and mispelled name in my last comment. I corrected it, just so you know!
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J.D. Roth says:
12 August 2010 at 10:35 pm
Argh! Somebody left a great comment, including advice from her 93-year-old grandmother, but it got routed to spam. When I went to press Approve, I accidentally pressed Delete. I apologize.
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J.D., that was me.
Unhappily, I didn’t save it, but I’ll try to re-create it since you seem to have found it useful.
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J.D. this is a great discussion, and something my husband and I have struggled with as well. The problem for us is that I was raised by a single mom, and DH was raised by Yankee/Midwest parents, who are extremely thrifty. So it’s easy to get caught up in money = ONLY good if it’s in the bank. Our feeling is that if you go too far to this side, you are in danger of becoming a miser. In fact, this has happened to DH’s parents.
They have property worth several million dollars (no joke) and my FIL still wears polyester pants from the 1970′s. My mIL has refused to “allow” him to buy a new-to-him car; he’s instead been relegated to the 15-year-old car they inherited from MIL’s mom. Which he hates. They dreamed for years of going to Alaska, but were never willing to part with the money. So the kids chipped in to buy them the trip for their 50th wedding anniversary.
DH and I prefer instead to take our life advice from DH’s Granny, who passed away last year at 93. She loved to tell tales of living through the Depression as a newlywed. Her favorite was when a riverboat came to the nearby town, and she and her husband had .10 between them. They siphoned gas out of one of the farm machines, drove to the riverboat, spent .10 on the evenings entertainment, and remembered it for the rest of their married lives as a “carpe diem” moment.
When we got married in 1997, her advice to us was: :If you have the possibility of traveling, TAKE IT. You’re responsible people who will do what you need to to keep the lights on and the mortgage paid. There will always be another bill, or some house improvement project that can use your money. But set some limits on those, and TRAVEL. There will come a time when you won’t be able to, or won’t want to, and those memories will be like gold.”
So, we’ve taken that advice to heart. We’ve traveled all over the US (well, at least to places where it’s not snowing!
), to the Caribbean 4x, to Europe (Czech Republic, Germany, Austria, Italy, Switzerland, France), and we budget for those trips.
We put more than 20% of our gross income into retirement; we do big home improvement projects 1x per year; we take care of our (relatively new) cars; we comparison shop, but buy quality. In short, we work hard at a prudent balance, and we’re doing fine.
We’ve faced a lot of jealousy and sneering, most especially from people who have made other poor choices in their lives relating to money. We can’t help that, even though it does rankle. Ultimately, this is a big part of PERSONAL finance to us. My sister couldn’t care less about travel, so her money is spent on take out dinners every night. And that’s OK, if that’s how she and her husband want to spend it.
My point is that there will ALWAYS people who are willing to tell you what you could do “better” with your money. And I think “better” should mean more MEANINGFUL. Your money is a tool. Wield it in a way that is MEANINGFUL for you.
Sandi
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@215, what a great story from your husband’s grandmother! your point is excellent.
JD, in terms of charity budget, that might be just the thing if *you* decide you want to give more. I track charity along with my other expenses and was embarrassed at how little I gave when I compared it to my food, coffee, clothing, etc. line items. So, I made it a goal to increase my giving by a little bit each year. Last year I gave 1% of my take-home, and this year I decided to give 2%. Sure, I could do better, and yep, some of your commenters might berate me for giving so meagerly, but I know I am moving in the right direction. Honestly it’s kind of fun to have $300 or so left to give at the end of the year, and decide how to do it. (My favorites are NPR, a local food bank, Habitat for Humanity, a local bicycle advocacy group, Doctors without Borders, and usually some disaster-of-the month organization.) Deciding how to give is a refreshing change from the usual December slog of deciding what to buy!
Everyone’s on a journey and it’s great to have this conversation to reflect upon.
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Sounds like you got Timbers tickets in the same area we did.
Yes, expensive. But if you have the means and you’re conscientious about it, and it’s something you can get without your world falling apart…what is the money for?
Balance. Experiences not stuff, right?
See you at PGE next year!
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Stage Three is like the proverbial cookie jar of my youth where the cookies inside are fresh and delectable, especially with a cold glass of frothy milk. I cannot wait to indulge and embrace in all the privileges and burdens of that stage. We are a long way off for several reasons -quite a manageable amount of consumer debt; I also incurred six figures of debt for graduate school. I still find it exhilarating to contemplate a day where our income is our own. The cookies will not taste as good before dinner. So, such extravagant vacations are not appropriate now – but they will be in our future. I detest the idea of JD creating a separate blog for the third stage of personal finance; GRS should cover the full spectrum of issues and challenges along the path to creating wealth. The third stage is about enjoying the fruits of your labor.
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No brainer. You can afford it. You really want to do it. Do it.
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Well, we have no non-mortgage debt, and we’re saving about 20% of our income and have a comfortable cushion, so I guess that puts us in the third stage of personal finance. We just paid off our car loan.
I think my most scandalous regular indulgence (at least to GRS readers) would be my $100+ haircut and $200+ highlights. I must say it’s worth every penny. My stylist, at a fancy Chicago salon, gets national press and gives, hands down, the best haircuts and highlights I’ve ever had. She makes me feel fabulous, and it’s worth every penny. I feel like a princess for days afterwards, and I can roll out of bed in the morning, run a brush through it, and my hair looks great.
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As an excellent earner of money, and a tax-paying citizen, J.D. already gives more than his share to “charity” in the way of taxes.
Some of this money is used to service things he uses (roads, emergency services), while the majority is used by the government to fund services for charities, hospitals, veteran services, health research, etc.
J.D. likely gets the benefit of only a tiny fraction of the money he gives in taxes.
He owes nothing more.
And he should not feel compelled to justify this to anyone.
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JD, thanks for sharing this, and good for you for reaching so many goals. This trip sounds like an incredible opportunity, where you get a dream and your wife wants to share it with you, when she may not under different circumstances (ie, a self-organized tour, which I was going to throw out as an option before I saw your follow up). I think you should go for it. Circumstances change, and experiences aren’t always there as an option later.
My favorite relatives retired early, and had some wonderful years together. Now one partner is dying of cancer and the other has been taking care of him full time, for several years. If they hadn’t chosen the life experience when they did, they wouldn’t have had the option later. Go on the trip if it feels right. I don’t hear anything reckless or risky, just logistics.
Like the Dalai Lama says, we’re here to be happy. Your daily life makes you very happy, and that’s great, and this sounds like something you’ve yearned for for a long time. Fulfill, dear one!
Thanks too for sharing a post that opens you up to lack of understanding from people who are in a different place. Brave. And good for us!
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This was a fantastic post, J.D.
My husband and I are in this stage as well and it can be hard to let go of the guilt when purchasing material things or traveling. Thanks for the reminder that once your debt is paid, your savings is stashed away and your nest egg is growing, you are free to do whatever you want with your money!
I hope you go to South Africa. Happiness comes from experiences, not things. Thanks for sharing your life with us!
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Alexandra #221, thank you for posting that – I feel the same way and all the critical comments about JD’s not giving to charity really rankled me last night.
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“bystander says:
12 August 2010 at 1:08 pm
1 – To everyone who says that going to Africa will “change your life” because it shows you people living in poverty and makes you appreciate your own good fortune, stop. Just stop. You don’t need to spend $5,600 on a luxury trip to learn about poverty – take a drive around your own city if you want to find out how others live in relative poverty. Every city has pockets of poverty. And be compassionate. Africans do not exist to make those of us in First World countries feel lucky, fortunate, and smug. Sheesh.”
Well said! “Africa” isn’t a monolith–each individual country and area has its own attributes–bustling cities and countrysides. You will find tremendous wealth and poverty in nearly every corner of the earth. The continent shouldn’t be defined by the images you see courtesy of various charity campaigns and National Geographic.
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I agree with #160 Nicole and various others: 1/4 of your $20k emergency fund is mislabeled if your emergency fund only needs to be $15k.
But I disagree with your logic that $20k is a large emergency fund, and I think $15k is a bit thin. It might be 1 year of your standard expenses — but emergencies come in more forms than just loss of income. In particular, moderate medical emergencies (even with insurance) can exceed that amount. Or major disasters; for example, earthquake deductibles are often 10% of the value of the home.
Does your wife has a separate emergency fund? If she has significant savings, then I might be convinced that $15k is enough for you. Assuming she would be willing to share with you if something big were to happen.
Regardless of all this talk of emergency funds, I think you should go to South Africa. It’ll be a great experience, and you can afford it. (Just don’t take the money from your emergency fund.)
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I’ve got my own “Africa x 10″ in my $55k RV that I bought when I was in stage 3. Buying it never stopped me from getting into stage 4, if anything it provided more motivation to get there and use the darn thing more.
In fact, we’re somewhere in central Oregon now on our one month summer trip.
That’s what I’ve found that many of the expenses that arose in stage 3-4 reflected – what my real values were. Those stages of PF are wonderfully enlightening. Although I’ve traveled quite a bit previous to this stage (when in stage 2, I suppose), I’ve never enjoyed it as much as I do right now and I hope you find the same.
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Sandi @ 215: Fantastic story! Thanks for taking time to share it, and then to recreate it. I love the image of your grandparents siphoning gas to see the riverboat. And I like the cautionary tale of your inlaws. AND I like that you all are taking care of your future while still enjoying the present. Terrific!
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Ok, a thought came up and I have to say it:
Your post sounds a bit like the “cheap”, well-educated, person who is doing well financially yet competing with the very poor people who really need the clothes and accessories down at the Goodwill.
Why don’t you think about giving some of your money to charity (maybe you do, so lets hear about it) or sponsoring some financial counseling for the poor in your community? Or going to the Goodwill fundraising dinner?
I’m serious, I’d really like to see you have a savings fund for charity and have fun spending that and seeing the difference it makes!
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I know I’m late to the game on this one, so I’ll make my comments brief.
1) Don’t get hung up on labels. If you have more than enough in your EF or tax fund, don’t fret about reallocating. For this very reason, I cap accounts like these and put anything extra in a slush fund.
2) Take the trip, if it’s a good time to go. You’re a long way from a slippery slope when you’re debating how best to pay cash for a trip like this. No one is guaranteed tomorrow, and one of my personal challenges in my own version of the third stage is learning to balance spending today vs saving for a tomorrow that may or may not come (and almost certainly won’t come the way I envision!). For instance, my wife and I are planning to spend roughly $12k on a two week trip to Tanzania this fall. We plan to safari, climb kilimanjaro, and visit the school we sponsor. Is that a lot of money? Yeah. Would it be even more money if I let it compound for 40 years? Yeah. But I’m 25, and I have a feeling that then memories of that trip will compound in their own way over the same period. And since we’ve got a six month EF, maxed out retirement accounts, and no consumer debt, I’m comfortable setting aside some money for today.
3) I will echo those that have requested more content on the third stage of personal finance. This doesn’t mean every story is “how to spend a wad of cash;” building wealth raises a new set of issues, including tax planning, estate planning, and (yes) giving.
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I say take the money out of your $20K. You will find a way to replace it! It seems like you always do. The wife and I are always at stage 1. We will never be debt free and really don’t care about it. Every time we pay something off, we buy something else. We seem to always keep our debt to income at the same exact % level. We just keep buying more income producing assets. Except for our last one. I bought a plane to travel around with. WE LOVE IT. It has already brought so many memories it’s amazing.
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If there is one travel experience I would recommend to anyone I ever meet its to at least ONCE visit Africa. I traveled with the Clinton Adminstration during his 8 stop tour in Africa and had a chance to visit Uganda.
Its hard to explain but once you step off the plane and onto African soil, the air feels so heavy and different than anywhere else. The landscape is beautiful and contrary to what most people would expect it is NOT Third World in many ways. Yes, you have to be a bit careful in your food selection at some of the restaurants, particularly the meat, and drinking only bottled water is highly advised but without exception the people are wonderful. They were so incredibly warm and welcoming, from the street vendors, to the workers, to the schoolchildren inviting you to kick a soccer ball with them. I had the chance to work out at a makeshift gym near the hotel we stayed at in Kampala and you should have seen the look on the mens face when I brought out copies of weightlifting magazines I had in my bag. No one begged for anything or were looking for handouts..everyone simply took pride in what they had, whether it was a mud hut with straw roof or collection of books they had and everyone I met simply wanted to absorb everything I had to share as far as experiences or answers to their questions. The trip truly opened my eyes as to how important it is to get out and see other parts of the world and especially how much we, living in the United States, have it. None of us has experienced how the simple act of an elephant coming into a village and drinking up the water supply can affect your life, or trying to feed, clothe, and provide for a family under the rule of a dictator. Save as much as you can and do it! I promise you wont be disappointed and you will have the travel experience of a lifetime.
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@ 153, Shalom–
JD, I second this advice. Set a limit on the amount you want in the tax and emergency funds. Add in a 10% buffer. If the balance of the accounts is more than those projected amount, then the money is in the wrong account. Create a new account – I call mine “Spending Savings” because I love the oxymoron – but it’s the amount of money that I can spend without harm and still have every other goal met. No borrowing from myself, no guilt, no need to pay myself back. I could lose the money on the street and still not miss it. You should seriously consider creating a sub-account for this purpose. Along with taking out the guilt and indecision, it helps you keep tabs on how much you are allocating to this category.
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Once again a very interesting entry. Just last night I talked with my husband about a trip to California I’d love to make with him (we’re from Germany). We’d need 5K EUR for it… but the 5K EUR I inherited from my mother last November all went into paying debts and such.
One big reason why I want to get rid of debts is to have the potential to make those travels with him. We’re not getting any younger, and even on stage 2, it’s important to keep the _experiences_ in mind (loved that term here). People do have heart attacks at 45, and no money in the world can make them alive again. Saving for later is great, but stopping to live today isn’t a good solution.
This said, I think the biggest point for me against the Africa tour would be the two big travels close to each other. Better enjoy one, and the other at another time.
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1) I continue to hope that you’ll incorporate real, substantial giving into your Stage 3. I promise that it will make you feel even better about your other discretionary spending. And you can afford it. And it’s a powerful, rewarding thing to do. And it’s your job (and mine!) to make the world a better place.
2) It seems you are doing a lot of gyrations to try to pull off South Africa, indicating that you can’t quite afford it yet. Also, you truly can pull off this trip yourself for a lot less money. And Kris has nothing to worry about. Traveling in South Africa is not intimidating or even a “developing” country feel. I traveled there solo as a woman for 2 months for way less than what you are thinking of paying for 19 days. There are many cheap hotel options (1 star, 2 star, B&B, etc) for under $25-50 per night. Just get the Lonely Planet and go!
Also, do you really want to go to 4 countries in 19 days? To me, that’s insanity. And it boosts the costs a ton. You can’t really see or get to know a country that quickly. I’d much rather spend the entire time in 1 country or maybe 2. It will cost less and you’ll actually have a clue about where you go.
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I don’t feel in the Third stage yet, mostly due to home payments which tend to suck our budget half dry, and a yound child taking up the second half. But once we manage to increase our income/decrease expenses, we’ll be fine.
I think, as others have pointed out, that you should not touch your savings/tax account. You always warn against temporarily borrowing money from this or that account to enjoy something in the now. And reimburse later. Even if you CAN do it, it doesn’t feel like a financially savvy decision. More like a “I want I want I want” type of reaction.
I think you are better off focusing your savings for the coming 6 months on this project, allowing you to (hopefully) cover your >$5000 expense (want).
Nevertheless: SA is supposed to be beautiful so I hope you manage to finance this trip.
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Hi JD, congratulations on all your fantastic milestones! I’ve only just recently discovered your blog and often find myself crunching through articles whenever I am online, especially if it means procrastinating from work.
I think the key here is to try to assess whether you feel a trip to South Africa would be significantly more fun in February with the alumni compared to if you took the trip another time at some point further in the future (this could be with another social group or with just Kris) when you feel more financially able to do so. It’s a tough decision and only the two of you can make it, good luck.
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Thank you so much for this post. As one (of I assume many) of your readers well into the third stage, the decision process for spending gets difficult. Given you just got out of debt 3 years ago, are only 2 years into a new career, and just entered the 3rd stage, these expenditures (well, mainly just the trip) seem pretty high to me. But I know better than to judge.
I have no doubt you can handle these expenses as long as you take the normal path of working and earning more. The question is whether you’re OK with this lifestyle inflation at the expense of the work required to earn to pay it. With your “working harder than ever” statements and desire for the “simple things” you discuss in your original third stage article, I wonder if you should be striving harder for FI for now, at least this early in your third stage.
Maybe you have a 75% savings rate and I’m off base here, but when I hear about the difficulty of planning a $10K vacation around an upcoming european trip this close in time to becoming debt free, it just sounds like you’ve decided to accept the higher lifestyle as your reward as opposed to a freer one. (and reminds me of “Your Money or Your Life’s description of expensive vacations required in order to decompress and destress from too much work that, in turn, feeds upon itself)
BUT, Maybe you’re just more confident in your future income AND the love of your job going forward. I feel like one in the third stage with a growing income can achieve FI in 5-7 years with intense focus, but for most it ends up taking 25 instead b/c of this inflation. Neither is the absolute “correct” choice, and my unwillingness to spend $10k on a trip may be my mistaken fear or just due to a difference in my future goals. Its really difficult to know, and I appreciate you talking through your thought process.
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I’m at the third stage, too. No debt. My emergency / house downpayment fund is up to 2/3 of my annual income. I just spent an enormous amount of money (way more than I could have imagined) on a wedding. The day (last Friday) was absolutely perfect. Did I have to reduce my house fund to get there? Yes, I did. Was it worth it. Yes, it was. I also just bought an iPad and gave money (gave, not lent) to a family member in need. All these things fell at the same time. Could I have talked myself out of them, sure. But I didn’t. And I still have a healthy emergency fund (well over 6 months of pay).
So I say go for it, recognizing that you will need to be disciplined until you can get your fund back up again.
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Africa: Been there, done that (December 2009), and in hindsight, facing the same decision again, I would do it all over again exactly the same way. You will not regret the decision to go. It will change your life.
Regarding alienating your “get out of debt” readers: Keep in mind that you may also want to add content (such as this article) that appeals to your fellow third stagers.
I have been reading GRS since the beginning – yes, the beginning. Back then, managing debt and frugal living was a concern, but years later, that topic is no longer interesting to me. I stop reading. I return for articles like this one. I’m sure there are others like me.
Keep up the good work. I want to read more about your third stage adventures – and will be right with you in the fourth stage too.
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Just one comment: $5600 for three weeks in Africa – a bargain. Obviously I have no clue what it does include, but friends who have been there, done any safari or other activities, end up paying more than that for a shorter period of time.
Yes, another spent a little less (my guess is 3000 total, possibly more) for 3 weeks in Namibia. She did have a good adventure. But she also had a friend who had been working there and knew just about everything around.
I’m definitely not out of debt but well-off enough to make these sort of decisions. I do think experiences are something you should not pass off. Just my thought though.
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The challenge you note in your article regarding traveling to France and also to South Africa is perhaps that you’re trying to do too much in too short a time frame…
Its not always how much something costs that matters, what matters is in the time frame you have to come up with those funds.
We are incredibly blessed to have a comfortable home that is fully paid for,zero debt as well as a more than decent cash emergency fund (a full year of expenses)and we have sufficient assets that we could retire tomorrow with minimal change in our living style.
We also love to travel (spent three weeks in Asia earlier this year, and have spent a great deal of time in the Mediterranean area, Europe, and China, and the northern portion of Africa) but also realize that we cannot realistically fund two major trips in a single twelve month period without cutting out too many other items that make our daily lives happy and productive. It also simply cuts us too close to our financial comfort line.
I wonder if the emergency fund you have set aside is sufficient? The best thought on the amount to have is to take the current unemployment rate and use that number for the number of months of living expenses one should have set aside as cash reserve. Because we are both self-employed we keep a larger reserve as should something happen to our business it would take us longer than most to re-establish a steady and reliable income stream.
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I only read about the first 100 comments. I live in Poland, and I’d say “GO FOR IT”. Go to South Africa. You’ve got money. Who says you had to have the amount in your emergency fund? Didn’t YOU decide that? Can’t you borrow from it? It’s enough. Doesn’t Kris have money too? Aren’t you a married couple? I’m not sure how your finances work, completely, but I’d go. Life is too short to not go.
Just saying. Just got back from a short trip to Germany, Austria and Italy. It was too short. I’d love to go to South Africa. I do have Tunisia in the plans for September, though… We can do cheap trips here to those countries…usually $500-600 per person will get you a week including plane, hotel and food. All you have to do is add any side trips you want and spending money. That’s a pretty good deal to me.
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Sorry I’m late to the game here! (Just got back from two weeks in Greece
).
I have two questions, JD. One, Kris is a teacher, as far as I know. Can she get those three weeks off in February?
The other question is, both of these trips are things you really want to do. Do you really want / need to do them within several months of each other?
Personally, I would probably opt for the South Africa trip for 2011, and push back the France / England trip for either later in 2011 or 2012. But, that’s only if Kris is game, of course.
We live frugally, every extra penny goes to travel. We can’t think of a better way to spend our money.
We are not debt-free either, and we don’t earn a lot, but I’m not sure being completely debt-free is something to aspire to. CONSUMER debt-free, yes, certainly.
We still have debt. Our house is paid off, but we still owe 45K on one of our rentals, as well as just under 6K on a car loan (we’re halfway done), and just over 3K on a boiler / furnace loan (also halfway done).
The trip to Greece was paid for in cash though. That 4K could have paid off either 2/3 of the car loan, or the entire boiler / furnace loan, with some to spare. But we feel that life is a balance, and we have to save for the future, be prudent, but live it up sometimes too. We too prefer experiences to “stuff”.
All the best to you, it’s a good problem to have!
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http://www.amazon.com/gp/product/B000WU2VTG/ref=oss_product
A blog that I followed recommended this adapter for South Africa. You will need some kind of adapter. Have fun on the trip. I am looking forward to reading about your trip. I spent five weeks in South Africa last year and planning on moving there at the end of 2011.
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