Life after debt: What it’s like in the third stage of personal finance
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?)
Note: As I was making my final edits to this article, I realized it’s a sort of follow-up to June’s post about the rewards of frugality and thrift, in which I described some other things I’ve been spending on recently.
Portland Timbers fan photo by Jenny Cestnik.
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There are 245 comments to "Life after debt: What it’s like in the third stage of personal finance".
Hi JD; somehow, I’ve lost your e-mail address, so I’ll comment instead.
Good Luck on your trip …
By coincidence, I’m going on Safari in Sept, JD. Some mates from Chicago sent me an e-mail and 2 hours later I’d booked business class airfare from Melb to Jo’burg and back.
They couldn’t believe that I could act so quick, but I built these sort of expenses into my Number even before I began ‘life after work’.
We’ll have to compare notes when you get back from SA 🙂
Whenever I hear that someone is “maxing out retirement accounts” a red flag goes up. Depending on how late in life you’re starting and how much it will take to sustain your lifestyle “maxing out” may not be enough.
I hope that instead you are looking at how much you’ll need to accumulate and feel you are on track with that.
JD,
This is a subject near and dear to my heart. I wouldn’t say I’m at stage 3 yet (more like stage 2.8), but I firmly believe that travel is a must if you can afford it.
Travel is by far the largest extraneous item on my annual budget. I live in Paris and have a family of 4, so I have to set aside $5,000 just for airfare to get back to see family in the States once a year. On top of that, we travel quite a bit around Europe. This summer alone, I ran with the bulls in Spain (total cost: about $500), spent a long weekend on the beach in La Rochelle (another $500), and spent a week at a farmhouse in Tuscany (about $1,000).
My wife has become an expert at finding cheap airfare, and we use sites like VRBO and Homelidays to find places to stay which are almost always nicer and always cheaper than a hotel would be.
Maybe I’m biased, but I don’t consider travel to be lifestyle inflation. Travel expands your window on the world, and I firmly believe it makes you a better person. It allows you to see how other people do things; not better, not worse, just differently. Plus it’s always nice to come home again.
I think St. Augustine said it best: “The world is a book. Those who do not travel read only one page.”
Sorry for the length of the comment, it’s just something I’m passionate about.
JD, I’d be interested to know how you decide how much to put away for retirement. Do you have a age in mind? I have a really hard time with “play” money because I’m really focused on FI. So any money I don’t spend now goes towards the general savings/freedom fund. (I am putting some towards big future travel, but that’s it really for fun money.) My husband is also quite frugal though he at least treats himself to coffees and computer games.
I just feel that I value freedom more than stuff, or even most experiences right now. We are spending some money to go back to school to switch careers, which is certainly not cheap and not necessary, at least for me. I guess that’s where I chose to spend my money. But once we’re graduated we’ll be in the same boat – putting as much as possible towards FI. I’d like to know how other people decide when it’s worth it to buy something, even if it might delay retirement.
I think it’s a bad sign that you’re even contemplating taking money out of your emergency fund or tax account – and what’s worse, the mindset that it’s only “borrowing” from these accounts and you’ll surely be able to get back on track by X point in time. I would strongly recommend not jeopardising your current financial security. If something goes wrong, and you can’t recoup the money as quickly as you thought, you’re up the proverbial creek without a paddle. I know some people will think this is pessimistic or that it’s overly-anxious to wonder “what if something goes wrong” but having read the article twice, it sounds overwhelmingly like you’re trying to rationalise a bad decision. You already have a trip to Europe planned, the Africa one needs to wait a while for the savings to re-accumulate. Sorry, I feel a bit like Suze Ormon – my answer’s a no!
I’m probably at the 3rd stage, we still haven’t paid off the house, we are on track for financial freedom, but still years away. But we’re working on finding that balance between lifestyle inflation, making purchases we can afford, and still enjoying them fully. Also saving for that uncertainty, financial freedom is still years away, and lots of things could happen to derail us.
I often joke that it is easier when you’re broke, because then the decisions are obvious. You can’t have it or you need it desperately. Now I can have it (even a new Tivoli radio, cd player & speaker to replace the sound system that died 6 years ago) even if the item is just a nice to have.
We went on vacation for a week and flew instead of taking the bus or the train (great idea). We stayed in a hotel that was double what we could have gotten away with (still not sure about that decision). We bought food at the local markets and ate in for about a third of our meals, never spending more than $30/person for a single meal including tax & tip.
And I’m eating crackers and pb at work today because I’m out of my cash for the week, and there weren’t any leftovers to bring from home.
thanks for writing about this. i don’t think i’m at the same stage of personal finance (i’m 24) but i’m going through the same thing. i’ve always been very frugal and rarely spend money on things that aren’t necessary. until this past year… i got a great job, bought a house, am getting married next year, and we are going out of the country for our honeymoon.
i’ve spent more in the past 6 months than i probably did for the past 6 years. but once i looked at my income and subtracted all my expenses and set aside a large portion for my retirement. i still have a little left over each month. i’ve been struggling to justify spending it, because i’ve ALWAYS put anything left over in savings. so i think you are right, it is lifestyle inflation, but that is ok.
i consider it a reward for being financially smart while i was in college. i’m still making a choice as to what i spend that money on, but even a few years ago i would never would have imagined myself spending the type of money i do today.
My own Third Stage conundrum is this: I have a finite amount to invest each year/month, so what’s the best way to divvy it up between investing in my business vs. investing for retirement?
Between Roth IRAs, my wife’s plan at work, and a solo 401(k), we’d be eligible to contribute over $50,000 to retirement accounts each year. So we’re not in danger of running out of tax-advantaged space.
To date, cash I’ve put into my business has consistently earned a much higher return that I could reasonably expect from other investments.
But it’s a lot higher risk.
Interesting to note that these purchase decisions you mention – gym membership, season tickets, trip to South Africa – aren’t “stuff”. They are experiences. Heck, I would even lump comic books as more experience as entertainment than stuff to accumulate. When given the freedom of getting away from debt, it’s nice to see someone focusing on experiences rather than accumulating more stuff.
I still have a ways to go before the 3rd stage, but I’m at least on my way. It’s nice to get a view from over there to keep me moving.
JD, have you paid off your house?
Just wondering what you mean by “out of debt”…
Regards,
Michael
I tend to agree with @Jane on borrowing from your emergency fund and your tax fund. Once you start thinking that way, it will be hard to change course. That is a lot of money to come up with, but it sounds like an incredible opportunity and I am sure you can figure out a way to find the money elsewhere.
We have 2 small children(4 & 2) so traveling extensively will be out of reach for awhile. I’ll have to live vicariously in blogland. I’m not sure what stage we are in. We still have a mortgage and my husband’s post grad loan and we do contribute to retirement funds. I don’t find your spending infuriating or intimidating, some day we’ll get there too.
I’m 27 and still in the first stage – paying off massive college debt while trying to find purpose.
While Crossfit is very expensive (in Singapore I am pay about 250$ / month), I think it is worth it. A healthy body leads to more positive things than negative things. Any money spent is actually money invested – in happiness, a long life, maybe even in lower lifetime medical bills.
I don’t think spending money on Crossfit is lifestyle inflation – i think that if you find it necessary, then it is necessary.
As for Africa, spending +5k for 3 weeks might be a lot, but it is also expected. Despite what we are told, traveling in Africa can be very expensive. With that said, my 6 months in Ghana cost 11,000. (2k flight, 3k volunteer fee/medical stuff, 1k / month to eat and travel)
Best
cg
I hung in there until I read about Dungeons and Dragson…….. and now I have deleted my bookmark to this page!!!!
(just kidding)
I don’t know if I am really in the third stage since I have never been in debt. After I got a steady job I just started saving money and have never looked back since.
I do have an emergency fund with about six months worth of expenses and I do save for retirement. I also have various “sub accounts” where I save money for trips, auto repairs, Christmas presents etc.
One challenge I have from time to time is that I have to shift around money when I get new savings goals or priorities. Recently I found out that my parents, who will soon both be retired may face some fairly large expenses so I started saving to be able to help them out. However, after talking to my father, it turns out that he was fully aware of the situation and had worked out a plan of his own. The temptation to just go out and spend that money I had saved was great so I had to find another use for it.
I have also been saving for a trip to the US but I may have to replace my car within a year or two. I also have a “new car fund” but as it is far from fully funded I will most likely have to postpone the trip and use part of that money to buy a new car. Sometimes I also break down and buy a luxury of some sort (recently got a new suit) and have to rework my savings plan so I will be able to reach my goals.
Basically, there is a lot of adjusting of the budget and thinking about priorities. It is, however, a good problem to have.
Have you considered organizing the trip to Africa yourself? I’ve found that by making my own arrangements, travel is significantly less expensive than going with an organized group, especially through a school.
I went to Argentina for two weeks for a college class and looking back, I think I got a great deal for the price, which was less than half what you’ll be paying for Africa.
The one positive aspect of going on this trip would be that you are off the hook for any organizing and planning, which is nice. You just get to enjoy the ride and have a good time!
I’m actually facing a similar dilemna, sort of. I usually take an international trip a few times a year but I’m planning a more expensive journey to Belarus and Russia. Getting into and out of these places is much more expensive than my typical travels, so I’m contemplating whether or not to forego other travels for the year in order to save up.
I don’t like the idea of giving up a couple of trips to awesome places, but then again, if I don’t sacrifice a little, I probably won’t be making it to Belarus and Russia.
Its all about priorities and spending on what’s important to you! The value of your money is derived for them enjoyment you are able to get from spending it!
I guess you could call this lifestyle inflation, but hey, I think you’ve earned it! Money is meant to be used eventually, isn’t it?
Before I familiarized myself with the concept of conscious spending, I sometimes felt guilty after a night out, or after I bought something I really wanted. Now, I just use all the money I like doing what I want (after I’ve paid myself first, ofcourse 🙂 No more feeling guilty for spending money going out with my friends!
Wow – I didn’t realize that South Africa was disappearing after February! I mean, it MUST be if you are considering ‘borrowing’ from your emergency savings or tax accounts to go on such an expensive trip on the heels of another expensive trip. 😉
I suggest you stop for a second and read that section again from the view point of what you would tell someone who wrote that in to you.
When we reach stage 3, I’m looking forward to upping our charitable giving. We would probably have reached stage 3 by now except that we give 10-15% of our gross income to non-profits every month. In a world where most people live in danger and/or poverty, our family chooses to help others find food, shelter, and safety.
We have no revolving debt, just other types of debt (mostly a mortgage) that are being paid down. We save for retirement. After charity, retirement, debt interest, and taxes, our family of 3 lives comfortably on $25K.
Disclaimer: Please know that this comment reflects only our family’s choices and should not be seen as a statement on other people’s choices. You do as you will.
Isn’t the point of an emergency fund that it is saved for emergencies? How is a trip to Africa an emergency?
You assume you won’t need the money and will have the resources to pay it back. Fair enough, but don’t we all assume that; and isn’t the point of an emergency fund to protect against that assumption?
Feels to me like you want to use it like a slush fund…
We are in the “third stage” too, no debt except the mortgage, good size emergency fund (although we are still adding to it), max out our retirment accounts, etc.
Although I am happy with our progress, I find the third stage to be a challenge. Its like when you have lost 30 lbs., you look great, you feel great, and then you realize I can’t go back to eating french fries or I’ll be right back where I started. You have to maintain in the third stage. And I find maintaining not very exciting.
Yes we are sticking with our good habits, working our savings goals, only using debit, using our spending plan, saving up for purchases that are outside our budget, but all of it has gotten a little messier. I’m not nearly as rigid as when I was paying off debt and that is good and bad.
I’ve been thinking about our next goal and I really need something bigger to work on, something to focus on and something to help us stay focused, so we will probably be putting extra effort into paying down our mortgage in 2011.
It seems a little excessive to have two big vacations in one year – will you even be able to fully appreciate them both? Have you checked to see how often your alumni association puts together that travel package? If it will come around again in the next couple of years, why not just wait, and save up for it? It would give you time to research more, and build up the anticipation for the adventure.
@ Mike – you have to use as much cashflow as your business does NOT need for expansion into buying rental property.
You retire when 75% of your net rental income (after mortgage costs) supports your lifestyle.
If you’re too conservative/nervous, put 50% to 100% down. It’s how I built my first $7 mill. … except that I usually put 25% down.
I’ve traveled a lot in developing countries, including in Africa, and $5600 per person seems like a crazy amount to pay for three weeks. Paying for a super-expensive package holiday just doesn’t seem like a sensible idea. Also, I honestly feel that you won’t really experience the countries properly if you’re staying in fancy hotels and being shuttled around in air-conditioned jeeps.
Well, the blog is called “Get *Rich* Slowly” – not “Be a Miser All The Time.” As someone else said in the thread, money is there to be spent. If you have $20k in your e-fund, but you feel like $15k is enough for most emergency situations (including a prolonged spell of lowered income), I don’t see a problem.
I like to think I will always be frugal but certainly things I buy now I would not have considered several years ago. Just yesterday I bought a few components to add to my home automation and lighting (yea geek stuff for remote control lights). I can justify it now because I have no consumer debt and am saving on a regular basis.
However, just because I splurge I still try to work deals. In fact I was able to find a certified set of equipment for significantly less but also get the salesman to give free shipping AND a free motion sensor. I look forward to the day that I have no student loans and especially no mortgage as that will be a great day of freedom.
RE: The Emergency Fund
I agree with most of your — it ought not be touched, if possible. That’s why it’s at the bottom of the list. And that’s why I want to look at all other possible sources of money first. I don’t like the idea of borrowing from the emergency fund, either. Borrowing from the tax fund doesn’t bother me as much because I know I usually have more than enough in that account on April 15. So, when I mention the emergency fund, I merely do so to spark this very discussion: Is it ever okay to dip into it, especially when it’s sitting at $20,000?
@Steven (#15)
Oh yes, I’ve considered organizing these trips myself. However, there are two of us in this family. 🙂 Right now, Kris is getting used to travel, and especially for South Africa (a place she’s been reluctant to visit), she wants a group tour with somebody she trusts (like our college alumni group). We actually hope to travel to Argentina in a few years, and that’s one I hope to arrange myself.
@Rachel (#17)
Ha! Hadn’t you heard? South Africa is going to be disbanded in March. 🙂 Just kidding. You’re right, of course. The only time pressure here is self-imposed. Again, Kris is reluctant to go to S.A., and so this trip through our alumni group is a sort of compromise.
@Sam (#20)
I love your analogy:
“We are in the “third stage” too, no debt except the mortgage, good size emergency fund (although we are still adding to it), max out our retirment accounts, etc. Although I am happy with our progress, I find the third stage to be a challenge. Its like when you have lost 30 lbs., you look great, you feel great, and then you realize I can’t go back to eating french fries or I’ll be right back where I started. You have to maintain in the third stage. And I find maintaining not very exciting.”
I’ve been reading a lot of different blogs/forums lately regarding FI and “3rd stage finance ideas”, and I think one of the major factors that changes your perception of spending habits at this stage is whether you love your current job or not.
A lot of FI forums seem to be driven by people who want freedom from their jobs, which is great espicially if your job is a life suck. But I’m like you JD I love what I do and plan on doing it for the rest of my working life. So I make sure I take care of retirement/EF/short term savings/debt repayment but am very willing to spend on life adventures.
Great thought provoking post!
My face is pressed against the glass, eager to see what “stage 3” looks like. And, it looks great! I think it’s cool that you have the freedom to do the things you’ve always wanted to do. Because really, what’s the point of saving if you never do *anything* with your money, besides use it just to live?
While this point will be out of reach for me for a while, it’s nice to see how others do it.
Go to Africa.
It will change your life.
I am not in the 3rd staage. I am in the first stage. But I believe you missed something in your thinking JD.
The difference you missed was that you are in a position of choosing between WANTS. That changes everything in my mind. You no longer are choosing between want vs need.
So I say go for the trip! Even if you borrow the money from your emergency fund. Is your income about to disappear? You are self employed so you won’t get fired! I would setup monthly payments and charge myself interest on the loan. That way I would be better off than I was and I have the experience in addition.
Life is short, your not putting anything at risk if you believe your income will continue at least long enough to pay off your “loan”. I would borrow from the emergency fund, setup payments and charge myself interest. I would use the money I was putting towards the new car to pay it off if I had no other income I could throw at it.
You’re doing great.
Since you’re self-employed, I don’t think I would dip into that 20K emergency fund unless you’re insured up the wazoo and positive that insurance money will kick in before you use the emergency fund up. Use that money for emergencies. It’s ok to dip in it for medical expenses or major housing disasters, short cash flow problems that will be resolved (like bank mistakes) etc. Then replenish as soon as possible. Optional travel is not a reason to dip into it unless you’re sure that you’ll be fine if you’re suddenly disabled.
In terms of the question you asked. We just spent $5K on OMNI 2 natural mattresses and 2 bedframes. We did a lot of research and are worried about off-gassing for our small child. We also needed to replace our own mattress because we’re not sleeping as well on it as we used to back when it was only 9 or 10 years old. It’s a lot (especially compared to the $300 we spent on the guest bed a few years back), but an important durable purchase for us.
Recently we discovered we actually grill if we have access to a gas grill. So we’re trying to decide between the $500 model and the $700 model. Again, weeks, even months of research are going into this decision. We could buy a $20 charcoal grill we’d never use or a $300 gas grill that would be annoying. When you’re in the third stage you can choose quality, even on an optional purchase.
Just noticed a previous poster while I was typing this out. Self-employment is MORE risky because there’s no unemployment insurance. There’s less likely to be disability. There’s no severance. When business goes bad you don’t get paid and it’s harder to decide when to cut the line. JD has a great business, but what if he gets severe RSI? What if blogs are replaced by some new technology he doesn’t adopt in time? What if advertisers stop paying for web advertising and other fees dry up? None of these are likely to happen but if they do, that emergency fund is more necessary than for someone working for an employer.
@Nicole (#31)
Awesome example with your mattresses. For me, I cannot imagine spending $2500 on a mattress. Last year, we went to Costco to find an inexpensive mattress (but one we knew we liked because we’d slept on it before). It cost a few hundred dollars. But for your, that’s what the luxury of being out of debt and saving brings you: the chance to buy an expensive mattress. It’s a great example of “do what works for you”!
To everyone:
This article is generating a lot of comments. Unfortunately, a bunch of these are still being routed to spam. I’m about to leave for my morning Crossfit session, and won’t be back for a couple of hours. If your comment doesn’t appear immediately, it’s because the spamfilter trapped it. Have no fear, I’ll sort things out when I get back from the gym.
If the South Africa trip is a one-time opportunity (due to the relationship factors you mentioned) why not use the vacation money you’ve saved for that trip, and push back the Europe trip a little so that you have time to save properly for it?
Relationship factors do go into these decisions, and your wife should certainly respect that you’re trying to be financially responsible.
I would not take money out of the tax fund or emergency fund. Though it would probably be fine, it’s a slippery slope to start down.
Travel is also pretty exhausting and can take a long time to recover from. You might get diminished returns from your European trip by going to Africa for a month so close beforehand.
I’m still in the first stage – paying off all debt (except the mortgage). We’ve paid off 60% of it and hope to be done with the remaining 40% in the next 15-18 months. Once that’s done we plan on dumping every extra dollar into savings for 12 months as well as maxing out both our 401Ks. With any luck that’ll be around January or February of 2013. After that, we’ll be in a good shape and we should be able to become a single-income family (right now we both work) and continue maxing out my husband’s 401K.
The one thing we splurge on is travel. However, we always save up the $$ first and pre-pay before we go. The only money we pay once on vacation is cash for food and entertainment. We come home knowing everything is already paid off and we don’t have to worry about a scary credit card bill!! Having said that, our reward for getting out of debt in February 2013 will be to save up the cash to take our children on a 2-week European vacation the summer of 2015. I hope to hit up Venice and Rome, Paris, Prague and Amsterdam while we’re there.
That’s about it. Other than that trip, not much will change – we like where we live, we have cars in good shape (we do regular maintenance to avoid larger problems) and don’t forsee making any big changes for many, many years. Having struggled with debt for the better part of 20 years (upon graduating college), I hope to instill the importance of saving to my children, with much-deserved rewards here and there.
South Africa: I know my immediate supervisor and her husband went a while back and had a great time. Please see the video you posted for some of (their!) footage.
No where near stage 3 for me yet, but stage 3 sound very much like a fat kid on a diet, you really shouldn’t think of it that way. It more about changing your eating habits for life and keeping the weight off. Same with debt, you need to make the changes and stay disciplined for the long haul.
@Amanda (#36)
Ha! 🙂 They made quite a sensation with that video, didn’t they? It’s stuck with me for two or three years, and I was pleased to see I could embed it on GRS. Thank your supervisor for me!
JD: while you covered taking money from different existing pools/accounts and supplanting your monthly comic book fix, I think you forgot one option: creating more income. (ok, this requires a bit more time, but it might be worth considering). Given your audience, publishing a moderately priced e-book, creating a membership site/forum for the most rabid among us, leading one or more brainstorming/consulting ‘bootcamps’ for people seeking to get to the 3rd stage (or leave the first stage), etc. could help with raising some of the money required for your trip.
Not that you need the advice. Sounds like you’ve got the situation in hand 🙂
Before I even read the comments, let me say your story is inspiring. You’re doing all the right things with your money, spending it on what is important to YOU. I really love also that when you loosened your belt you ended up spending your $ on expierances like tickets and travel, and not brand name lables or other worthless things. What you spend $ on makes your life more interesting
DO IT! My wife and I are at about Step 2.8 (only debt is our mortgage which is very reasonable)and we just went to South Africa this year and spent ~$15,000 for the two week trip and it was worth every penny. We both would do it again in a heartbeat.
JD,
Wasn’t it here where I read “You can have anything you want, but you can’t have everything you want”? I think this describes the third stage (which I am in) very well. A better question regarding your possible SA trip is: What are you giving up to go on this trip? It sounds like you are just trying to find funding sources, not admitting that you’d be giving something up.
In regards to the emergency fund comments, I agree with them. Yes, sometimes opportunities come along you can’t pass up and you decide that you gotta take it even though it will alter plans short term. However, to me at least, this sounds like an opportunity you could replicate later on. If you think you can’t, maybe considering drawing down the emergency fund RESPONSIBLY is not a bad idea (based on how much is there now). But it should be a last ditch effort kind of thing.
Such a surprise to see the Minnesota Stars mentioned here!
(I’m hoping MN can pull off a win when Portland comes here to play next week)
I know you have a number of subaccounts for different goals, so why are you not doing the same for travel. By all means, feel free to travel to your heart’s content, but save for these trips like you have been doing for everything else.
Check out oattravel.com- there are trips to S. Africa there in a similar price range, and they aren’t going anywhere. You may be convincing yourself that the college planned trip is a once in a lifetime opportunity when it is not.
Remember how nice it felt to buy the mini when you had it saved expressly for that purpose. I urge you to keep doing what you know works for you, and you can have that trip paid for-ahead of time-before you know it. Go for it!
I appreciated the comment from JM (#18). I had a similar response to this post. JD said:
“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?”
I suppose–but I’m not sure I’d agree that one’s obligations are taken care of at that point. Perhaps one’s obligations to oneself are taken care of. But what about one’s obligations to the rest of the world?
If everyone in the third stage of personal finance donated just a small percentage of their “leftover” money to help feed those who are starving, shelter those who have no home, etc. think about what an enormous effect that would have.
And I don’t think that requires one to make oneself miserable, as is often thought. Studies show that giving is a great way to boost your own happiness.
As an east coast Crossfitter, and someone who just started my financial journey, I have a question about your crossfit, JD! Do you follow the paleo/zone diet at all, and if so how did that end up affecting your food spending? Have you been on vacation since starting, and how did that affect your performance and diet?
What is the goal of personal finance, if not to spend money on what matters to you? Bad financial situation: being required to spend money on things you don’t want (interest, late fees, etc.). Good financial situation: spending money on the things you want to (Crossfit, travel, comic books, what have you)
We’ve got a long ways to go before that stage, but we have made some decisions with our finances that most people would consider “unusual”. If they’re in line with our priorities, though, and we’re still being wise about emergency funds and such, then I don’t see a problem with them.
Ooh, one more thought – 3rd stage is a great time to think about how to spend money to help other folks out. In other words, at this stage people may have the resources to make a big difference for the charity that aligns with their values and aspirations, so it’s a great time to develop a relationship with and support that charity. 3rd stage is a great time to think about making a mark and leaving a legacy.
JD,
A couple quick points: I agree with the others in that I’m sensing a lot of justification in your post. I think if you were addressing this issue objectively, and it were a reader asking, you’d have a very different opinion.
I would NOT “borrow” from other funds, because that’s still the same “borrowing” mindset that fostered a lifestyle that involved living beyond your means.
I think you should postpone the South Africa trip. It’s been there for billions of years, it’ll still be there 2-3 years from now.
But on another, more disturbing note, you’ve mentioned that the artificial urgency you’ve imposed (which, by the way, you already know is an extremely common tactic salesmen use to pressure you into making an emotional purchase rather than a rational one) is due to Kris’ reluctance to go to South Africa.
If Kris doesn’t want to go to South Africa, why would you pressure her to spend $5,600 of her own money to do so? Isn’t it possible (probable?) that given a blank slate, she’d much prefer to use that money to travel somewhere else? Possibly dozens of other places, before she’d pick South Africa?
And finally, since you guys still inexplicably maintain separate finances, why not take a separate vacation? You clearly are stoked about South Africa, and she clearly is not. Since you’re not impacting each others’ finances, why don’t you take the trip (at a later date, once you’ve saved up the money for it), and Kris can stay in her comfort zone and save her money?
Africa is not cheap (I’ve been there twice), but it was life changing. You see people living in dung huts with their cows and it gave me an amazing amount of perspective. The things I stress about day to day don’t really matter.
I’m in stage 3. It is easy to fall off the wagon and get close to living paycheck to paycheck again. Preventing lifestyle inflation takes constant vigilance. We have a 1 big vacation/yr and 1 home improvement project/yr rule that we try to go by. When we veered off that path, things got hairy again.
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.
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!
Why don’t you stop allocating money to your savings/investments to fund your trip? Would that cover the trip?
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!
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
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.
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.
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.”
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.
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.
$1400 right there on tickets to soccer club.
That is a classic example of lifestyle inflation.
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! 🙂
$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.
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.
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.
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.
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!
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).
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????
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.
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!
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.
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
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.
@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.
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.”
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).
What on heavens is FI?
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.
@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
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.
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!!
fantasma:
FI = Financially Independent
It’s often combined as “FIRE”, meaning “Financially Independent, Retired Early.”
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.
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.
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.
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?
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:)
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.)
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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!
I am also in the saving stage and have been there for a long time. My spending adjusts to my income. If I have extra money, I get to do interesting things and travel to Africa. (Go, if you can make it happen! I loved it there.) If I don’t have money, I skip expensive trips and enjoy life in different ways. That attitude has kept me pretty much out of debt except for my mortgage.
I DEFINITELY think you should go on the trip to Africa. It sounds amazing!
I found this post inspiring. Yes, some of your expenses made me gasp – especially the soccer season tickets! But then I have to think about my own likes – would I pay that much for a trip to Africa? Yes! I love to travel, and if I had six months to save up the money (and was already out of debt), I would do it in a heartbeat.
I often wonder about what life will be like without debt, so I enjoyed hearing about it from someone who is still spending their money wisely on things they love. Thanks, J.D.!
I believe that I am in the 3rd stage, although, I have never been in debt and do not have a mortgage. My boyfriend and I both have jobs that pay well, but we remain quite frugal. I read a post (#27) that talked about the desire to be financially independent of their jobs. I have to say that this is absolutely true for myself. I battle lifestyle inflation by equating every purchase (be it rent, utilities, food, or luxuries) with the time I would have to sit at my desk at work to earn the money to pay for it. Its not that I hate my job; I actually like my job and the company I work for. But, my 9-5 takes up so much of my time and energy. In reality, my monetary resources are plentiful, but my time and energy are scarce. My job pays me to prioritize the company’s needs and goals above my own. I am young (24), and have a ways to go before I am financially ready to buy a house or retire from my job. But, working has given me a new appreciation for my own free time. At this stage I would rather accept a lower salary if it allowed me more free time to spend with friends and family, and further my own personal goals.
I am not even close to Stage 3, but wanted to comment. I would think that if you were completely debt free, had an emergency fund and were saving for retirement, that it is no one’s business but yours what you do with your money. As I’ve stated in previous posts, travel is very important to us, and we still save for one one vacation a year, even while we’re paying down our debt. Being in our mid-50’s our main goal is to have everything paid by the time we retire, which may be in about ten years. Just recently, we were having a conversation about going to a Barry Manilow concert in Atlantic City this weekend. My husband felt we shouldn’t spend the money because we’re doing other things (going to the mountains in PA over LD weekend). I know he’s right, but I can’t wait until we get to the point where we can do things like that without even thinking about the cost. One day . . .
Unfortunately, we are not yet out of debt, and still had to spend a large amount on an all natural, organic mattress for our daughter. We went with Savvy Rest. BEST purchase we ever made – you can see my review on their site about how much better her life is because of it. She was actually allergic/intolerant to her “normal” mattress. We paid cash for the mattress from a tax return and, with help from my parents, so fortunately we didn’t incur more debt to get it, but absolutely would have in a case like this. We are now saving up to get one for our son, then us.
I don’t know if what we are is Third Stage, but it feels like it – maybe 2.5 Stage since we still have our mortgage, lol. We have retirement and regular savings goals that are the #1 priority, then we pay off our monthly expenses and splurges, and we have fun money allowances of $125 a month on top of the Vacation Account we contribute to every month.
I figure that as long as we always hit our goals for the future, then fun money is how to enjoy life currently too.
I hope you do go to Africa and have an excellent once-in-a-lifetime experience. If people can afford (actually afford) fun in their lives, I’d say jump on it like a rabid spider monkey! 🙂
#63 Rahgu-I would sugget that post like these can also be encouragement. As someone who has been at both ends of a financial spectrum, its good for people who are struggling, expecially at the paying of debt level, to see that there is a light at the end of the tunnel. Its also important for people to see that there are still, almost always choices to be made. One thing still gets sacrificed for another thing. Different people find different costs exhorbitant. I expect that for everyone concerned about a post like this, for someone else there may be a “well, he can do it, so can I” moment if you will.
We have been in Stage 3 for a few years now. (We are 39.) No debt/mortgage and plenty in savings–in fact we could probably consider ourselves FI…I no longer work and my husband continues to work part-time running our business(he could replace himself and the business would continue to run/provide income for us.)
The challenge in Stage 3 is that it forces you to really take a good look at what you want your life to look like; what is really important to you? I can afford all kinds of things/experiences now…what do I choose? How do I spend my time now that 40-60 hours a week are freed up?
In your case, JD, I wouldn’t borrow (from a credit card/HELOC/bank loan/tax account)for the trip, but diverting funds from other discretionary spending (the car/comic book funds)accounts is totally fair ball, in my opinion. The great joy of “Stage 3 finance” is that the choice really is yours.
Good luck and keep us posted on your decision!
~Cheers!
I just wanted to post as a Thank You to J.D. This is exactly the kind of post I’ve been waiting on from you — the honest side of where you are right now. Its true perhaps, that some people cannot relate just yet. But that doesn’t make this less real and personal and important to us to hear — no matter what stage we are in ourselves.
I guess we are in stage 3, no debt but the mortgage, six month emergency fund, two secure jobs, etc. But I still find myself struggling with the guilt of spending on ‘unnecessary’ items, like a housekeeper, or a designer dress for our wedding. (We are getting married next month — all cash — already paid for.)
Its really refreshing to hear from you about the choices you are making, and being able to spend consciously on things that are you important to the two of you. Take the trip — I know I will.
I am not a timorous traveler, but I would not consider going to South Africa, or anyplace in Africa, outside a professionally-organized and guided group. If that $5600/person includes airfares, surface transport, lodging, and food for the three weeks – it’s the deal of a lifetime and not to be missed.
As to postponing the Europe trip: J.D. says Kris is not someone to whom foreign travel is a lark. Starting off with a trip to more familiar and intelligible places is a good way for her to overcome some of her discomfort.
Frankly, if it were me and DH, I would be the one with savings and I would just pay his share because I wanted it to be an experience for the two of us. But Kris and J.D. have their own method and it seems to work for them.
As a personal trainer, I am very much in favor of people paying less than $7/day for a gym membership – if they like it and they work out. J.D. does. What kills me is the people who pay $20 – $50/mo for a gym membership and never go.
Season tickets? Hey, DH and I spend $1200/yr on our DISH service. Everybody’s got their thing.
I appreciate that J.D. decided to put some real numbers out there. I’m far from the 3rd Stage myself, but this kind of a discussion is a reminder that there *is* life after debt, and we still need to think about our relationship to money when we get there.
Of course your money is yours to do with as you please, but as someone entering the third stage in the next month or so, I have to say that I find this rather uninspiring. You’re not doing anything wrong at all, it is your money and you have earned it. But it is also just “average” to spend more as you make more. Yes, it is Lifestyle Inflation (how else do you define lifestyle inflation if not spending more as you make more?)
I would think the third stage would be characterized by investing, continuing to live frugally, and working toward the Fourth stage, FI. Maybe you never want to retire, but you may one day be forced to.
I think the mindset that gets me is “after I pay my bills and save X% for retirement then everything else is fun money.” I think the attitude should be “I have $X of fun money and everything else goes to retirement.” Fun money (including travel, gyms, and comic books) should be the finite amount, even if that amount is more than you might have budgeted in previous stages.
Even in higher stages, I am still interested in frugality, too (esp. your garden project).
I don’t mean to be super critical. Like I said, I don’t think you’re doing anything wrong, and it is your money to spend as you like.
@105 Apparently in some states you can get a break on sales tax on a natural mattress if you go in with a doctor’s note. Or you can avoid sales tax by buying out of state and delivering to where you live, which is what we did (though we were in the other state on a trip so we went to their showroom). They were having a free shipping special too and ended up being less expensive than our local option for the same mattresses and somewhat nicer frames.
Ours are delivered tomorrow– I have high hopes! I have to say that this mattress purchase was a lot less nerve racking than our first mattress purchase, back when we were at the first stage of finances, or even our guest bed purchase when we had liquidated our savings to buy a house. There is a lot to be said for getting out of debt and having a healthy savings account. You will get there.
….
Another thing we’re doing with our money that keeps us from getting to stage 4 post-haste: We’re partly paying for college for one of DH’s relatives whose parents had her when they were 16, and will for her sister too (parents were 18) if she graduates from high school. If we weren’t doing that we would be donating more to charity, probably the scholarship fund of the private school my sister went to. That will be about 10K/year, including what we’ve put away in their 529s.
As I’ve matured financially my priorities have shifted so much from the typical frugally-minded GRS reader that I find it hard to identify with many people on here at this point. I do largely agree with J.D. — I’ve been diligent and saved a lot of money (more than most of the people that are criticizing the way I choose to spend it), I can choose to spend it however I like — even if that means renaming my “Mini Cooper Fund” and calling it the “Africa Fund”.
So far this year I’ve put $22,000 into a house down-payment fund, several thousand dollars into a 401k, $5,000 into a travel fund, etc. I have assets available to me worth about $95,000 now. If I want to spend 5% of that chartering a sailboat in the Greek islands, I’m entitled. In fact, that’s where the “travel” fund is going — I just reserved my boat for a week at the beginning of the fall.
It sometimes seems difficult for other people to recognize that my priorities are *mine* and I get to set them. I could decide tomorrow that I really don’t want to buy a house, and so I could rename my “down payment” fund my “africa fund” or my “mini cooper fund”. It’s entirely my prerogative. This would not be me “spending money I don’t have”, it would be a shuffling of my priorities. There’s no inherit reason I should care more about, say, a Mini-Cooper than a trip to Africa, or even buying a house. This is part of the advantage of having large savings accounts — you get to be flexible on short notice to take advantage of opportunities that would otherwise pass you by.
To answer J.D.’s questions:
Despite the anti-physical-object/minimalism trend, I still buy some “stuff”. In terms of sheer number of things, I don’t buy very many, but I tend to buy nice things. This year I’ve bought a camera and a couple lenses for it, the total for that was probably around $3,000. I’ve also bought two surfboards, which is another $1,500 or so. I give myself a “toy” allowance for these sorts of things, but I also used some extra money I hadn’t expected for the camera. That’s pretty much it for “stuff” — just a couple of nice things per year. I don’t really count things like clothes in here, those just need to be replaced once in a while and I buy pretty utilitarian clothing.
I also buy experiences (but I’m getting sick of that terminology). A couple years ago I paid something like $7,000 for sailing lessons. I still haven’t taken all the lessons I’ve purchased (in fact, I’ve scheduled the next level of classes for a few weeks from now — I figured it’d be good practice before the Greece trip). That was expensive, but I think the experience has been worth it. It’s also sort of nice being able to take the remaining classes now for free. The membership doesn’t expire, so I can take the remaining lessons whenever I want in the future.
I’ve gone on several trips in the last few years. Costa Rica, the Bahamas, Mexico, India, Germany, Chicago, New York, Seattle, L.A., a road trip around the southwest US. Sure, I could have stayed home and saved money, but I’m better off financially every year than I was the year before, so I don’t feel like I’ve overspent at all. If my situation keeps improving, even slightly, I’m doing fine.
What’s funny is that 10 years ago, I would have found some of this spending outrageous, but not others. I would have bought the camera, for instance, and charged it, and thought it was awesome and I’ll pay it back later, but the trips out of the country? They would have seemed like the sort of things “rich people” do, and I would have figured they were out of my league. I was comfortable being a consumer of electronic gadgets, but “world traveler” wasn’t really where I saw myself. It seemed to grandiose.
As far as J.D.’s question: “Do you still practice frugality?”
No. Not really. I set goals for myself. I wanted to save $30,000 in my house down payment fund this year, and I wanted to go on two vacations (southwest road trip and Greece, as it turned out). I’m on track to meet these goals. I set reasonable enough goals that I figure I can probably meet them without stressing out about it too much, and I’d qualify much of what people do in the name of frugality as belonging to the “stressing out about it” category. Sure, I could have set my savings goal for the house at $40,000, and I probably could have met it with some serious focus on frugality. But why do that? Is saving $30k this year not enough? I think that’s pretty good.
I saved a bunch of money, I didn’t have to worry about whether my groceries were too expensive, and I still got to buy my “toys”. Sure, I could save more and worry about frugality, but it really is a marginal improvement in my savings account in exchange for an overall reduced quality of life, in my opinion. It’s not worth it. As long as my overall savings increase every year, I have no good reason to worry about frugality. I can buy nice cameras and shop at the fancy natural foods store as long as I can afford it. I’ll worry about frugality again if my income drops. I still remember how to do it if I need to.
It doesn’t make sense to me that someone would pay $200 to go somewhere and workout when they can spend less than the cost for 1 month, buy a few things,and workout at home. A ball, some free weights, some bands and you are in business. Or go the the old fashioned way-get out and walk, do some push ups and sit ups.
J.D. I hope you, and your other writers, do continue writing about Stage 3. Maybe you can have one of those warnings on it like when you have guest writers. Something like – this post is about stage 3 personal finances, read at your own risk if you are still paying off your credit cards. Althought, I think reading about stage 3 when we were deep in debt would have provided motivation.
I find stage 3 difficult, so I hope you keep posting about it.
WOW! Lots of comments on this one JD!!!
I also travel with my significant other, who is also a little more cautious about where she desires to travel. Russia will be a bit out of both our comfort zones but I think it will be a great experience and likely open our minds to more extensive, off-the-beaten-path-type travel.
We’ve done the Caribbean about as much as we’d like (though islands ARE nice). Its time to expand our range a little. This year we’ve been to Iceland and I spent a week in Germany and took a day trip by train to Luxembourg. We took a cruise this past January and visited Belize, Mexico, Honduras, Grand Cayman. We spent 2 weeks in Hawaii and a couple of weeks after getting home we were in Florida.
If there is one thing that I think money ought to be spent on, its travel. So, from my point of view, two “major” vacations in one year could never be enough and I know you’ll be able to enjoy them both just as much whether you took them one year apart or one month.
Des (110) re: I think the mindset that gets me is “after I pay my bills and save X% for retirement then everything else is fun money.” I think the attitude should be “I have $X of fun money and everything else goes to retirement.” Fun money (including travel, gyms, and comic books) should be the finite amount, even if that amount is more than you might have budgeted in previous stages.
It doesn’t need to be either/or. It’s a psychological game. Different things work for different people.
I have a set minimum amount I save evey month, and certain fun (usually small, see: I Have Trouble Spending Money, above) expenses I let myself indulge in regularly. If I have money left over, I split it between fun things and responsible, long-term things. Usually this means I split additional monthly savings between a travel savigns account and index funds.
The fact that I get to use 50% of whatever extra I save for travel is an incentive to save more. The fact that 50% of whatever extra I save goes to long-term savings means I am taking my medicine, too. If I took your approach, and every extra dollar I saved went to investing, I suspect my balances would be lower in the end because –oops!– I would unintentionally create a situation where there was little “extra.” For me, the idea of investing 100% of whatever I save does not provide nearly the same incentive that travel does. Maybe this says something about a lack of discpline on my part, but I prefer to think of it as having a wealth of self-knowledge.
@tb (#114)
Like I said, spending $200 on a gym wouldn’t have made sense to me a few years ago, either. But I have a ball, some bands, and some weights here at home, and I don’t use them. Maybe I’ll get there some day, but a $50 solution that doesn’t actually work is a waste of money. A $200/month solution that does work is a bargain.
Preach it, JD, on your comment #118. Health is important.
I have a friend who only exercises if she has scheduled appointments with a personal trainer. When she quits the personal trainer, she soon quits exercising altogether. She can afford the personal trainer, so I think this is money well spent.
I HATE exercising with an audience, so no club or trainer for me. But I have a $2000 treadmill and a set of weights in the basement, and I use them 6 days a week. We have perfectly nice sidewalks in our neighborhood, but I wasn’t using them because I don’t have time to exercise until late at night. Doesn’t matter if the sidewalks are free, if I don’t use them. The $2000 means I exercise, and it’s completely worth it.
JD-
If you get to see water buffalo fighting lions fighting alligators, the $5600 will be well worth it 🙂
That’s awesome for you! That’s where I want to be.
Trouble is, I used to love reading these things and hearing about people’s success. It was a motivator, but after 2-3 years paying debt down, having a baby and watching it go back up, and faltering a few other times…I feel like the end is no longer possible. It’s something I can shake off, I’m just frustrated and I find testimonials less inspiring and more envy-invoking. Feels like I’m treading water despite my best efforts…and it’s getting old.
Still, I’ll be where you’re at one day, and it’s going to be sweet!
Nice kettlebell swings in that photo, JD! CrossFit and gym memberships, in my mind, are enablers in this life. It’s something that helps you become the person and live the life that you want. If you use them, of course.
I’m kind of sad about how judgmental so many people are, but not really surprised. Whenever we make a big decision in life, and especially financial, I suppose we all spend a lot of time convincing ourselves that this is the “best” or “smartest” decision, period. If you decide to live on 1/3 of your income, you’re going to want to convince yourself that this is the best decision. If you like to spend more, you’ll need to justify it to yourself. I don’t think this requires us to convince everybody else to make the same decisions, though.
Is it, in any way, my business how everybody else spends their money? Do foreclosures from over spending drag down my retirement investments? Does somebody else’s debt impact my credit card rates? As far as I know, it doesn’t, so why do I need to judge how somebody else spends their money?
We kind of started out in Stage 3 – no debts til we bought our house, and that will be paid off before our son turns 18. So I’m glad to see this kind of talk.
That said: JD, you’re looking at each account individually, trying to find whittle room. What if you assume spending on the Africa trip, and then do next year’s budget with that chunk of cash taken out of your savings/whatever – does it work? Is it short? Is it resilient enough to cover a few unexpected disasters, like illness or car accident or investment/income loss? Does the trip look like a good idea then?
That South Africa trip sounds rather expensive. Do you really want to visit all of those places, or are you buying more than you actually want? Have you priced a trip to South Africa only?
When I first saw the figures for your Africa trip, I wondered why you do not do your arrangements, then remembered the beautiful trip my husband and I just took to Kruger park with a tour guide. It cost more than half of what we would have spent had we done the trip on our own, but it was worth it. It was a 7 hour drive from our home and the guide told us about various places, the history, plants, animals and several other things. As foreigners, we would not have had much of an experience if we had not had a guide. Another bonus was not having to worry about where to go, how to get there or what to do because he did all that (plus the driving) for us. I would say go for it JD and I hope you will have tour guides on your trip.
@Joel (#120)
I just re-watched the “Battle at Kruger” video for the first time in about a year. Wow. I forgot how amazing it is. It’s drama in real life! It’s like a Hollywood action movie, but with wild animals. Good stuff.
Holy smokes, what a lot of comments! I guess this piques a lot of interest!
First of all: from my perspective you’re doing great. If you can book the safari, I’ve heard they really are the trip of a lifetime. You’ll probably have to add ~1400 per person for airfare though. If it’s included at that price, then it’s an insanely good deal (and isn’t bad as it is, per the small amount of research I’ve done on safari expenses).
I think I’m at stage 2.5: I paid off the last of my debt in April but I definitely don’t feel like I’ve arrived, so to speak. I’ve been saving for retirement all along but otherwise still feel pretty much broke – partly because I siphon the majority of my income out of my spending accounts as soon as it hits, but also because it’s pretty easy for me to spend more than I earn, or close to it!
I imagine/hope it takes a couple of years post-debt repayment to actually feel like you’re in a new stage in this financial journey.
At any rate, I hope most of the comments above are positive. And do the safari if you can possibly swing it!
@Tami (#124)
I do want to see all those places. And actually, I want to see more. I’d love to visit the hill regions described in Cry, the Beloved Country. Kris and I are seeing Jolie tonight, tomorrow, and maybe Sunday, so I’ll be picking her brain about South Africa. I think our conversation with her will go a long way to deciding whether we do this.
Re: What is included in the trip
The $5600 per person does include airfare, lodging, transportation, all tours, and most meals. We’d be on the hook for a few lunches and a handful of dinners. Plus incidentals and souvenirs.
I don’t think the trip sounds overly expensive, at all, actually. I think the deal here is that you possibly *could* save up the money for the vacation by February if you really worked at it. However, being a travel agent in a former life, I realize that you have to pay for the trip now (or fairly soon) in order to travel in February.
If this is something you really and truly want to do and have your wife experience it with you, and this is the circumstance in which she will entertain the idea that will get her to go with you, then go for it!
Is it an emergency? No. Is it possibly a once in a lifetime opportunity? …maybe. I agree with the suggestion to see if this particular destination is something the alumni may do again in a few years.
I guess I’m in the “3rd stage.” I’ve never had any debt, but now I save the max for retirement and put away a lot in taxable accounts as well. That said, I will spend about $5K on furniture this year, am contemplating buying a shearling coat and went on one international trip. In my opinion, travel is always worth it to spend on.
Having lived in southern Africa for a year-and-a-half, I say do the safari!!! You will not regret it! Yes, that is expensive, but I know people that have spent much more than that. Trust me, you will regret it if you don’t do it. I have been back in the US for 4 years, and have been trying to get back to southern Africa for vacation to see the parts I missed while I lived there. Go for it!
I’m not sure I understand that “stage” thing. I mean, you say stage 3 is when you’re done paying your debt… What if you’ve never have debt to begin with?
We earn a bit under CAD 3,000 a month, which isn’t terrible but isn’t great either. I don’t see myself at a stage where I can stop stressing out about money, or have enough aside to do things I really want to rather than put it all in savings.
So is stage 3 when you pay for all your needs, pay for all your various savings, and then have money left? Is that what it is? If so, wouldn’t someone who saves less end up in stage 3 faster, but for wrong reasons?
Either way, I do think you should spend money on what matters to you. You have earned it and you’re not spending yourself into a hole, so enjoy! That’s what we’re all doing it for, isn’t it? Being able to spend on what makes us happy without having to worry about the rest because we have taken care of it already.
You’ve got moxie for posting what you intend to do with your money. I hate talking about money with anyone because money is so personal to everyone & others judge a person for how they use their money. That’s why money is such a taboo topic in our society.
I think you need to take your own advice and “do what works for you.” I think the trip to South Africa sounds great and if you can raise the money in time you should have fun with your wife while you are young.
I realize its important to put money in savings and retirement, but honestly dude given that you are doing really great right now, its okay to take some money out and travel especially when you are young.
Don’t be one of those people who saves and saves and doesn’t appreciate some of their money until they’re too old to enjoy it. Saving is important but so is living in the present. You can always get back from your trips and be economical again.
You know what JD do what you think is right. Its your money and your life, who cares what anyone thinks. A lot of people get jealous whenever someone gets out of debt, and is able to enjoy life. I don’t think this is considered lifestyle inflation, but then again is lifestyle inflation so horrible, what if you have lifestyle inflation but not debt, can pay your bills, have savings and savings for retirement.
At that point your perspective might change and its okay to spend money to enjoy yourself. Money isn’t evil. If you do go, I hope you and your wife have a wonderful time and don’t feel bad about spending that money.
😀
Nope, downsizing your emergency fund because of a need is not the way to manage the third stage of personal finance. It sounds terribly like “I can still spend 500 with this credit card, I can pay it back later.”
February perhaps not the best time to visit Southern Africa.
I’m really interested in this stage and hope you write more about it. I’m in the process of paying off my student loans and having a hard time imagining what it will be like afterward.
More information on savings and how to save would be good too.
I hope you do go to South Africa and have lots of fun!
Kestra (#4), you asked how other people decide when it’s worth it to buy something, even if it might delay retirement. The point of retirement is to make me happy so that I don’t have to work for money if I don’t want to. And I’m pretty sure I can think of more fun things for me to do than my boss can. And the point of buying stuff is also to make me happy (and to provide for basic needs). Retiring early will make me quite happy, so I try not to buy things that don’t also make me quite happy. For example, air conditioning lets me do stuff instead of be paralyzed in a melted blob, so I buy that. Buying a milkshake instead of water at a restaurant usually would make me only a little happier, partly because my meal by itself will usually fill me up and partly because I know I can make a milkshake almost just as yummy at home later when I am hungrier and it will be a lot cheaper and a bit healthier.
**
I’d say moving into the third stage has led to two big differences. First and most obviously, I have more money, so I have more options.
But second, the journey has changed me. It has inspired me to be creative, look outside the box and do more research.
There are several cheaper alternatives I’ve tried that I now prefer. For example, my pancakes, chocolate cake and spaghetti taste better to me than most restaurant versions and are also much healthier if for no other reason than because I use whole grains. I actually prefer water over soda now most of the time. I bought a small house thinking I’d move up when I got married, but now I’m attached to my low utility bills and low property taxes and I sure don’t want to be increasing my mopping square footage.
I’m also more patient–I’ve learned that in the time between when I first decide I want something and the time I actually get it, additional research and observation often leads me to a better choice than my original goal. For example, recently I was looking in stores at options for a better container to collect our recyclables than a cardboard box (trash cans, ice buckets, etc.) when one thing I saw made me realize that one of the crates we were emptying by selling off old records (aka ‘vinyl’) would be better than anything I had seen so far.
**
Note to those saying that the third stage is the time for charity: as soon as I had a real job, I started making regular contributions. I started off at some small percentage of my income (3% I think) and slowly worked my way up to where I wanted to be. Now I contribute 10% of my net income to important causes such as reducing poverty, torture, abuse, pain, and negative environmental impacts and 1% to causes of interest to me personally such as PBS and the local wildflower center.
**
One other note: even though it is a high priority, I cannot afford to “max out” my retirement vehicles. $15,000 403(b) + $5,000 IRA not to mention $2,700 required pension and $3,200 social security would leave me with $16,500 or $12,800 after taxes minus mortgage payments leaves me $2,144 per year for utilities, food, fun, etc. Uh, no thanks.
I disagree a bit with your disclaimer of “I’m a lucky man.” You stick to your principles. You work hard. You didn’t fall into the position you are in now. Sure, there is luck (randomness) in everything. There is the birth lottery and who got momentum in personal finance first and all that. But you can’t just have luck. If you didn’t provide useful, insightful content and a valuable community forum for sharing ideas, you wouldn’t be where you are.
$5600 includes the airfare? OMG I want to be an alum of your school. I would do that in a heartbeat if I were in your shoes.
Here’s what I think:
If your car were totaled today, and you could get by without it, then that Mini fund just became a Safari fund.
Secondly, I think that there should be a distinction between lifestyle inflation, and lifestyle expansion.
Lifestyle inflation, to me, is committing to ongoing expenses like a big mortgage on a large house that you don’t really need.
Lifestyle expansion is committing to one-time expenses (no matter how large) that won’t leave you on an ongoing payment treadmill.
I’m all about lifestyle expansion if the other bases are covered!
We spent 4 wonderful years in the 3rd Stage, while living overseas in Japan. We had no debt of any kind, I had an excellent salary, my employer covered room/board/utilities. During that time, we saved furiously within these categories:
1. Future 1st Home Down Payment
2. Kids’ College Funds
3. Retirement
4. Vehicle Fund
As a result, we covered more than 20% of the money we needed for our first home purchase when we returned to America. Our kids’ college funds were in awesome shape at the end of that four year stint. I put away about $20k towards retirement and “long term” savings/investing. And we bought a $16k lightly used vehicle in cash when we got back to America.
Now that we’re back in the States and own a home, we can’t save nearly as much as while we were overseas. We do alright, but we just don’t feel as motivated, now that we have a mortgage looming over us and our monthly expenses have increased. I don’t consider us in the 3rd stage anymore, because of the house debt – once that’s paid off, we’ll be able to feel more comfortable again.
In the meantime, I’m furiously looking for another gig overseas with my employer. I have potential for a spot in Europe, which would be a dream job and would allow us to rent out our current place (have a tenant pay our mortgage) while we live like we did in Japan. It’d also allow us to focus on paying down the mortgage much quicker, so we can reach financial independence sooner than later. And, as a side benefit, we’d also be able to experience life abroad through living, instead of by visiting.
For me, travel is worth every penny, and the better deals are the best. Studying abroad, taking cruises, and just taking a trip now and again have all been my concessions to my love for travel. I could condone any amount, as long as I know I’m getting a good deal.
It sounsd like you have a quilty conscince to be hoenst. I see nothing wrong with your decision to go to Africa, I would LOVE to have those opportunities. Lifestyle inflation… maybe, but that’s a good thing in this context.
Both of these sites linked below give details on when to visit South Africa. You will likely spend $7,000 each with additional expenses and souvenirs, etc. I would make sure that trip will has a good chance to meet your expectations. You are not likely to see an encounter of animals in February as was shown on the video. Water is readily available and animals don’t tend to congregate at the ponds in this month. Do you like traveling with a larger group who have similar interests? But there are trade-offs when you consider the size of the group, time of the year, etc. There is not a one time or kind of trip that is better. Some times of the years have more favorable odds for certain activities. I was amazed by the beauty of South Africa by my brief exposure and I am sure that you would be as well.
I think that some readers feel that you are losing your initial zeal that you had as your worked your way of of debt. I have no problem with your taking this trip. However, you will continue having to work to relate to the new reader who is overwhelmed with debt and can’t even fathom taking such a vacation. You might even find it advantageous to start a second blog that deals with finances at the third level.
http://www.southafricaholiday.co.uk/when-to-visit-south-africa.html
http://www.frommers.com/destinations/southafrica/0239020006.html
Oh, I do love your posts on The Third Stage! We’re somewhere in the murky depths of Late Stage Two, as instead of topping out our retirement fund we invested in two rental properties. So…quite a bit of mortgage debt right now, but if we sold the two rental properties we could buy our own home outright. Otherwise, we’re debt-free. /
There is a lot of emotional turmoil the closer we get to Stage Three, I find. What’s the point of it all? What’s our larger purpose? What do we REALLY want out of life? There aren’t any easy answers, so for now we plug along our fiscally responsible way until inspiration strikes. We’re in a bit of limbo at the moment, because DH just found out he has inherited the estate of an aunt. How much he gets is yet to be determined, but it could catapult us into Stage Three Proper. Unexpectedly, this has filled us with anxiety instead of joy. We *really* don’t want to screw this up.
As for the trip to Africa, do it, my boy, do it. My sister and her husband saved and scrimped their whole lives for a modestly prosperous retirement, and one year in she was diagnosed with an illness that has left her in chronic pain. All their plans for travel and adventure have been tossed by the wayside. You just never know what’s around the corner, so enjoy life while you can.
For my husband it would be golf. We lived in Monterey CA recently and knew we wouldn’t be back for a long while. Before we left he wanted to play all the good courses and probably shelled out around $1000 for four courses (including Pebble Beach) that he wanted to play. It is a lot of money, but when you’re responsible you can make choices that no longer affect if you can save for retirement. This is our extra money to do with as we please. Being in the military, I also like to go visit friends occassionally which usually runs around $1000 for me and our two girls to go across the country. This is on top of our spending to travel home; it is for pure joy. It helps me maintain those friendships and it is money well-spent!
PS Are you and Kris paying extra to your mortgage as part of your retirement plan?
My wife and I are definitely not at this stage but I can certainly imagine it! We’ve still got a long ways to go though.
That being said, J.D. I think it is perfectly acceptable if you want to spend that money on a vacation. Would I do it right now? No, because I could pay off my car loan with that. But would I in 20 years (more soon I hope) when my debt is all paid off? Heck yeah.
Also, others have mentioned it but I’ll say it again. You are paying for EXPERIENCES which is not the same as Stuff. The research has showed experiences mean a lot more in the long run than stuff.
I agree – do what you want with your money. Have great experiences and enjoy it.
The only thing that annoys me is that even mentioning the emergency fund (even though you claim its at the bottom of you list of sources) comes off blantantly as “Do as I say, not as I do.”
From your own article on emergency funds, and their purpose:
“What is an emergency fund?
An emergency fund is an easily accessible stash of money for use only in case of emergency. It is not to be used to buy a new car. It is not to be used to buy a new Playstation. It is not to be used to remodel your bathroom. It is for use only in case of emergency.”
https://www.getrichslowly.org/how-to-start-an-emergency-fund/
To bluntly say one thing, and suggest that you’ll do another makes your advice seem inauthentic
I would jump on this chance to travel if I were you. If you have the cash to do it I would ALWAYS encourage folks to travel! Hence the reason I am traveling solo with my 2 and 3 yr old to West Africa this fall 🙂
That being said, I might try to piece the trip together myself if it would save me significant money.
Two things about this post and the comments:
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.
2 – J.D., while you’re free to make your own choices about discretionary spending in “Stage 3” of personal finance, I have to say that it still bothers the crap out of me that you’ve admitted time and time again that you don’t give money to charity or to the less fortunate. It’s such a cop-out for you to say that you don’t really have the time or know-how to pick a good charity to give money to, but here you are agonizing over spending thousands of dollars on soccer tickets, gym memberships, and luxury vacations.
My advice? Don’t go on the Africa trip – another one will come along. Instead of dipping into your various targeted accounts, please make it a GRS “project” to finally get serious about giving some of your hard-earned wealth to those less fortunate than yourself. And if this sounds like a guilt trip, it is. People making much, much less money than you still manage to give some of it to good causes, because that’s the price we pay (or should pay) for living in a world where many people need help to have clean water, ample food, an education and a roof over their head. Pay it forward.
My husband and I are in the third stage (no mortgage (tiny condo, though!), no car loan, no student loans, no credit cards) and we have allowed ourselves to experience a little lifestyle inflation (HBO, smartphones, gym membership). I say go for the trip – that’s what we spend our excess money on – next month, Ireland and Scotland with a group from the Irish Pub where he used to work!
I enjoy living frugally and I enjoy traveling out of the country every year. For us they go hand in hand.
@James (#149) and many others
I included the emergency fund in the list in interest of honesty and completeness. I’m sorry that you feel this makes my advice “inauthentic”. There are times when I make mistakes, and there are times I consider going against my own advice. To me, that’s called being human — which I am.
Also, I think there are some shades of grey that are being missed here. First of all, I’m not saying that I will use my emergency fund, but that I’m exploring the idea.
Second, the emergency fund is $20,000, enough to cover about a year of normal expenses. To me, that’s an important consideration. If this were a $1,000 emergency fund that I was thinking of depleting for the trip, that’d be different. But it’s not. It’s $20,000, and if I tapped it at all (which isn’t likely to happen), it’d probably be for $1,000 or $2,000 — money I’d replace as a top priority.
I am not so dogmatic to view this as a Super Bad Thing. I apologize if that makes some of you furrow your brow. It’s not a good thing, and it’s something I’m trying to avoid, but I certainly don’t think it’s worthy of fixating on.
— a slightly defensive J.D. 😛
Wow. Okay, JD, I think you said that your tax fund and your emergency fund are far larger than they need to be, yet people are still giving you aggro for considering taking money from them.
Looks like one lesson from this discussion is that maybe each of these designated funds should have a maximum amount, and then any overflow goes to a new Slush Fund account. Then, when these opportunities come up, you can tell us you would pay for it out of your Slush Fund, and people won’t hassle you. Oh, the lecturing people do based on labels instead of substance!
Im bit squirmish about saying it is ok to “borrow” from the emergency/tax funds.
I am in favor of evaluating the 2 funds and reducing the funds if circumstances has changed such as being too conservative in my tax expense projections.
The term borrow is just a slippery slope and I wouldn’t advise anyone to use their emergency or tax savings as slush funds
@#149
I know this might sound controversial, but I dont think its right or proper to tell someone else they *need* to give money to charity. JD has worked hard for his money and pays plenty in taxes. Its his right to spend it how he will. In no way does not giving 10% or whatever to charity make his a bad person.
I think the question of whether spending on luxuries (like a gym membership or extensive travel) is very different when you’re paying cash. As Dave Ramsey says, the point of living like no one else while you’re paying off debt is so you can live like no one else once it’s paid off. And studies have shown that spending money on experiences brings far more long-term satisfaction than does spending on possessions.
For me and my husband, the greatest benefits of being at Stage 3 are threefold:
1. Being a one-income family. Because we’re debt-free and living frugally, I can be a stay-at-home mom to our daughter.
2. Pursuing our passions, not a paycheck. My husband is a gifted and passionate photographer, but photography is generally not a lucrative profession. He can be a full-time photographer, anyway, because our monthly income needs aren’t that high.
3. Giving generously. When your budget isn’t dominated by debt service, you can afford to give to those in need. Ramsey also says, “Live like no one else so, later, you can GIVE like no one else” and “Build wealth, then give like crazy.” For us, this is the greatest and most important benefit of being debt-free.
@Brenton 155
People who are winning at money should learn to give, just like they learned to get out of debt. I don’t read this blog because its about being selfish. Its a blog about discovering what is winning.
Last year at the age of 33 I reached the third stage. my depts are Morgage on my house and 2 years of car payments on a new 2010. I still live the same lifestyle but now I increased my retiremnt saving to 15% of my net pay instead of 10%, considering I also have a good pension plan with the city I should be considered safe. I am putting aside 10% for future car purchase because eventualy you have to replace them. I also put 10% away for real estate investments. nothing like owning property where the tenant pays your morgage.
As for spending I am going to buy a triathlon bike mid range quality 3000$ I plan on starting up next year who knows maybe I can finish an Ironman in 2 years. I am also taking a trip to run Marathon Du Medoc in the wine contry of Bordeaux France. 2010 will be my first marathon and Im looking forward to checking it off the bucket list.
I find that when you have financial freedom to spend where you want to rather then where you HAVE to. This creates a situation where look internaly as a person, and it gives you freedon to find out who you are and where do you want to go in life.
JD – first thanks for the post on Stage 3 — I’ve been in stage 3 for years and would LOVE to see more posts or separate blogs about people and issues when you’re in stage 3 – so much of the normal personal finance posting deal with people just beginning to learn to be frugal and how to deal with debt. I was there years ago, and while it great to read this stuff and get reminders about the right things to do, it would be so nice to regularly read about the issues at stage 3.
Back to your trip – take it.
@JD… if 20K is really too big for an emergency fund, maybe part of it should be relabeled. Or at least think about which part is absolutely vital.
I don’t do the “emergency fund”… I just have one big slush account that I replenish when it gets lower than a certain amount. But if I did have those mental accounts, I would assume that I had put in the right amount to cover emergencies for 3-6 months or what ever the goal is to cover emergencies. If 20K is too big, then the problem isn’t with taking or not taking money out, but with calling it an emergency fund. Maybe some of it is emergency fund and the rest is emergency buffer or something.
Emergency funds are for emergencies. If 20K is too much then relabel part of it and don’t touch the part that is actually your emergency fund.
🙂
That is a fine rebuttal, Nicole.
@bystander (#150)
While I appreciate your viewpoint, berating me isn’t going to make me feel guilty, and it’s not going to accelerate the process of me learning to give. I’m working on it. Maybe not as fast as some would like, but I’m working on it. I’ve donated money to charity here and there over the past year, and Kris and I even volunteered at the Oregon Food Bank earlier this summer. I’d do it again, too. Plus, I’m intentionally setting aside proceeds from the upcoming GRS Blog Project for animal-related charities.
I’m perfectly aware that giving is a high-priority, hot-button issue for many people. I apologize that my values don’t match yours, but that’s how it is. That doesn’t make me a bad man!
I’m not sure which stage I’m in — I guess the 3rd? I make very little money (10.5k last year), but I still manage to save. It helps that the only debt I have taken on in life thus far was a car loan, and I paid that off two years early by taking on a second job for awhile.
That said . . . I’ve drained my emergency account for big travel — 4 months in Europe during college took every cent of the $6k I had saved up in high school. And I still made it work. What’s the worst that can happen? Say you take the WHOLE $5,600 out of “emergency savings” to make a deposit on the trip. You start paying it back right away. If you have an emergency . . . maybe you’ll be a bit short (tho a $15k emergency sounds huge!). But, likely, you will figure it out.
I suppose I might be hypocritical, as I’ve never ever had a problem with debt. Heck, I don’t even subdivide my savings — I just save money, and I weigh each purchase on its merit and not on the exact amount I have saved (as long as I have enough for it).
I guess my take-home distilled message is this: it would be a darn shame for you and Kris to miss a trip to Africa just because you were worried about spending money you saved just because that money is technically labelled “emergency savings.” I understand you did so to keep you from touching it for wants, and I understand this isn’t technically a need. But you have the money, you want to take the trip, and spending this money will not break you. I have every confidence that you’ll get it paid back fairly quick.
Life is short, and you don’t know what tomorrow brings. Be responsible, but carpe diem.
JD, do you have a charity account? If you’re going to be spending a substantial amount of money on trips and the like, I hope you recognize a duty toward helping those less fortunate than you.
J.D., stick to your guns. I’d love to know how many of those harping on you for the audacity of even listing the emergency fund as an option, have a full year’s expenses saved themselves.
And as to charity – MYOB, people.
@Shannon (#163)
I do not have a charity account, but I like the idea!
I have no problem with the idea that I ought to help those less fortunate than me. My issue is “how”. I don’t like the notion of simply throwing money at the problem. I think that’s ineffective. That’s why it felt good to volunteer at the Food Bank. I was doing something.
Coincidentally, I’m in the middle of prepping Sunday’s “reader story”. I had many to choose from, but I opted for a story from Bonnie, who spent two years overseas in the Peace Corps. Now that is the sort of thing I can get behind. I would love to constructive charitable work rather than simply throw money at a problem.
I really wish that people who have beliefs on certain topics like giving, wouldn’t come in here and try to push their beliefs on everyone else.
It just isn’t relevant to the discussion.
@165… Hey, don’t knock people who throw money at problems. Money is needed for many problems and some of us have more money than dedicated time.
There’s not much charitable work I can do in the few minutes it takes for a regression to run. Also not much one can do while simultaneously watching a toddler… volunteer organizations don’t generally like kids under age 7 around. Food pantries need food. Students need scholarship money.
I feel so contrarian today. But hey, both money and time are needed to solve the world’s problems. Should you go on this trip to South Africa? Where should the money come from? There isn’t a right answer. There’s only trade-offs… which was really the underlying point of this post. Don’t forget that point when it has moved to a different context.
You people and yourperceived high horses! JD it’s your money, you worked for it you do whatever you want to do with it. Geez! MYOB! Those who live in glass houses…..Some of these comments really piss me off.
Count me among those inspired by the 3rd stage conversation. I am firmly in Stage 2, with debts left to pay and nowhere near the savings I would like, but at the same time it’s important to live life now. I’m not going to rack up my debt again, but I may not save as quickly as I could. But we are years from stage 3, if we’ll ever get there, so it’s stupid to wait; yes we’d be in trouble if the worst happened, but that would be true regardless of whether we take that trip to Scotland.
Which we are. It’s been on our short list for years, and the deal of the decade just turned up. We’ve been saving some money, a wedding gift from my grandmother, for the two years we’ve been married, and that money will cover the airfare, hotels, rental car and breakfasts. I do have to squeeze a bit to save extra for the other meals, incidentals, tours, etc. But, see above, not going back into debt. And I just decided recently not to cut back on retirement/emergency savings or charitable giving, which had crossed my mind. (Using the e-fund is NOT an option – it’s just not big enough to risk.) Instead, any gift & bonus money this year will be saved for Scotland; instead of travelling to Canada 3x like I have the last few years I will go maybe once and put that money towards Scotland; I’ll cook at home more and buy lunch less (which I’ve been doing anyway since I started eating Primally – it’s awesome, JD, reducing grains & sugar have made an ENORMOUS difference in the quality of my life). All these things will help. And if March approaches and the Scotland fund still looks small, I will consider more drastic action – like requesting an early b-day gift. 😉
Do it, JD, and love it. Anyone who’s read your blog for more than 5min knows that you will put your whole self into recovering any savings goals diminished by this opportunity. That will happen way quicker than another chance like this coming around.
I think a trip to southern Africa is a great idea, but I understand your wife’s nervousness. Even though I had lived and traveled in Asia for two years, when given the opportunity to move to sub-saharan Africa for 6 months, I was extremely anxious about safety and disease. I ended going and it was one of the best decisions I’ve ever made. I found traveling there to be easier for me than in Asia in some ways because there was less of a language barrier and the cities I spent time in were less crowded. I also went on a 3-day all-inclusive camping safari in Botswana and it was amazing-and only cost $300 per person.
I think the trip sounds a bit over-priced, but the people I ran into who were on group tours in the area that you are going to looked like they were having a great time, so I’m sure you’ll enjoy it.
Go on the trip to Africa – if Kris is willing to go on this trip, strike while the iron is hot and take advantage of that situation! Africa is awesome and is a memory I will cherish forever. You are in good financial shape and this will not be a hardship for you, so I say go for it.
I ALSO DO CROSSFIT AND PAY ABOUT 280 A MONTH IN SAN FRANCISCO, HOWEVER MY HEALTH IS INVALUABLE AND IT IS THE ONLY THING I AM ADDICTED TO. GOOD LUCK WITH IT MAYBEY ILL SEE YOU AT ONE OF THE EVENTS.
While I wont lecture on charitable giving
Ill simply observe that while its easy to say that you don’t want to “throw money at a problem”,lots of problems require money. It would be unrealistic of you to think otherwise. I am a great believer in hands on work. going down and helping with the food bank is a wonderful thing. But really, now on earth do you think that food bank got the food that you helped give out? How on earth do you think my local dog shelter gets food to feed the dogs? They get money because people like me donate. Its also worth noting that lowincome people give a larger percenage (not amount) of money than higher income folks-the percentage is often double. Surely you have SOMETHING besides yourself that you care about enough to give and donate to? I’ve been here a short time and as such had not realized that you don’t give time and talent to help others. What a shame.
I understand the harping on whether JD should take money out of his emergency fund for travel.
But I also understand why he is considering using it. We are traveling next week, our summer vacation, and since I didn’t save up quite enough in time to pay cash for our entire trip, I moved $1000 out of our emergency fund to do so. What does that mean, it means we will have $26,000 in our e/r fund instead of $27,000 for a couple of weeks. It means we will have $43,000 in targeted savings instead of $44,000 for a couple of weeks. In the end it doesn’t mean much because we have plenty of savings.
As your emregency fund and savings gets larger it doesn’t necessarily need to be so restricted.
It’s interesting to see the various values people place on things. My husband and I discussed this recently, particularly how shocked people would be at how much we spend on really good coffee and electronics, and how little we spend on things like cars, clothes and furniture. For example, my husband got me a $550 digital camera for our 10th anniversary, but neither of us can bear to spend more than $100 for a couch.
Everyone’s ideas are different; that’s what makes the world interesting. We aren’t in the 3rd stage of personal finance — we’re close, as we slowly close in on paying off our credit cards — but I find stories like this to be interesting and also encouraging. I *used* to be in a much better place financially, but life/marriage/kids destroyed our finances for a time. Remembering what it was like to be able to pay cash for everything, or to travel, keeps me motivated to keep paying off our debt.
Keep writing your stories, JD. I miss them.
Simply said I love this site. It sure does keep my mind focused. I’m on the debt snowball stage on car and student loans (cc’s are done!). I look forward to the day that I can tell my wife to travel to California for a vacation with me and not worry about $1000 in costs…. I’m reading this blog exactly so I CAN live life more fully, even though it takes initial sacrifice.
What does DR say? 🙂
Life like no else, so later you can live like no one else! 😉 Good luck!
I’d say divert from the mini-cooper. I personally think that paying off the mortgage though should be an even higher priority than a car. I think the TRUE stage 3 is ZERO debt, retirment accounts maxed, a portion to mutual funds/investments, THEN live off the rest. Later you’ll the money will end up making more than you 🙂
Hey JD,
the part of this article that stuck-out the most to me was that you and Kris keep separate finances. I’m wondering how that works. This my be none of my beeswax, but I think an article about that would be fascinating.
-danielle
There is nothing wrong with looking at your situation and reprioritizing. The new car, for instance, is a luxury you are saving for. It’s not something that is death-and-taxes inevitable. If problems with your current car arise before you’re fully funded, and push came to shove, there are lots of transportation options out there less expensive than a mini cooper. So I’d say that fund is totally fair game for repurposing. As far as the emergency fund, I don’t see it as completely off limits either. It all depends on your tolerance for risk, and how much it takes to make you feel comfortable. If you’re okay with the idea of a smaller security blanket/emergency fund, then you are probably a bit overfunded in it anyway. And this trip is an opportunity that may NOT just drop in your lap again. I’d say go. Save what you can for it, repurpose your funds as necessary, and then re-evaluate and deal with replenishment (if necessary) when you get back. Money is a tool.
To those that feel J.D. isn’t giving his time or talent to help others –
Why on earth has this post gotten 175+ comments? Because J.D. spends his time and talent discussing, as an honest, open human being, how he manages his money. And I’d argue that well before this blog became the success that it is today, he did it voluntarily to help others like himself. And he continues to lay it on the line to help others, and it must be working or we all wouldn’t keep showing up.
So lay off of him if he doesn’t volunteer or give of himself in the same manner that you do – he still gives of himself nonetheless, in a way that works for him.
Awesome post and awesome comments, except the charity mongers which I find quite offensive. The blog name, Get Rich Slowly, drew me in. Revealing your personal struggle with debt kept me interested. A few teaser 3rd stage posts which elicited comments from me put your blog in my bookmarks. Finally a full blown 3rd stage post with so many comments cemented my interest in you blog. Thank you so much J.D. you should really start a new blog about the 3rd stage. I find the 3rd stage challenging and for a while I searched for other blogs that might have more insight regarding this. I still feel yours is the best. Although Suze Orman’s “can I afford it?” and “how am I doing?” segments touch on it and is quite entertaining. Life is about balance, finding it is tough.
Anyhow, I want to thank you again for this post and most of the commentators who put the 3rd stage of PF in a brighter light.
I’m in the third stage with not even a mortgage–and it’s a nice place to be at 30. While I still put away $40k-50k per annum in various savings vehicles, I spend serious amounts of money on original artwork. Everywhere I look around my home, I see something that catches my eye, be it an abstract that makes me think, an oil of a rainy Parisian street scene that reminds me of my time there, or a signed cell from one of my beloved comic books.
@tb (#114): For me, paying a fitness membership is not about having access to fitness equipment. If just owning fitness equipment is enough, then the obesity rate wouldn’t be so high in the US. That fitness membership is about having someone poke and prod and sometimes yell at me to get into shape.
For everyone who consistently brings up charity: Why do you assume others don’t donate? Not everyone feels a need to announce his or her good deeds to the world.
I think it’s great that JD is working towards giving more–in time, in money, etc. Maybe it’s true that he should ideally give more than he does now–but everyone starts somewhere, and changing one’s habits is hard. He should be commended for working towards that.
I agree with everyone who said that aid organizations need monetary help. I think what JD might have been getting at was more the idea that some aid organizations don’t focus on lasting solutions to the problems. If you give a hungry person a sandwich today, that is great–it is a wonderful thing to prevent hunger for a day. But that person will be hungry again tomorrow. It would have been better if you could have given that person something that would have done more to solve the problem at its root.
JD, in this connection you should look into Heifer International. That is exactly what they do. They give families animals, teach the families how to take care of them, and each family has to give one of the animals’ offspring to other families in the village. Slowly the family becomes economically self-sufficient (they can sell milk, eggs, etc.), and the village as a whole is permanently less poor. Heifer International is really working to provide lasting solutions. (Note: I am in no way affiliated with them. I just think they’re a great organization that I like giving to.)
So, JD, maybe you could consider a regular contribution to an organization like Heifer. Starting small is good. As everyone says about saving, getting into the habit is the most important thing. It’s ok if it’s not a large amount at the beginning. A little money can do a lot of good.
We are all working towards becoming more generous and more giving. Each person just has to start where he is and work from that position. I think it’s great that so many people have written in to remind JD about charitable giving, but I think it’s important too to remember that each person needs to learn to do this on his own, at his own pace, in a way that is right for him.
I haven’t reached that stage of financial planning, but I think the whole point of being in control of your financial situation is to allow you to do things that will make you happy. If you guys really want to go on this trip to Africa and it seems like a good deal at a good time, then you should absolutely allow yourself to do it without having to justify anything to anybody! Being able to have those kinds of adventures is what you’ve worked for, so enjoy it (and keep telling the rest of us about it, so we remember what we’re working so hard for, ourselves!)
@J.D.(#165)
J.D., you might be interested in helping people through micro-finance. I’ve been lending some money to small business entrepreneurs in under-developed countries who often have difficulty in assessing resources–including loans, skill training, etc–within their own societies. I like the idea better than charitable donations (which I do when natural disasters or other things that demand urgent help occur) because of its effectiveness and sustainability in terms of helping promote people’s economic independence and a sense of responsibility.
I’ve been doing this through http://www.kiva.org, but there are some other organizations doing the same. The money repaid I keep re-loan to other entrepreneurs, and this process keeps going on and on and on around the world…
* As for your 3rd stage, well I don’t have much to comment about that, either positive or negative. You make your choices in life and take your responsibility. I just wanted to chime in with the above info of micro-finance in case you might want to look into it.
@182
I, too, have heard of this organization.
In the past I have given a great deal in time and talent. At this point I have moved to a place in my life where I currently don’t. This would be a great way back in. Thank you for bringing it up Meg. Off to check it out.
The ability to spend this money on stuff that’s important to you is kind of the whole point of personal finance! You can get so much more from your money when you’re not throwing it away on credit card interest.
I’m not sure I’d say I’m in the third stage of personal finance. By some measures, I am, but I still worry about money because the future is so uncertain; no matter how much I save, I can never be sure I will have enough. I make a lot of money from overtime, which makes me nervous because overtime isn’t guaranteed. I live on my base pay and save everything I make from overtime.
Sometimes I will make a big purchase from that large amount of savings, and it makes me feel a little guilty. I kind of feel like a frugality fraud for buying a $900 big screen TV, even though it barely made a dent in my savings. I’m glad I’m not tempted by travel; I would never want to spend $5600 on a trip, but if I really wanted to, I could. In a way, the best part is just knowing that I have all this money available if there is something I really want. I am still pretty frugal and I make a lot of sacrifices (I clip coupons, almost never eat out, and haven’t turned on the air conditioning all summer even though my house is currently 82 degrees). On the other hand, I am leasing an Audi, which a lot of people surely consider frivolous and even irresponsible, but I can afford it and it’s how I choose to spend my money.
I have to agree with Rachel, #17. While you’re obviously extremely successful and can probably afford the trip to Africa, I had to ask myself if this post was really written by J.D. and if it was, is it some kind of late April Fool’s prank. I mean…J.D. borrowing from his emergency fund for a trip to Africa?! Blasphemy!
Wow thats a lot of comments! I didn’t through all the comments, so forgive me if this is a repeat.
First of all, it is great you are talking about this stage. Life doesn’t stop with debt-free… and unless we make conscious effort to (1) do what we love AND (2) stay out of debt we will go right back to the stage 1. First stage JD would have probably talked about which credit card to charge this and then pay it off later. He is now thinking things through and know what he would lose if he has to take this trip (like he is ok with delaying buying a mini cooper for the price of taking the trip). So I feel this is an excellent post on “still-learning” in the third stage.
I don’t know what stage we are in. We don’t have any debt, but we are saving for a down payment, so every step we take, we debate whether it is worth delaying the house buying for us. Some of the trips/stuff are not worth it, so we have skipped. Some of the expenses like charitable contributions are worth it, so even though we have been advised to reduce it to reach our goal earlier, we are staying put. On the same note, JD, have you considered contributing to charity. Just as suggestion… you could start small and try… If you are not already giving that is.
I think the best part about “life after debt” is that, as long as you remain disciplined with money, you can make it as “custom” as you want. You don’t owe anyone money, so you have more control over where you send your money – and you can spend $200 per month on a gym. Other than real estate I’m a year from being debt free (student loans). Real estate debt may take a little longer to work though – I’m working on a plan for that, but it’s complicated.
I salivate thinking about what I could do with the $472 per month I currently pay in “Sallie-mony.”
I’d like to bring up a point about lifestyle inflation. Part of lifestyle inflation that makes it dangerous is the part where you stop enjoying each new thing and come to believe that it is part of your everyday life. This new lifestyle then can cut into your savings in a mindless way.
Your trip to Africa sounds like a once in a lifetime experience. Even though it is expensive I bet you’ll remember it when you are old and gray. You may be traveling more, but you are working hard to make money to do the things you like to do. Money should give you freedom, not hold you back.
You are very mindful with your money and seem to be making decisions to spend more money on things that are important to you (good food, exercise, wellness…) and not giving into things that really are hallmarks of lifestyle inflation (spending money on treats and not having any money for savings).
Don’t let yourself feel guilty for spending the money you’ve set aside to make your life (not your bank account) richer.
You go on this trip, JD, it’s unbelievably hard to get visas if you do it yourself. Just ask your friend Chris G. 🙂 (I also follow his blog.)
I spend on travel. I am not a roughing it kind of girl and I want things to be as smooth as they can be. I’m going to Europe this September and it’s fully paid for in cash. It’s nice to know you can do things whenever you like because you can afford it. It’s obvious you are still keeping tabs on what’s important to you (shades of Trent here) and spending on that, and cutting back on those that are not.
I keep reading about what financial stages everyone is in…what are the financial stages? I want to know what one I’m in! We have no debt but the mortgage, but we do not have fully-funded savings.
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.
J.D.,
My Dad always told me that the difference between someone that is broke and one that saves, is that the guy who wastes his finite resource (time,money) is at the mercy of their situations. Whereas, someone who has been diligent with their resources, within reason, can get what they want and not have to settle.
Take the trip to Africa, you’ll be safer in a group, and you never know if the opportunity will present itself again.
Oh I forgot to mention this little bit.
They say that you can have anything you want but you can’t have everything you want. That sums up the third stage nicely IMHO.
The biggest (in terms of cash amount) decision I’m working on is how to buy a home as well as fund my retirement savings. The thing is I want to buy a home without a mortgage. However, as I’m crunching the numbers, I am slowly realizing that it *might* make sense to take on a small mortgage and use the money I’d save on rent for retirement savings. I could also borrow money from my retirement savings to finance the home purchase. I’m trying to work out whether it would make more sense to borrow money from myself or the bank, when the “right” time would be (not in terms of market timing but rather in terms of total amount(s) saved) and how much. Rents seem to be rising steadily around here so at some point it might make sense to buy for me.
Right now is not that time though.
Giving to charity is probably a lot like saving money; you need a reason, a worthwhile goal, or it won’t work.
Unless you feel that your contribution to charity is doing something and actually working as you intended, it’s easy to get discouraged and just quit, or never start giving in the first place. If you save money but have no idea why, odds are you won’t do it for very long.
That’s why it’s so important to find the right kind of charity for YOU and figure out what YOU can do. It’s not just so you can feel good about yourself and say that you are making a difference for “the little guy” but rather that you will be inspired to CONTINUE making a difference.
Anyway, that’s my take on it.
Talking about taking money from targeted savings accounts and from your tax account is totally out of place on GRS.
For someone who has made the trek out of debt, I would never apologize for my spending. When I get to the third stage (I guess I am probably on the cusp, I never will.
I will still try to remain prudent with my spending choices, but I’ll never apologize.
If your money was handed to you on a silver platter, then maybe there’s some apologizing to do. But unles you’ve done it, nobody knows how difficult it is to get out of debt.
And also, I think ANY money spent on foreign travel is well worth it. I would spend on this over any material thing any day of the week.
This is one place I would be proud to say I’m in Stage 3. It many circles, I kind of feel this mix of pride and guilt (for that pride) when I tell my peers “yes, the house is paid for”.
We’ve got to the place where we live off a little under my husband’s income so we put all of my income and whatever’s left of his into all sorts of places of saving. After we set aside our emergency fund, we started little pockets of opportunity fund. One for travel, one for a business idea and 2 more for our spending.
The thing is, this money is good for our spending but we don’t even spend much of it so it kind of just accumulates. We even started giving more money away (I’m stating this more like fact) because we feel that, we really don’t need THAT much money and it could go further elsewhere. It’s not that we don’t do anything, but this is still the leftovers!
So what’s it like? Well, when the iPad came out I found myself in an interesting place. It was a WANT but I had been considering an e-reader for a few months already. So, it seemed like I didn’t put in much thought to it and just plonked down the money for it. I didn’t find it cheap, but I found that I could do it without guild and I could enjoy all of it. As a lady, I don’t shop much, when I love tech toys, so my husband was all for it.
When the iPhone 4 came out, it would have been easy and acceptable to do the same. But, I have a perfectly usable phone so I’m not replacing something that is spoilt or getting something new that fits into my life in a different way. So this time, I didn’t go ahead with it.
Giving in to my WANTS so easily becomes lifestyle inflation when you can afford it and then you start to do it without much thought precisely because you can afford to. But if we get too used to it and it gets taken away, then it becomes painful, so we try to stay away from that.
I’m stage 3++ with lots in the bank too, but I still worry about finances like I’m not.
With the economy in the tank (still!) I feel like I shouldn’t spend much until I have met *all* my financial goals for 10 years from now, even though I have a stable, high-paying job and my planned ongoing savings should cover everything just fine.
For example, even though my kids won’t start college for 7 years, I won’t feel comfortable spending on non-essentials until I actually have all that money saved, & etc.
I struggle with whether this attitude is sensible (given what the economic situation is likely to be in the next decade) or ridiculous. I can’t decide!
So, J.D., unless you’ve really way past the break even point, I do think that spending $11K on one vacation (in addition to your other international vacation this year, and all your sports spending) is a bit too much. Like others have suggested, will you even really enjoy two intense international vacations only a few months apart?
I’m also disturbed by your elaborate plans for borrowing from your other accounts for the S africa vacation. Justify much?
It comes down to the fact that you actually don’t have the money for that vacation right now. Like others have pointed out, S Africa isn’t going anywhere after this year, and there may be cheaper & more enjoyable ways to vacation there if you spent the time to research and save for that vacation.
I also think you might be a victim of “shopping momentum”, given all the spending you’ve listed recently.
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.
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.
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.
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.
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?
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!
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.
@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.
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.
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.
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.
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!
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.
sorry about the bad email and mispelled name in my last comment. I corrected it, just so you know! 🙂
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
@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.
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!
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.
No brainer. You can afford it. You really want to do it. Do it.
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.
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.
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!
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!
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.
“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.
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.)
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.
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!
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!
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.
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.
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.
@ 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Sorry I’m late to the game here! (Just got back from two weeks in Greece :D).
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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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.