This guest post from Jeanne is part of the “reader stories” feature at Get Rich Slowly. Some stories contain general advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes. This reader story is a response to my article last week about how to spend your money.
Until I was 34, I spent most of my young adulthood as a volunteer. For three years in my late twenties, I worked full-time while going to grad school, but the rest of the time I worked in Bolivia and in a gaggle of countries in Central America. I traveled between volunteer gigs. I even managed to pay off my college debt with temp jobs in the U.S. (Admittedly, my college debts weren’t quite as much as they might be if I were in school today.)
Then I started getting jobs overseas. Paid jobs overseas. This was humanitarian work, so the jobs weren’t highly paid, but at least I wasn’t an unpaid volunteer anymore. That made Mom happy.
I had a credit card that I’d pull out once a year to pay for a trip somewhere because I loved to travel.
- From Mozambique, I traveled to Greece.
- From El Salvador, I traveled to Palestine.
- From Angola, I traveled to Zanzibar.
There was always plenty of money, because I only spent money on one thing — these trips.
Coming Home
About nine years ago, when I was 42, I moved back to the U.S. I bought a car and a house. I bought furniture, appliances, and warm clothes. (I needed warm clothes after living near the equator for twenty years!) I framed all of my artwork — in frames that cost more than the art itself. I took my three Mozambican dogs to the vet.
How did I pay for all of this? I pulled out my credit card, and just kept slapping it down because, frankly, I was used to always having money in the bank.
What happened next probably won’t come as much of a shock. I found myself $20,000 in debt — plus the mortgage — before I even realized I was carrying a credit card balance. I spent the next few years paying off the debt, reading finance articles and personal-finance blogs like Get Rich Slowly, and changing my spending and saving habits.
Bargain Basement
But this story isn’t about how I got out of debt; it’s about what happened after. When the debt repayment was done, I had another plan, one that was going to take a lot of money. Was it to travel, like J.D. and many of his readers? Not likely.
I love my job: It’s fulfilling, and interesting, and exercises my brain. Most nights, I go to sleep happy with what I’m doing. But I travel for work — all the time. These trips take two days or more each way. I’ve seen every movie the planes offer, often multiple times. I know every coffee shop, and where to get a wi-fi connection, in way too many airports. To get back on a plane after flying nearly 50,000 miles in the last three months? Not my idea of fun.
The house I bought when I returned to the U.S. had an unfinished basement. I’ve wanted to finish it since I first moved in. But I decided to wait to do so until I could pay in cash. My brother-in-law told me not to take out a home-equity loan; I’m glad I listened to him, for once, especially since the economy tanked after I bought my house.
Over the last six years, I’ve built up a cushion, paid the max into my retirement account, and saved money for the basement. I follow all the basics of frugality: take my lunch to work most days (though I still plan a lunch out occasionally with friends), go to the grocery store about once every two weeks (to cut down on impulse purchases), and do my own yardwork and housework. And so on, just like most of you.
Over the last six months — slowly, s-l-o-w-l-y — the basement has been coming into shape. I did the paperwork for permits; they cost more than I expected, but I had built a cushion into the amount I’d saved for the project. I had an egress window installed. Framing, plumbing, ductwork, electric — it’s all moving along. It might take another six months, but as long as the contractors leave a path to my washer and dryer, I can deal with the chaos.
Doing What Works for Me
So, why does it really matter to finish the basement? After all, I’ve been getting along fine with space in the rest of the house. I could do without. But I’m trying to add two kids to my home, and want to still have space for a home office and a guest room. Again, I could do without, but I really want the space for all of us. And, hey, depending upon how the final cost comes out, I may even buy a big-screen TV. <gasp!> It’s my choice.
I’m picturing myself working on my computer in my new office, while my new daughter does her homework at the nearby table, and my godson Skypes his family back in Guatemala. Dogs at our feet, African pop on the stereo.
Great experiences, pre-paid.
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Great story!
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Wow – one of the best things you can have in life is perspective; world travel contributes to that immeasurably. I hope to travel much more extensively in the future. Kudos to you for taking the road less travelled, experiencing so much of the world at a young age. I was also delighted to see that you mentioned a big screen television; people act as if somehow those are the antithesis of frugality. C’mon it’s 2011 if you’re in the market for a television; one would be hard pressed not to buy a flat screen.
As for the basement renovation, in this post-recessionary market, we all need to embrace a new paradigm. HELOC loans are a dated product and should be used in only VERY limited circumstances because they perpetuate the antiquated notion that our homes are ATMs and will rapidly increase in value year after year. The harsh reality is that the bubble has burst; its remnants are all around us. Gone are the days where 100% financing is abundant and you can get a HELOC loan very easily.
Owning a home has been an integral and indispensible part of the American dream for years. However, ownership used to represent the ability to sacrifice and save a 20% down payment, job security, and that you were really winning with your money. At the height of the bubble, people relentlessly sought to own a home despite the reality of their fiscal situation; banks induced and indulged delusional people and we had dire consequences due to macro-economics. Hopefully, institutions will return to holistic underwriting where a high credit score is not taken as a proxy for success, it’s only a snapshot and not always an accurate one that does not capture everything, including debt-to income ratios, etc.
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Interesting story. What a shock that CC debt must have been. Good recovery story.
Please, more stories on home renovation and repair in the future. Or point us to other sites that cover this topic. Especially how people plan and pay for them like this guy did.
I’ve been thinking about renovating our kitchen since we bought our house 11 years ago. A project that I don’t want to do in bits and pieces and will require professional assistance. I’m not adverse to using a short term HELOC loan to complete the kitchen work if the situation requires it. Articles like these remind me to save for most of it and have a pretty tight plan in place before considering financing.
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Wow. Jeanne is a WONDERFUL person, I liked her more & more as I read the article. Isn’t she someone we’d all LOVE to meet?!? She really knows how to deal with and dispense with problems that are thrown her way. Very cool.
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Great story! I’ll second the request for home-improvement related articles.
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I liked this story.
@DreamChaser57:
“Owning a home has been an integral and indispensible part of the American dream for years. However, ownership used to represent the ability to sacrifice and save a 20% down payment, job security, and that you were really winning with your money.”
This is a pretty narrow perspective. Why does putting 20% down make you responsible? The historical reasons for that are based on banks risk-aversion, not any particular attribute of the buyer. If the banks had settled on 50% down as the standard, would you think that a 20% down payment was irresponsible and showed a lack of ability to sacrifice and save?
Many countries are like this. I know a guy who lives in Prague and the notion of borrowing money to buy a house is very new there. Historically, if you wanted to buy a house, you save 100% and pay in cash. Would 20% down there look ridiculously irresponsible? It shouldn’t seem any more irresponsible than it does here.
20% down is an artifact of our banking system, like 100% down has been an artifact of theirs. It doesn’t necessarily reflect a buyer’s level of responsibility or ability to pay. It makes financial sense for anyone buying a house in the US to put down as little as is possible without paying primary mortgage insurance, because of the various tax advantages and low interest rates. If you could get a loan without PMI at 27% or 14% or any other percentage that had become standardized, we would look at this like we do 20% now, and it wouldn’t imply anything about our individual financial situations.
20% down shows responsibility on the part of the lender, not the borrower.
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great story Jeanne – thank you for sharing a somewhat unique perspective of experience
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Seriously Tyler, do you just look for things to complain about?
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Jeanne’s story makes an important point that I think is often missed by GRS commenters–the importance of giving back as a way of getting ahead. It is a lesson I wish I had learned sooner. Acquisition of stuff matters so much less to me now that I volunteer at two local hospitals. I get so much more than I give including a much different perspective on my life.
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I think it’s kind of sad that she feels she has to so elaborately justify owning a home and finishing the basement. If she wasn’t adopting kids, would she feel that she shouldn’t do that?
Seriously, if you want to spend your money on making your home more comfortable, go right ahead! Doesn’t bother me.
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I enjoyed reading the story. It provides a nice counterpoint to all the “save money and bum around the world” stories people have been complaining about recently.
I’ve traveled enough, lived in different countries and cities and to me traveling was always a sort of window shopping to create my own life– because you can go to all the restaurants in Italy, but if you don’t belong in Italy and then come back home to eat twinkies and coca-cola then what is the point. Memories alone? No– learning, adapting, assimilating, is how travel really changes your life.
To me, the daily stuff is what life is made of, and while I enjoy a trip when it presents itself, I am no longer interested in roaming– I’m more interested in building a life and growing roots in a place that I love. For now the “place” is a career that I love and the lifestyle that goes with it; eventually it will be a location too, thought maybe the career will tie me to a less than ideal location– we can’t always have everything. But the point is that some of us want to settle and build something beautiful and enjoyable, and not just bum around the world watching how other people live (ok, I did plenty of that in my 20s, so the allure of it isn’t strong at this point). Yes, everyday life can be much more delicious than escaping it. These days when I travel I can’t wait to get back home to do the things I love.
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I just wanted to say I enjoy Tyler’s perspective on various articles (re: comment number 8). I may not always agree with him, but he repeatedly offers a well thought-out viewpoint, often presenting thoughts that hadn’t occurred to me. I only wish all blog and article commenters were as respectful in general as the commenters here, Tyler included.
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Lovely article. I like travel, because nice things are nice. I also like designer furniture and jewellery. Travel never makes it very far up my list. I have other things I want more.
What I learned from travelling is that I live somewhere beautiful and interesting.
El Nerdo @11 Sorry, but that’s really a load of bullpucky. When we recently lived in France for a short time, my husband and I talked a great deal about what we learned about parenting from our new French friends and what we could take back. We admired many things about how they raised their children. I never met so many delightful children. Not one child was ill behaved or obnoxious. NOT ONE! And they all seemed more like real children, instead of pre-preteens. But overall, we concluded that you can’t take a whole culture with you.
Travel isn’t a form of lifestyle shopping. And I like coke and Twinkies.
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I enjoyed this article and thank you, J.D., for featuring it. The continuous evolution and the great comments on this site are what keep me coming back daily (and I am sure this is true for many others as well).
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@add:
I’m not complaining about anything. I liked the article. I said I liked the article. Disagreeing with DreamChaser57 about the significance of a 20% mortgage down payment is hardly a complaint. Besides, a discussion that consists of two dozen people saying, “gee, thanks, great article!” is boring and no one learns anything from it.
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@13 Anne
Well I can see how it might appear as “bullpucky” to you (funny word there), because my sentence is confusing: it first says with “to me traveling was” but it ends in “how travel really changes YOUR life”. Which is, I admit, a generalization– my own past experience has nothing to do with your life. Poor grammar there, but English lacks a category of article with no definite subject, such as “one”, e.g. “how travel really changes one’s life”– a construction that makes the universalization of the personal more clear. Do you know what I mean by this? Trying to speak in different languages, sitting at lunch for 2 hours every day, reading the national politics as you walk by an unknown street, all those things change you. Well maybe they didn’t change you. They changed me. If you are not aware of other people’s level of reading now more than you were before going to france, then I doubt you were in France (not the same France I went to anyway). And the difference in childrearing comes from the fact that in France the children discipline themselves so that the grownups can have a good time while in America the parents discipline themselves so that children can have a good time. So, to see if France changed you, I’d ask: did you come back from France a more disciplined or a more disciplinarian parent?
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@Tyler (Poster #6) – Interesting observations, I readily concede that banking industry standards often start to normalize certain behaviors in the economy, like the 20% down payment for homes. That fact does not negate my point. At the height of the bubble, 100% financing was quite common. That essentially meant that families had no built in cushion of equity. Years can go by and because people just made their regular mortgage payments, which is the equivalent of a minimum payment with a credit card – when it was time to move or contend with a job loss, debilitating sickness or something else people owed just as much as when they initially started. Constantly being on the precipice of a fiscal downward spiral is no way to live life.
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I really enjoyed this article. It’s so refreshing to hear from someone older who hasn’t lived a deferred life and is very clear on their values and what makes them happy – and hasn’t needed a midlife or quarterlife crisis to come to that realization. I’m tired of the stories of how the “road more traveled” has to really suck, and that we’re all just zombies who need to fight the status quo. Whatever.
I would like to know how she is managing the job with lots of travel with the kids though.
Re. the renovations, I’ve done a ton of them in multiple houses and it’s a huge sense of accomplishment to DIY, but sometimes it doesn’t make sense to DIY depending on your enjoyment level and how much you make – and the skill required in the job. I’ve seen a lot of botched renos by DIYers.
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@ Dream Chaser
That’s how the 3rd world lives. Welcome to the 3rd world! (not you, but a lot of people).
In my country of birth a poor family starts their home with a patchwork of carboard boxes and discarded material, and after some months graduates “officially” to straw mats. Takes about 20 years to finish a brick and cement house, you buy 1000 bricks, lay them on weekends, save money, another 1000 bricks for christmas, etc.
Proof that you can buy your house with nothing but your own human machinery. Of course the mortality rate is higher, in spite of the fact that the weather is extremely benevolent.
Given that particular choice (e.g. I’m an immigrant from the 3rd world) I’d rather pay subprime rates than go back to huts
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@DreamChaser57:
I don’t think your scenario implies that 20% down is automatically better. Imagine two people, who both make the same salary, and both have $50k in savings. One buys a $250k house tomorrow, and puts 20% down. The other buys a $200k house tomorrow and puts $0 down. They both end up with the same monthly payment. The second guy has to pay an extra $100/month or so for PMI, but he’s still got $50k in the bank.
What if both people get laid off one month later? The first guy is immediately in trouble, but the second guy has something like 4 years worth of mortgage payments in savings. In a situation like that I’d *much* rather have cash than home equity. Home equity doesn’t do you much good unless you’re willing to lose the house.
There’s a lot more to being financially secure than down payment amount, and given the choice between cash or home equity, I think cash is a lot more useful any day.
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I found it inspirational to read about someone who has improved their own life by choosing to improve the lives of others.
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@Tyler K and Dreamchaser
I think one of the benefits to having to have saved a downpayment is that you’re already used to spending less than you earn each month. If your mortgage is 2K and you’ve been putting away 2K/month to save for a downpayment, then behaviorally you’re better off, even if mathematically it might not make much difference. Whether 20% is the magic number or not, who knows.
I do know that in our case we had 20% saved at the point we hit all the conservative heuristics about how much of our cash flow is supposed to go to a 30 year fixed rate 20% down mortgage, so in that sense the numbers seemed to work out about right.
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Great story! I travel quite a bit for work and prefer not to travel in my free time as well. I’m also working on finishing my basement and have been paying cash for all of the building materials. For the most part I’m doing the work myself which is keeping the costs down.
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I’d really like to know more about the author of this blog as it sounds like they’ve got a lot of experience with the sort of life I’d like to lead (overseas volunteering). If you’re reading this, I’d love to hear from you!
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Much of this article rings true from what I’ve heard from many other people, regarding how the debt spiral begins: not adjusting well to decreased means. This was a well written, and thoughtful exploration of that, and very compelling.
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congratulations for a job well done Jeanne–both your volunteer work and your frugality.
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It’s sounds like you’ve lived and continue to live an interesting life. Your brother-in-law was right to advise you to pay for the basement remodel with cash.
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@Tyler K
Good point. If there is one solid take away with this recession as it applies to the middle class, I would unequivocally say it’s that cash is king. Liquidity can stave off many a crisis. People should be cautious before forking over their hard earned savings to pay off debt or prepay their mortgage. Still, I’m not sure if the points we’re both trying to make are mutually exclusive. My point is that people need a cushion of some kind, whether its home equity, liquid savings or whatever. Depending on the life situation, one can come in handier than another. If a person has to move quickly to take care of an ailing parent or to improve their career opportunities – home equity can give a seller more leverage as far as their bargaining position, they can more readily discount the property if the property is not overleveraged to the hilt.
I wholeheartedly agree with Nicole’s point, saving for a hefty down payment typically means that you have to forego the instant gratification of eating out, extravagant vacations and focus on your long term goals. People who successfully save for a sizeable down payment have normally scoured their budgets looking for any extra dollars that can be saved, reduced expenses, paid off consumer debt to free up cash, etc. This type of discipline bodes well in preparing people for the responsibility of home ownership.
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@19 El Nerdo –
Hmmmmmmmmmmmmm, wow – that really gives me some context in terms of owning a home. Considering the loans I have from graduate school, maybe I should go get me a hut – LOL
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@ Dream Chaser
Ha ha ha– yeah… That system is not applicable here of course…
Still, some ideas can be “translated”. In all seriousness, something I’ve considered for future days is building a home instead of buying a ready-made one (that is, depending of where I end up living, etc).
If that’s the case, I’m going modular– 1 room at a time as needs grow and cash becomes available. It’s been done this way throughout history. My wife’s parents built their home that way (in the USA).
While you kill your debts, if you shop around carefully, you can find some really good rentals in terms of price/value. Apartment living FTW, in my current circumstances. Zero maintenance! And you can relocate easy, you’re never “underwater”, you have more money to invest in the market… I like the idea of owning a house, but in practice I don’t think I’m ready to chain myself to the ground… yet.
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@Tyler (particularly post #20)
I think there’s a lot of sense to your argument that a decent stash of cash is an important asset and that there’s an unbalanced focus on what constitutes a reasonable deposit.
That said, for your argument about the two hypothetical people with the same salary to work, surely we have to compare what happens when they buy *the same* house?
It seems a little flawed that the person without the downpayment in your example buys a cheaper property – of course your mortgage payment will be lower if you spend less on a house!
Also, it’s perhaps overly simplistic to suggest that the buyer with the $50k deposit would automatically have $0 left in case of a job loss. I doubt that someone who has taken the time to save 20% as a downpayment would leave themselves high and dry without any sort of emergency fund?
One aspect of the debate that hasn’t been mentioned is the fact that lower mortgage ratios tend to lead to a lower interest rate. In the UK it’s hard work to find a decent 90% mortgage, but drop to 80% and the choices (as well as the costs and percentage interest), improve dramatically. I doubt things are so different in the US?
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Great discussion. One thing that is rarely mentioned is that in many countries whole extended families often live together. While that poses challenges, it also probably allows for that 100% down-payment to be built up. If it was socially acceptable for us to live with my parents indefinitely (as a mature contributing adults), we’d be much better off financially.
El Nerdo @16
I got that it was generally meant. I just don’t think that’s true. I think it’s ok to go to Italy and eat some great food and see some beautiful buildings and art and then go home. Two weeks or two months or two years in Italy won’t make you Italian.
Other cultures can teach us things, I don’t doubt that. I learned so many things when I was away. I also learn things when I’m at home.
One of the things I learned when away was to value the natural beauty of America. It’s remarkable.
In travel, you can’t always take it with you.
My son is too young for discipline. But I didn’t notice that the families I interacted with disciplined their children any more or less than what I saw at home. My opinion is that the French have a very strong idea of what is socially acceptable and they pass that along to their children. But almost everyone shares those ideas (even immigrants learn to be a little bit French) so their children don’t have different rules at school and other homes. It’s the collective nature of their culture that helps. And I really can’t do all by myself, no matter how much I admired it. It wasn’t about what they did, it was about their whole culture and its expectations.
A recipe is easier to take home than whole culture of child rearing or workplace lunch culture.
And my husband never took two hours for lunch. I don’t know where you were, but that wasn’t common where we were. And he actually worked longer hours than he does at home.
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Interesting article. Brutally honest opinion: a change in topic would be nice, particularly about proactive WEALTH building or NET WORTH building stories as opposed to self-glorifying sabbaticals/ worldwide-travel-to-self-discovery tales that are fine and dandy but do not apply to those who work 40-50 hours a week and want to “get rich slowly”.
MY bio? College educated foreign citizen who has lived in 3 different countries and is currently working in the US. Enjoying and feeling grateful about it too..
Thanks
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@Luke
Tyler’s post said that each buyer mortgaged $200k, so their payments were essentially equal. The one with the downpayment of $50k purchased a $250k house.
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@ Anne
Sure, 2 weeks in Italy won’t make you Italian, but learning to make crepes should get most people off twinkies for life.
Having grown up in various countries and cities I have always taken “travel” with me and I don’t just follow “the culture” of the place where I am. Does that make me an outsider or eccentric or what not? Sure thing.
This begging/borrow/stealing from other cultures probably has to do with having been born in Latin America– we know we aren’t the center of the world so we have no problem adopting stuff from others. See, for example, the “Cannibal Manifesto” that launched Brazilian modernism in the 1920′s: http://feastofhateandfear.com/archives/andrade.html
In the USA though there is not really just one culture but many subcultures, so you can always a) find a place that’s big enough to hold all kinds of people, or b) find a small place that houses a particular subculture (just today I was reading about the Amish not wanting to prosecute someone who defrauded a lot of people with a Ponzi scheme).
And this diversity, more than natural resources or the availability of fast food is what I love about this country– there is room for everyone and every kind of life path, and you can mind your own business more than anywhere else I’ve been. I hear from friends who grew up in small American towns that there is a greater pressure towards homogeneity within those communities, but fortunately one can pull up stakes and hop on the highway without travel permits or registering with the police. There is also less of a class divide than in many other places.
Lunch: When I was in Paris and Provence (not so long ago) a lot of businesses closed for lunch. — it’s not a “2 hour lunch” but a 2 hour lunch break, though of course varies from place to place (city/countryside, small business vs. supermarkets, etc) . Since I’m self-employed and I set my own hours I do that often without compunction. That of xcourse doesn’t make me “French” (I wouldn’t claim such absurd thing); that’s just another tool in my DIY toolkit– stolen from the French but 100% mine now.
As for other tools, to name randomly a few, I’ve learned to haggle in Palestinian markets (helps to negotiate in business, regardless), and I’ve learned in Mexico that pretty much anything can be eaten (flowers, insects) so I don’t make faces at “unusual” things on my plate, I’ve learned from Peruvian indians to always share my food with the people around me, and I’ve learned many other things from the expats, artists and weirdos I often befriend. I’ve learned a lot from mainstream American culture too–the value of money, self-reliance, a great sense of freedom, among other things–but I find cultural homogeneity truly scary.
Anyway, that was totally off topic. I’m all for making a good home without getting in over one’s head. Yes to pay-as-you-go basements!
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I really liked this post, thank you.
I don’t mind and quite like the ‘save up to travel’ stories but maybe GRS readers were chafing at the sheer number of these types of articles?
I don’t think it’s necessary to discuss which is better – saving up for experiences or saving up for ‘stuff’.
I just like having articles on both. There is a time and a place for both.
I have a list of ‘stuff to do and buy’ when I am debt free (and have the money) and they include: buying a roomba; taking sewing classes; going on vacation; help my parents out financially; buying a fancy purse; and etc. They are all valuable to me.
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It sounds like you’re going about things the right way. Slow and steady wins the race after all. Your story and journey are both exciting and inspiring. It’s amazing the way that challenges and needs change from being overseas to state side.
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Jeanne, you have lead a fascinating life. You’ve made financial mistakes, but you’ve recovered from them and you are now on a secure financial path. If you want a big television, you will hear no gasp from me.
Only two parts of your story made me pause. You said that you “travel for work – all the time”. Later, you said that you are “trying to add two kids to my life”. Will you still be traveling for work when the children are in your care? If so, do you have the financial means and the social network in place to care for these children when you aren’t around? Of course, money isn’t everything. They will want and need your time. I hope you have worked out all these details.
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