Tracking spending and budgeting...
Because I've been through so many layoffs, around 2002, I hired an independent financial planner. It cost money to do this, but it was the best investment I ever made. It took a full year of meetings and he was very, very thorough - looked at EVERYTHING - not just investments. Ran through various scenarios like "if I get laid off again" and "if both of us lose our jobs" and "if one of us becomes disabled" and "if one of us dies or we part ways" Etc.
During this exercise, I worked at paying off all my outstanding debt. I've always been one to pay my CC off in full each month, but during the long layoff, I had no choice but to run up the CC to get by. That is what CC are for - emergencies.
Based on this year-long exercise, and once we had the CC paid off, and I was employed - plus my divorce was finally settled so I had $ for a house downpayment - we decided to purchase a house that is much less house than we could qualify for. It gives us peace of mind. If any of the above scenarios should happen, we can swing the mortgage on unemployment for awhile, or on disability, or with greatly reduced income. If the tough patch lasts long, we know which funds to tap into next.
And the house is a house we intend to retire in - so we have it in our plan to have it paid off by the time we are 65. It is big enough for teens, but once they are grown and gone, their rooms can be turned into exercise room/guest room etc. We have enough futons and sofas and sleeping bags, we can sleep about 8 people, so there's still room for grandchildren to visit too.
The benefits of living in a smaller house than we can afford goes well beyond worst-case scenarios. We have found:
1) Our energy costs are equally modest
2) I can clean the house much more quickly (took me the length of Abba's Greatest Hits to whip the house into shape yesterday)
3) Our lawn is so tiny, DH can use one of those gasless mower thingies... what do you call them? It takes him 15 mintues to maintain.
Downside: not a lot of closet space. You learn to become masters of organization, and good at decluttering. And learn to be picky about what you buy and drag into the house, always asking first "do I have room for this?"
The next step was to set up my accounts so that savings are automatically taken out of my paycheck before I even see it. This includes 401K, company stock plan, and other investments.
My financial planner prescribes to the view that 50% of one's budgets goes towards nondiscretionary spending (housing, utilities, food, basic transportation, basic clothing needs, paying down debt); at least 20% towards savings (we do a bit higher than that), and 30% for "wants." He believes strongly that life is really not worth living if you don't have room for the "wants."
So next he looked at the "wants" category with us. A big want was to help our children pay for college. I felt this was a need, but my fp turned my thinking around on that, and placed this in the want category instead. His reasoning: you do your children a favor if you take care of your retirement first - so you are not burdening them right when they are starting their own family. So we have "college savings" in our "want" category.
The other items in the want category include:
1) Entertainment & eating out - as you may have noticed, we eat out and go out a lot.
2) Travel - it's my dream to see the world. So we have this budgeted as well.
3) Clothes that aren't basic needs.
Everyone's individual "wants" will be different. Some people may put "electronic toys" like stereos and iphones in this category. Some people may put "boats" or other expensive hobbies in this category. Some people may put "redecorating" in this category. It's all based on what brings you pleasure and joy. This is the icing on the cake category -and what makes you feel like you are living, not scraping by.
In our worst-case scenarios, it's the Wants that get cut first. Although... my fp says *even then* he recommends you have a small want budget.... it's just gotta scale down ... but if you are disabled or out of work, it will help lift your spirits to have a bit of fun money.
As for detailed tracking and spreadsheeting, I used to do that (with Quicken) but I gave it all up once we had this plan in place. I built up a reserve amount in my checking account that gives me peace of mind. If I go over a certain #, I pull the extra $ into an investment vehicle. If I drop below a certain #, I curb my want spending for awhile. I will never bounce a check again (don't ask about the xmas during my layoff when I bounced TEN checks ... due to a bank mistake.... what a fiasco! ... but the lesson there was: always have enough in checking so things don't bounce).
Otherwise, savings are already automatically deducted. I have a sense of my nondiscretionary bills because they remain pretty stable. And it has helped *immensely* now that we have no day care, no orthodontia. That gives us even more room for slush.
I still use CC - because it gives me the benefit of a steady stream of coupons and special sales invites. I just pay them all off automatically and don't carry a balance.
I know this is getting wayyyy off topic, but I hope all of this is helpful!
