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one month travelling in Taiwan

I live in an English speaking country and I can get a visa to Taiwan for one month. I don't like fast travel so I am quite happy to spend a month exploring Taiwan. Whilst I will spend some time in Taipei I live in a city so I prefer to travel through areas outside big cities to see how the locals live and the culture of a country. I also like walking and would be happy to visit an island or two.

I will be travelling by myself and I guess I was looking at doing a big loop of Taiwan. Suggestions as to the direction to go and ways to get around. Staying for a month I will need to keep costs down. Will (lack of) English be a problem outside the main cities? What sort of accommodation should I look at? I prefer family owned places rather than international hotels. A place to stay in Taipei that is in a good location but not too expensive?

Lots of questions

Lots of questions you have in there.

A month in Taiwan is great. You should be able to taste most of what Taiwan has to offer, and doing a round-island trip is a good way to go.

Specifics -
budget accommodation in Taipei - http://www.taiwanderful.net/guides/budget-accommodation

Lots of posts about itineraries on Taiwanderful and elsewhere -
http://www.taiwanderful.net/forum/8d7n-itinerary-taiwan
http://www.taiwanderful.net/forum/4-5-days-taiwan-itinerary-suggestions
http://www.taiwanderful.net/forum/7-days-east-coast

other great posts from bloggers -
http://rubbisheatrubbishgrow.wordpress.com/2013/01/13/round-island-taiwa...
http://malaysianbackpacker.blogspot.hk/2012/04/taiwan-11-days-round-isla...

I know you're on a budget, but since you'll be there for a month I would still recommend buying a guidebook. I usually use the Lonely Planet but there are other alternatives. It will also help a bit with the English issue as it has most things in Chinese and a quick dictionary on the back you can point to when ordering meals, asking directions and such.

finally, i would strongly recommend contacting the taiwan tourism office in one of their many centers. I'm assuming you quality for youth travel so that will make it easier for the more budget local experiences -
http://www.youthtravel.tw/main.php
https://www.facebook.com/pages/Youth-Travel-in-Taiwan/7601377362
http://go2taiwan.net/

Good luck,
Fili