Job-hunting doesn’t take nearly as much time as my old job, but it’s practically a full-time commitment. The sudden cash drought and boost in personal time actually opened my eyes to an interesting way to discuss spending habits on leisure and entertainment. If for whatever reason you have been procrastinating about changing your spending habits, the following information may convince you that taking control of your finances won’t actually suck the fun out of your life.

Almost nothing has changed about my spending habits for leisure and entertainment since becoming unemployed. The reason: I wasn’t spending much money on leisure and entertainment when I had a job, and not because I didn’t have time to spend the money. In my free-spending days, I always found time to spend money!

Ten months ago when I introduced organized finances, budgeting and expense tracking to my life, I slowly became accountable for each dollar I would spend. My monthly goal was to stay within the limits of my discretionary income and avoid turning to credit (with one exception being to cover moving costs). What ended up happening was that I learned to live without luxuries such as constant updates to my wardrobe and music collection so that I could reach this monthly goal. I started to break the habit of making shopping a leisure and entertainment activity. Other money drains started to fall to the wayside too, like going out often to nice restaurants, clubs and bars.

When I got my performance review saying that I “refused to contribute more time to the job,” I thought about how much I missed my old life with shopping and socializing, or just simple time to myself. So, I tried to reintroduce certain elements of the old me by shopping around for new clothes and music. But as I dealt with crowds and rude people, I seriously asked myself, “What did I ever find leisurely about shopping in the first place?” Attempts at getting back into the nightlife scene also made me wonder what could I have possibly missed about waiting in a long line to pay $8 for a cocktail.

I worked long hours and sacrificed vast amounts of personal time because I wanted to reduce my debt. I did that successfully, and looking back I don’t have regrets. Having little personal time taught me that most of my spending habits that got me into debt in the first place may have been fun for a period of my life in the past, but perhaps I kept the habit around longer than I should have. I learned that making time for important people in my life was the most rewarding form of leisure and entertainment, and often sharing time with them like making a dinner at home doesn’t require lots of money.

The biggest change to my leisure and entertainment during unemployment is that I won’t get to go on a vacation this summer nor venture on weekend getaways. Travel was my one big indulgence while I was employed. However, my partner Zac has been keeping me busy with local hikes and bike trails, and some friends recently dragged me out on an adventurous fishing trip. I’ve been having so much fun this summer that I don’t give much thought to the fact that there won’t be money in my budget for travel.

I mentioned that job-hunting is like a full-time job because it still leaves me scrambling to make time for the important people in my life. However, it’s just as rewarding as always when I do get to spend time with Zac and my friends. And even though the only cash that will be coming in will be from unemployment checks, I won’t feel much impact on my social life. That’s pretty amazing to me, and that’s why I encourage readers to look into ways you can change money spent on leisure and entertainment. You’ve probably suspected that life could be just as fun without as much shopping, dining out or nightlife. I was spending little money on leisure when I was employed, and I’m spending little money now. I can confirm life is just as fun, if not better.

It’s funny timing for me to be writing about emergency savings because I’ve just been fired from my job. Trust me, I’m happy about being freed from my unreasonable employer of questionable ethics and even more questionable employment practices. I went down only because I asserted my boundaries, and I’m confident I’ll find work elsewhere.

My personal experience doesn’t make me recommend one camp’s advice over the other, however. I support Camp A because of circumstances I have working for me. On the other hand, Camp B might be the entirely better choice for someone else. The truth is, an emergency can happen tomorrow, so why not structure your emergency savings plan that way? The following chart will help you examine your financial picture and determine if Camp A or Camp B is best for you.

Camp A vs. Camp B Chart

The camp with 3 or more traits that accurately describes your financial situation is probably the best emergency saving plan for you.

I’ve painted a picture that suggests the person with the higher debt load and strained finances should find some way to significantly cut expenses or increase income to utilize Camp B’s advice for putting money away in case of emergency. The rationale being: you can use your savings when emergency hits because other sources of money are limited or non-existent.

My critics will tell me that me that following Camp A advice is neither good for an emergency that requires cash, nor for a long-term or multiple emergencies. My response to that is 1) I can use my low interest “credit checks” from my credit card company for cash advances or for non-credit card payments. 2) I worked hard to reduce my debt and improve my finances. I have to go a long way down before my finances are in trouble again. I’m pretty motivated to find employment soon and keep my finances healthy. If for some reason another financial emergency comes up, yes, I will be in trouble, but thankfully I have a partner and family that can assist me.

The main point I’d like to drive home is the fluidity in these camps. Someone following Camp B advice might want to switch over to paying down debts more aggressively as their credit significantly improves. Conversely, someone following Camp A advice might want to start saving money after an emergency period until they’re on firmer ground again.

I don’t really believe one plan works best for someone all the time. As financial conditions change, so should your emergency savings plan.

Now that I’ll be out of a job, I’ll be significantly cutting back on my debt payments, as well all my other expenses. Thankfully my aggressive debt reduction strategy got me to the point of having to only pay back 0% interest debt. I’ll be okay making credit card payments and covering rent with unemployment checks. But let my story be a warning for you: If I didn’t have credit card debt in the first place, I would have been saving money for an emergency much sooner.

What are your thoughts and experiences with building your emergency savings plan? What worked best for you?

I can’t avoid making mistakes in life, but I can make cautious decisions. There has been lots of news about foreclosures and unconventional loans, which I plan to avoid. To be safe, I’m going the traditional route by saving for 10% down payment on a house and obtain a 30 year fixed-rate mortgage. (If I were single, I’d be shooting for 20% down payment.)

Originally I thought saving for a down payment would be a daunting and downright impossible achievement. The process is actually not going to be that bad. I got most of the hard work out of the way by nearly eliminating credit card debt and establishing a strong credit score. The task now involves some homework and persistence.

Here are some recommendations I liked from some trustworthy sources.

1. Assessment

Nearly every source of information will remind you that a home is the most important purchase you’ll make in life. Thus, it’s best not to chase the American Dream carelessly.

Former president of the National Association of Realtors, Tom Stevens, tells MSNBC that first time homebuyers should, “Think about your plan for the next year, five years, even 10 years. Look at what you hope to accomplish professionally, personally, as a couple and as a family and what kind of home and neighborhood will best serve those plans.” This idea ties in nicely with point #2.

2. Don’t Shoot for Your Dream Home the First Time Around

Realtor James Raysbrook further adds, “This is a move-up process. [First time homebuyers] should not expect to buy into Mom and Dad’s neighborhood first time out… even if they end up out in the suburbs accepting a commute for a few years, their home will appreciate with the rest of the area along with their incomes. This will allow them, in time, to trade up until they live exactly how and where they want.”

I’m not thrilled about the idea of settling for a house in the suburbs, but I’d rather choose financial stability over a more hip address. However, it’s important that I strike a compromise between a starter home and a place I’ll be happy with for several years. Bankrate.com warns, “Closing costs and other home-buying fees, as well as the commission that most owners end up paying to real estate agents when they sell their homes, add up. People who have to sell after living in one place for only a short time can end up in the hole on their investments.”

3. Figure Out How Much House You Can Afford

Bankrate.com also explains that for mortgage lenders “to determine if you qualify for a loan, they will consider your credit history, your monthly gross income and how much cash you’ll be able to accumulate for a down payment. So how much house can you afford? To know that, you need to understand a concept called ‘debt-to-income ratios.’”

You want to know your front-end ratio, which “shows how much of your gross (pretax) monthly income would go toward the mortgage payment. As a general guideline, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28 percent of your gross monthly income.”

And you need to know your back-end ratio, which “shows how much of your gross income would go toward all of your debt obligations, including mortgage, car loans, child support and alimony, credit card bills, student loans and condominium fees. In general, your total monthly debt obligation should not exceed 36 percent of your gross income.”

Gathering this information helps you to input numbers into the following calculator to determine exactly how much house you can afford. Some footwork is required, like figuring out taxes and home insurance rates in your desired home area. Some guesswork is also required if you don’t have down payment money saved, like me. But there’s an opportunity for a great lesson by playing around with down payment values. You’ll find that the more down payment money you have, the less your monthly mortgage payments.

4. Determine a Down Payment Value and Sources of Money

The task of figuring out how much money to save for a down payment can be made easier if you figure out how soon you want to buy a house; how much risk you’re willing to take; and how much cost you’re willing to incur with a lower down payment.

Holden Lewis at Bankrate.com explains, “There are myriad ways to leap the down-payment hurdle. Some strategies are for people who have some money saved up somewhere, and other strategies are for people who are practically broke.

“It has been a long time since home buyers were required to come up with 20 percent down. Some lenders will lend 100 percent of the purchase price or even 103 percent. More commonly, lenders underwrite mortgages with 3 percent or 5 percent down. The question becomes: How do you come up with that 3 to 5 percent?”

If you’re one of the 22% of people whose down payment came from a friend or relative last year, great! That may be an option for some lucky folks, but not for me. Other options include borrowing from your retirement funds like your 401(K), but be warned that you can incur tax penalties if you lose or switch jobs. You can also see if you qualify for a HUD special housing program. Yahoo! Finance also recommends that “if you are buying in an urban area or have low to moderate income, look into programs offered by your city or state that provide below-market loans with little or no down payment required. If you’re really cash-strapped, you can get 100% financing by ‘piggy-backing’ a second loan equal to 20% of the purchase price on top of your 80% loan. But that 20% second mortgage will come at a much higher rate.”

My personal choice was to come up with a savings goal ($30,000 in five years), and each month put $500 into a high-yield savings account to reach that goal. By going the slow and steady route, I feel much better about accumulating money while still weathering an uncertain period of my life. I’m not sure where I’ll end up in five years, or how much money I’ll be making by then. The good thing about taking my time to save is that I might be in a position to put away more money as my income increases, and thereby be able to afford more of a house.

Conclusion

There’s not one right answer for how to save for a down payment, but I’ve learned reverse engineering is a good strategy. Think about your dream house. How are you going to get there? Maybe a starter house for a good number of years? But how are you going to get in that starter house? Perhaps get some help from family or a housing program? Special financing options? Or will slow and steady best suit your needs? By answering these questions and taking the next possible action, saving for a down payment isn’t as dreadful as it seems.

Last week I wrote about confronting your net worth, which hopefully wasn’t too disheartening an experience. If you’re a negative or low net worth person, I’m in the same boat. At this moment, my net worth hovers around $2,000- the positive value attributed to my young, but growing 401(K), and my shrinking credit card debt. My $9,800 student loan is mostly what is dragging me down.

I can either choose to feel crappy about my low net worth and do nothing about it, or I can take action to further reduce debt and build wealth. Here’s what I decided. I thought about what my finances were like one year ago, and I compare them to now. In only 8 short months, I’ve turned my negative ($10,000) net worth into a positive value. There was no secret, magic or easy-fix: just hard work, a plan and a budget. In the near future, I’m going to use this same tactic in my wealth-building plan. But first, I need to sort out how I want to make my net worth grow.

Now I find myself grappling the age-old debate of what’s the better option: paying down the student loan or investing and saving. There’s so much back and forth on this issue, I’ll repeat the wise words of Dr. Don at Bankrate.com who says, “Personal finance is called that because it’s making financial decisions that are right for you.” Here’s my approach to handling the student loan after all the credit card debt is gone. We may disagree, but I’m open to hearing your approach.

Simple Math

Joshua Kennon at About.com laid out a rule of thumb for debt vs. investing that chimed best with me: “If you can earn a higher after-tax return on your investments than the after-tax interest rate expense on your debt, you should invest. Otherwise, you should pay off your balance.”

The rate of return of my 401(K) consistently beats out the 6.8% interest rate on my student loan. I don’t plan on touching the money in my 401(K) until retirement, so the after-tax rate of return will only get better as the interest compounds. I feel good about my progress towards retirement savings, so I won’t make changes to my 401(K) once all the credit card debt is gone.

At some point I’ll want to consider other retirement plans to boost my net worth, with a Roth IRA for instance, but I’m not quite there yet. I’m anxious to have a house and business, which means I need to start saving money soon. The simple math solution works for the retirement aspect of my wealth-building plan, but what about accomplishing other financial goals when I have a student loan to pay down?

Cost of Priorities

The best high yield savings account I can find is 5.05%, which is less than what I’m paying in student loan interest. While I could probably get a better return on various other investments, I’m not ready to handle greater risk with my money since I don’t have much to start with at the moment. By going the conservative route in sticking to a savings account initially, it seems that it would cost more for me to save money for a house and a business instead of paying back my student loan faster; especially considering that the benefit of deducting interest paid on my student loan is phased out for my income bracket.

However, it’s my goal to own a house by the time I’m 35- a milestone that is only five and half years away. And since I want to live in an urban area, I’ll have to be prepared to put up a large down payment for a house.

A balanced approach is what works for me, even though it is costlier in the short term. I decided that once the credit card debt is gone, I should evenly redistribute money in my debt reduction budget to savings and student loan payments. So the $1,000/month that was going to credit card payments will go one half towards a high interest yield savings account and the other half towards my student loan.

That’s just how I anticipate starting my savings for now, and I may change how I distribute discretionary income later as my income increases, or as my student loan decreases. There are plenty of great strategies, but the best one is to make a plan that works best for you. For example, I read about one strategy that involves consolidating student loans and using the money saved in reduced interest expense and putting it towards investments. If that were an option for my student loan, that would have been one strategy I may have considered.

Conclusion

The best I tip I picked in my research came from Ray Martin of The Early Show. He suggests that you learn how your student loan is structured, and choose a payment plan that works best for you. That’s exactly what I did. I studied my student loan, compared payment schedules to my financial goals, and came up with a way to direct money to both.

Martin also points out that in a recent study of college graduates up to age 35, “44 percent said they delayed buying a house, 28 percent postponed having children, 27 percent skipped medical or dental procedures, and 32 percent said their loans forced them to move back into their parents’ home or live there longer then they expected,” as they try to pay back their student loan.

Math can’t solve all problems, but it can help you figure which problems to tackle first, or simultaneously. In some cases, it may be better to make sacrifices and pay back a student loan before investing or saving, and other cases not. It all depends on what’s best for your available funds and how you want to live. For me, I’ve been kept in holding pattern for too long because of credit card debt. I’m not going to let that happen with my student loan.

I’ve always found the topic of net worth to be scary and frustrating, mostly because of the “worth” part in the term. It’s frightening to connect my knowledge and handling of money to any sort of measure of my worth as a person. If I were to base my worth solely on my assets, I probably wouldn’t feel too good about myself. I imagine that the shadowy meaning of “worth” is one of the many reasons why many people under 30 don’t want to look at their net worth.

Other reasons could be that 1) it seems impossible for any member of Generation Debt to cross over to positive net worth 2) the idea of calculating and then comparing net worth to that of others sounds like a recipe for depression or anxiety, and 3) the concept of net worth is obfuscated by so many differing perspectives from various personal finance resources that it can be extremely confusing.

Net worth is simply the value of your assets minus debts. Trent at The Simple Dollar walks you through the process quite nicely, and Teri Newton at Personal Finance Advice provides a more detailed and encompassing approach. Instead of echoing what others have said better, I’d like to make the subject of net worth more approachable with my personal example. I’ll explain what went wrong in cultivating my long-term financial goals, and how all of that will change as I venture into this next phase of the Almost Debt Free series: Building Wealth. My goal is to convince you that confronting your net worth isn’t like a death wish for your ego. It’s actually an opportunity to make life better.

A Wrong Start

When I was growing up, there was never any discussion of net worth. I was raised with the mentality that if I go to college and get good grades, something good will happen. That “something good” was rather ambiguous, and exactly “how it will happen” was even more elusive. I essentially got lots of mixed messages from my parents that I wouldn’t have to rely on myself entirely for money, though it never really worked out that way. I ended up having to completely earn my own way instead of cashing in on the family business that started going downhill in the last few years.

It’s my own fault for believing that money comes easy. A number of people I’ve encountered have actually sat me down and said, “Please don’t make the mistakes I made. Find some way to depend on yourself. The only person you can rely on for money is yourself.”

Moving forward, the best advice I could give to anyone looking to build wealth is to repeat the same admonition given to me. Often the aspect of self-reliance is missing from the discussion of wealth building, and I’m not sure why. Perhaps it’s an obvious point for some, but if it were so obvious, why is it that 50% of the workforce (across all ages) has less than $25,000 in retirement savings, or that four in ten workers are living paycheck to paycheck? If you’re clinging to the hope someone is going to save you from your finances, you could be setting yourself up for major disappointment.

A New Start

Let me make something clear about net worth, because it desperately needs clarification. According to Laura Bruce at Bankrate.com, “Net worth statements are like cheesecake; different everywhere you go. Some are too simple and too broad, while others may be so detailed that you’re not likely to complete it.”

There are many different approaches to calculating net worth, but one fact remains the same. You need to monitor and build your net worth if you want to be able to retire and perhaps accomplish loftier financial goals, like leaving behind an inheritance. At the very least, you should know your net worth to have a sense of your financial health in the present and see how far you are from maintaining your current lifestyle in retirement.

It’s hard to think about retirement when 65 seems so far away, but wouldn’t it suck to realize that you’re getting too old and tired to work anymore? And then suddenly you see, wow, you have no way to provide for yourself, or that worse yet, you’re still in debt at 65.

Retirement isn’t a sexy topic, but here’s a twist to make it appealing. Imagine never having to work again because you are independently wealthy. You have now earned more than enough money that you can sit at the beach everyday, sipping on margaritas in the shade as the hotties walk by. Some of us spend a substantial amount of money just to be able to do this two weeks out of the year. Imagine that by cutting back on your lifestyle now and making your money grow, you can someday have this life of leisure all the time.

I’m one of those people who over-subscribed to the philosophy that one should enjoy youth to the fullest. I compare my lifestyle now to my wilder days before I gained financial literacy, and I see that having fun and being financially responsible are not mutually exclusive, although it can be without finding the right balance.

There’s something more satisfying about partying in moderation and making progress on financial goals than there is chasing instant gratification on a day-to-day basis. Often, that’s a lesson learned only through personal experience. So I ask, why not try making changes today?

Now you know why you should be paying attention to your net worth. Stay tuned for next week when I’ll cover how to increase your net worth.

In this series about preparing for life after debt and how to get there, I’ve covered how to identify bad debt; ways of organizing your finances to reduce bad debt; ideas for implementing a functional budget; and I released the Queercents Expense Tracker to make developing or staying within a budget easier. (Side note: It turns out the Queercents Expense Tracker is functional on both MS Excel and Open Office.)

Now it’s time to start thinking about what to do after the debt is gone. Certainly, the range of topics to consider will involve saving, wealth-building and estate planning, which I’ll cover later in this series. But on my debt reduction path, I’ve come across a greater lesson that often gets overlooked in personal finance topics: quality of life in the present.

Over the last year or so I became pretty obsessed with making more money. I allowed work to cut down my personal time significantly, and I made sacrifices in a number of spending categories that impacted my day-to-day enjoyment of life. Recently I took pause and looked at the fraction of my week consumed by my billable hours; my inbox stacked with emails from friends I have yet to respond to; and my aging wardrobe and tired music collection. I couldn’t help but wonder: Did I sacrifice too much in becoming debt free? Yes and No.

To give myself renewed incentive to rid myself of the last $3,300 of credit card debt (much like losing the last ten pounds), I made a list of things I would have done differently if I had the chance to do my debt reduction strategy all over again. By putting a spotlight on where I felt I sacrificed too much, my hope is to offer a solution to counter the personal costs incurred while working on financial goals, and make day-to-day living on a budget more enjoyable.

Don’t Sacrifice Talents: Find Satisfying Work to Pay the Bills

One thing that upsets me about paying down credit card debt is the dreariness in the accomplishment. To me, it’s like paying back money I should have never borrowed in the first place. It doesn’t help matters that I’m using money earned from working long, stressful hours at a job I don’t even like and which greatly interferes with the personal life I would like to live.

At times I have felt so unhappy at work, every minute is like a sacrifice and a waste. So I have finally hatched a plan to find a new job outside of the legal field and work in an environment more suited to my temperament and interests. I want my hard work to do something more than just get me to a zero balance on my credit cards. It would be nice to come home and feel like I made the world a slightly better place, or at least one more bearable while advancing my career goals.

In this time of relative uncertainty I’m sometimes not sure what to do next, but I plan to follow the great career tips on Queercents that suggest that I follow my passion. I have been kept in a holding pattern by my fear that it may sound like too much of a dream to raise startup capital for my coffee shop through my writing, but I’ve come to realize two things: first, it’s not impossible, and second, it doesn’t have to happen right away.

I’m actually excited about the challenges that come with making a career change. Making the decision to move on from my relatively well paying job was difficult, but it’s time to take my reward for all of the hard work I did in reducing my debts: I am going to pursue the life I have always wanted.

Don’t Sacrifice Peace of Mind: Allow a Goal to be Modified

Recently I had been trying hard to pay off the last bit of my debt by September 2007, but I see I’m putting myself under a great deal of pressure by way of tighter budget constraints to make this happen. I had gotten to the point where I was becoming too anxious about spending money, even on necessities like groceries. It’s good to be cautious about spending, but not to the point where one feels daily tension about reaching a goal deadline that’s several months away.

To give myself peace of mind, I’ve extended my goal to December, and I feel much better. I believe I set too strict a goal for myself by trying to make September my last credit card payment, even though I have zero percent interest on my credit card until December.

I’ve learned that modifying a goal is not the same as abandoning a goal, and this is an important lesson to apply when one starts start saving money for a house, or when I open up my coffee shop. I don’t want to make future goals so big that I’ll feel discouraged or too exhausted to accomplish them. Moreover, it’s easy for me to get so tunnel-focused about accomplishing a goal that I forget that I may be wreaking havoc in other parts of life along the way. There’s no point in reaching a goal just to find out I have a huge mess to clean up elsewhere. Slow and steady might not be an exciting way to get things done, but my experience is proving that perhaps it’s the most reliable method.

Don’t Sacrifice Simple Pleasures: Insist on Them

Recently my partner Zac has expressed concern that I’ve become increasingly anxious about money. As a way to take our minds off money, he suggested we go for a long bike ride across the city to the beach. We locked up our bikes and went for a walk along the shore and spent roughly an hour making a sandcastle that could withstand the rising tide. I didn’t have a single thought about work or money the entire time. I laughed; I smiled; I felt more alive on that afternoon than I have been feeling lately. And we didn’t spend a penny.

I got so caught up in the monetary value of all things great and small that I forgot about all of the other things that don’t cost anything at all. One of the reasons I got into financial trouble was that I failed to substitute the simple pleasures for the simply expensive pleasures when that would have been the wisest or most enjoyable thing to do.

Now that I need a break from an overly ambitious payment schedule, I am making up for lost time and lost money by reacquainting myself with activities I enjoyed before my life got so busy — things like plowing through that stack of books I’ve been meaning to read; playing with my guitar that’s collecting dust; writing short stories for my friends to enjoy. This list goes on the more I think about it.

Conclusions

It’s easy to overlook how much energy goes into bringing order to your finances, and it’s even easier to shortchange yourself in recognition of those efforts. In relating my desire to make life more enjoyable, I’m not suggesting that one should lower the bar for his or her efforts when attempting to reduce debt or build wealth. I’m pointing out that creating a relationship with money with wealth building in mind doesn’t have to be all about sacrifice.

There are plenty of ways to make the journey of reaching financial goals more enjoyable. Perhaps it involves adjusting the pace or changing the source of income for meeting these goals. Or perhaps instilling a greater focus on intrinsic rewards can make cultivating a new relationship with money a gentler experience. These are just few things I’m going to try as I prepare for a new debt free life.

The point is that I’m not going to wait around for life to be better after the debt is gone. I’m going to be good to myself and enjoy each day while working hard on more meaningful pursuits. Idealism aside, it isn’t just money I want to squeeze the most value from, but also time. Perhaps you have some ideas to make reaching your financial goals less of a sacrifice. I’d love to hear them.

Why expense track? For most of us, money comes in much less often than it goes out. If you want to figure out how to control your money better to keep more of it, expense tracking allows you to see where to cut down on the spending. It takes less than five minutes of data input per day, and just a bit of commitment.

Some people truly hate this practice because it seems high-maintenance or impractical. I used to agree until I became desperate for a way to manage my increased income. Being that I lived as a careless spender all my life, the common sense solution to understand my loose-fisted ways (as someone with a degree in behavior analysis) was to create some sort of picture of my spending patterns with qualitative and quantitative details. Simply put, I needed to track expenses to wake up to the reality that I’m spending more than I make.

I didn’t think asking for an easy-to-use, free expense tracker was such a tall order. But one tiresome afternoon, I became a crazed Goldilocks combing the internet for a simple financial tool that would do a little more than just capture a list of expenses, and a bit less than download my debit and credit card charges into an overly complicated database. All I wanted was a spreadsheet with some nifty sorting and calculating functions. That’s when I decided to make my own expense tracker on MS Excel, which I wrote about as one of my first posts on Queercents.

Six months later, the spreadsheet has changed a bit with some fine-tuning adjustments. I’ve made it simpler to read and manipulate, but it generates surprisingly detailed information. This simple spreadsheet has been so vital to my debt reduction strategy that we at Queercents have decided to make the expense tracker available to our readers during the Almost Debt Free series.

To download, you must have MS Excel on your computer and some familiarity with the program. It doesn’t take much technical skill, but you’ll be working with functions not often used at the beginner level. No need to fear. I’ll do my best to walk you through the trickier sorting and AutoSum functions. [Click here to download the Queercents Expense Tracker. You'll be asked to confirm your email address, which will be kept strictly confidential and never sold or distributed.]

If you’re not quite ready for Excel, the spreadsheet is available in PDF format so that you can track expenses with pen and paper. The layout of the PDF version allows you to make three-hole punches in copies of the expense tracker and keep the pages in a binder. The PDF is also great for jotting down expenses in real time, and then transferring them to your Excel spreadsheet later.

Once you have the expense tracker downloaded, you’re ready to input data. Let’s go over some guidelines first.

Data Input (Presented in order of columns from left to right)

Date: Keep format in month (00)/day (00)/year (2007) format to allow for sorting purposes later. The Queercents Expense Tracker has a tab for each month.

Categories: Assign a label for each category of expense you make, and make it broad enough to use the label consistently (again, for sorting purposes). Here are typical categories seen in my expense tracking:

• Rent
• Utilities
• Household (laundry machine costs, newspaper subscription, maintenance)
• Transportation (Gasoline, rental car payments, public transportation fares)
• Credit card payment
• Student loan payment
• Eating Out (breakfast, lunch, dinner, snack or coffee)
• Entertainment (Drinks, movies, clubs)
• Groceries
• General Shopping (Clothes, music, books)
• Healthcare (co-pays, medicine)
• Grooming (haircut, dry cleaning)
• Bank fee
• Memberships
• Gifts
• Donations

Cost: Enter dollar amount of expense.

Payment Type: Indicate Cash, Credit, Debit, Check and/or other method of payments.

Monthly Recurring (Y/N): Select Yes or No to help distinguish which expenses are automatically made monthly, either through automatic account withdrawals or routine payment such as rent or mortgage. This gives you an idea of what payments are necessary (ie, housing, utilities), or what payments are automatically made but not useful (such as a Netflix account that’s hardly ever used.)

Description: I typically write a phrase that explains what was purchased, why, where and with whom. For the “Eating Out” category, I make it a point to specify breakfast, lunch, dinner or snack and where I made the purchase to allow the expense tracker to tell me how much I spend on a particular meal in a given month, where I spend it most, and with whom I’m spending.

Now with each new expense you enter, make a new row to keep the Subtotal value two rows below the last expense entered. Once you’ve made your last entry, select the cell to right of “Subtotal.” Then click on the Sigma sign in the Tool Bar, hit enter, and now you have a subtotal for your entries.

At left is a small sample from my own expense tracker. Click on the picture to get an idea of how data will look.

Sorting and Calculating

Here’s where the expense tracker gets exciting. Excel’s AutoFilter function can help you examine certain spending patterns, such as, but not limited to:

• Money spent on a certain category of expense, like entertainment or shopping
• How much money was spent on credit
• How much money is spent on a particular meal
• How money was spent in a certain time period, or at a restaurant

To enable the Auto Filter function, click on Row 7 on the left of the spreadsheet, which highlights the row. Then go to the Data dropdown menu at the top of the screen, and select Filter, then AutoFilter. (Click picture at left to see example).

Now you have created arrows for the dropdown menus in the header columns of the expense tracker. (Click picture at left)

You can now figure out how much you spend on going out to eat, for instance, by clicking on Categories and selecting “Eating Out” from the dropdown menu. The subtotal for this category is automatically calculated for you. (Click picture at left).

Let’s say you want more detail, like finding out how much money you’ve spent on going out to lunch. You can do that with a custom filter in the dropdown menu of your header column. For this example, go the Description column and select Custom. The following window will pop up. (Click picture at left)

In the Custom AutoFilter window, select the word “contains” from the Description dropdown menu. Then type in “lunch” in the box to the right. You now have a subtotal for money spent on going out to lunch. (Click picture at left)

Now that you know how to use the Custom AutoFilter, you’ve opened the door to calculating other interesting subtotals. But before moving on, make sure you undo your previous filtering. You can do that with Control Z, or by selecting “Show all” from the dropdown menu of the header column (in this case, Categories and Description). Tinted arrows in the header column show which columns had data filtered. Once you have removed filtering, your original subtotal returns.

Another great function of AutoFilter is that you can determine money spent in a time period. Go to your Date column and select Custom from the drop down menu. The following window will pop up. (Click picture at left)

For this example, I chose the period between 5/14/07 and 5/17/07. From the Date dropdown menu, I selected “greater than or equal to” and typed in 5/14/07 to the right. Right below I then selected “less than or equal to” and typed in 5/17/07. Here is the subtotal for money spent in that time period. (Click picture at left)

Tool around with the Queercents Expense Tracker more, and you’ll see how powerful and versatile it really is. By navigating a handful of dropdown menus with a few clicks, you can see trouble areas (or unexpected restraint) in your spending. Becoming familiar with your spending patterns is an excellent way to give you ideas on what you need to budget. And if you already have a budget, a simple expense tracker lets you monitor your rate of spending for a budgeted category.

By all means, there are plenty of applications that can be used with the Queercents Expense Tracker that have yet to be found. If you come across anything interesting that may provide more helpful uses, or if you have tips to improve the expense tracker, please let me know. I will revisit the Queercents Expense Tracker at a later time to troubleshoot or make improvements based on your feedback.

In the meantime, enjoy this opportunity to take greater control of your money with this handy device.

Merriam-Webster defines a budget as “the amount of money that is available for, required for, or assigned to a particular purpose.” As Nina pointed out earlier, not many people spend with purpose. They just spend without regard to how much they can afford.

It’s hard to reach people who don’t want to confront a problem. I was one of many Americans dangerously spending more than they earn despite the vast amount of information available about budgeting. Three years ago, the only budget constraint I acknowledged was an aversion to overdraft fees on my credit cards and checking account.

The truth is, I always knew that my spending was troublesome. I felt growing discomfort about my rising debt, and I didn’t know where to turn for help. Most information I found involved way too much self-assessment, tracking and follow-up for me to handle. There was also a terrible insistence to involve math in budgeting, and I hate math.

Rather than re-hash what many others have said in widely-available resources, I’d like to share my story of success with budgeting and debt-reduction that yes, did involve self-assessment, tracking and math. However, it’s the behind-the-scenes story that may persuade you that successful budgeting is possible.

1) Confronting Discretionary Income and Making a Choice

After I structured my finances with the immediate goal of reducing my debt-to-income ratio, I figured out how much discretionary income I have each month. See Mapping-Your-Future.org for one of the easiest-to-use and most accurate budget calculators that breaks down monthly discretionary income.

It was rather heart-breaking to see that I couldn’t afford my lifestyle with my discretionary income. In order to avert more debt, I would have to give up dinners at the hottest restaurants in the city; weekend getaways; gadgets; concert tickets and up-to-the-minute style clothes.

As my credit balances got higher, so did my credit limits. After reaching a height of nearly $7,000 of credit card debt, I figured that if credit card companies weren’t going to help me stop spending, I’ll have to do it myself.

Essentially, I made the choice to kick my credit line out of my spending budget and determine how else to define a real budget.

2) Sketching a Budget

I went back to my monthly discretionary income total and tried to determine a spending plan that wouldn’t leave me broke each month. Because I was carrying so much debt, I had little money to spend on anything other than bills. I decided to play around with the idea of what I would do if I had an extra $500 a month in discretionary income. Although I wasn’t looking at my actual discretionary income, I wanted to see how I could benefit from the fictional boost in finances and compare it to my actual finances.

3) Creating More to Budget With

Dropping my credit card spending habits alone wasn’t going to fix my debt-to-income ratio. By sketching a budget with extra money, I realized the only way I was going to reduce my credit card debt was by increasing my income.

I know making more money isn’t a quick and easy option for many people. I was lucky in the sense that I was able to find a higher paying job. The hard and crappy reality I found is that if you’ve gotten yourself into a lot of debt, you’re going to have find some way of earning more and spending less if you want to see your debts get paid down.

If there is any way you can work more hours, get a second job or find a higher paying one, by all means go for it. Earning extra money will come at a great sacrifice to your free time, but there is a bright side of sorts. You’ll have less time to spend the extra money on unnecessary expenditures, and thereby direct the increased cash flow towards your bills.

4) Studying and Adjusting

After I started making more money, it took several months to work on a budget. I made a knee-jerk reaction to stop spending on credit cards, but I still didn’t have a clear picture of how I spend my money. One way I was able to visualize where I was dispersing discretionary income was with expense tracking.

Expense tracking didn’t come easy. It was another habit I had to develop, but the reward for the effort was that I was able to tailor an effective budget based on my spending behavior. The more unnecessary spending I could cut down, the more money I would be able to free up in my budget to pay down debts.

Budgeting also gets tricky because spending tends to vary over time for a variety of reasons (ie, seasons, circumstances, mood, etc). However, another added value of expense tracking I found is that it allows you to respond to excessive spending in one area and reduce spending in another. Although it can be a pain in the butt to track each expense, the end result is that you get to avoid overspending discretionary income by monitoring your money outflow. In essence, even in the face of constant change, expense tracking allows one to stay within the boundaries of a budget.

I plan to discuss expense tracking in more detail next week when we release the Queercents Expense Tracker, available for download for MS Excel users. It’s a simple spreadsheet I designed that made tracking expenses incredibly easy and a powerful tool for creating and maintaining a budget focused on debt reduction.

Hopefully the information about my experience took away some of the mystery that surrounds the development of a workable budget. It’s entirely possible to live within a budget, but there’s no getting around the preparation and sacrifice involved. There’s no magic, and not too much math- only the determination to rid yourself of debt is required.

So now you know the difference between good debt and bad debt, and you’d like to get rid of the bad debt. But if you got into debt in the first place, how are you ever going to have enough money to get out of it?

There’s no way around the fact that you need more money for debt reduction. Trust me, playing hide and seek from reality doesn’t make debt go away. I’ve been in debt throughout my twenties for painfully stupid reasons. I didn’t want the responsibilities and hours that come with a higher paying job, nor did I want to cut back on my lifestyle. I preferred to live with my messy financial picture because it seemed easier than fixing it.

I came to the obvious conclusion that I could reduce bad debt if I simply started organizing my finances. Organizing finances is a bit different from budgeting, which I’ll cover next week. By organizing finances, I simply mean taking control of my money. Here’s a simple three-step strategy that worked for me.

Inventory

Getting serious about debt-reduction required some personal inventory on my part. I found that setting personal goals made organizing finances seem like less of a burden, and it freed up money to pay down my debts.

I was lucky enough to have stumbled upon my long-term personal goal while getting my bike fixed by a shop owner who loved his job. The shop owner seemed so perfectly content, I realized I could be wearing the same smile while at work if I pursued my love of reading and writing in coffee shops by owning and operating a coffee shop myself. The need for start-up capital finally gave me motivation to clean up my finances so that I could start saving money.

It’s likely you’re passionate about something as well: maybe traveling around the world; owning a second house; or maybe something as peaceful as not living paycheck to paycheck. Whatever the case, if you need help picking out some goals, check out the CNNMoney.com Money 101 Lesson on identifying goals. It’s by far the most informative resource I found.

Unfortunately, I have to take care of other things before I can begin saving start-up capital. Because I neglected my finances for so long, my discretionary income has to go towards reducing bad debt; saving for a house; catching up with retirement savings. I found that prioritizing my goals lends some more structure to my finances. Check out CNNMoney’s Prioritizer to help you rank your list of financial goals.

Analysis of Your Financial Health

One important way I organized my budget to reduce bad debt has been to reduce my debt-to-income ratio. Eric Petersen at Bankrate.com explains, “Your debt-to-income ratio is exactly what it sounds like: the amount of debt you have in the form of mortgages, car loans, student loans and credit card debt, as compared to your overall income.”

Essentially, your debt-to-income ratio gives you a picture of how much debt you carry. If more money goes to paying off the debt, you’ll need to organize your finances to bring down those debts accordingly. Otherwise, your debt just keeps growing because you don’t have money for anything else. As Laura Russell explains, “You can be making a lot of money every month, but if you’ve got the debt to match it, that can be a problem…. It’s important not to overextend yourself.”

“In general,” Petersen says, “you’ll want to keep that number below 36 percent — a threshold that loan officers and credit card issuers often use as a factor when they determine how much they’re willing to lend you.”

I played around with Bankrate.com’s debt-to-income ratio calculator and was pleased to discover my ratio was only 26%. It good to know that lenders will give me a fairly decent interest rate with this ratio, but that’s not my main interest.

Bankrate’s calculator assumes I’m making minimum payments on my credit cards. I plugged in numbers that reflect my actual monthly recurring debt payments, and my ratio inflates to 42%. I like looking at this ratio because it serves as incentive to cut my ratio back down to under 30%. It also reminds me that I don’t have much discretionary income to spend, so it encourages me to stay within a small budget so as to avoid using credit cards.

It’s not recommended to have such an aggressive strategy if you have a low emergency savings cushion (mine is just enough for one month’s rent), but that’s how I’ve chosen to pay down my debts. Bankrate.com has a much better strategy than mine for reducing your debt-to-income ratio.

A Financial Notebook

If I ever lose my financial notebook, I’m in huge trouble. All my account numbers, user names and passwords are listed in this book. Even though it’s risky to keep all this information in one place, it’s a huge help for me.

Each month, I list the bills in a column in the order I receive them. To the right are five columns: Balance; Date Due; Amount Paid; Date Paid; and Balance Remaining.

A huge barrier to paying bills on time was having them scattered everywhere. Now I just have to turn to my notebook, see when a bill is due, and record my payments. It’s so easy and effective that I still smack myself for not having implemented this organization practice earlier.

Perhaps you have some strategies to organize your finances that you’d like to share. I’d love to hear them.

Almost Debt Free is a bit of a misnomer for this new series that I will publish each Tuesday into the summer. I’m actually looking forward to running into the arms of mortgage debt and a small business loan. It’s credit card debt that I’d like to see kicked to the curb, which I’m four months from successfully divorcing.

I will not lie. My debt reduction experience was a tumultuous undertaking. I’ve worked long, strenuous hours to make more money; I’ve strained friendships with my unavailability; and I’ve had to completely re-evaluate my priorities, my interests, and an overall understanding of myself. I wouldn’t recommend the militant approach I applied to debt reduction. It is the last year of being in my twenties, and I essentially had a freak out several years in the making. I can’t complain really. It was vitally important for me to be prepared to jump into my thirties with a brighter financial future, and that’s what I have accomplished.

It’s sad that my story is rare, and I don’t think it should be. Although it irritates me when others preach the “if I can do it, anyone can” drill we’ve all heard before, I’m going to drop that line here as well. I grew up a spoiled brat with no appreciation for the value of a dollar, and my attitude about work and earning money was bad enough to make me the most unsympathetic of characters. Somehow, I stumbled into debt and crawled out of a potentially gloomy picture entirely on my own.

We all have different reasons for how we got into debt, but as Tamara Draut points out in her book Strapped: Why America’s 20- and 30-Somethings Can’t Get Ahead, those of us born between 1971 and 1987 face greater financial barriers to transitioning to adulthood than the Baby Boomer generation before us. With backbreaking education and housing costs, diminishing work and tax benefits, and easy access to credit cards, it’s plain to see how credit card debt carried by the average American is $8,562.

Here’s my intent for this series. I’m not going to give financial advice, because I’m not qualified to do that. I’m going to frankly chronicle my last days of credit card debt, and I’ll share what I’m doing to prepare for life after debt. It’s my hope that others will see it is absolutely possible to take control of their financial situation and get to a similar position as me. Whether you’re deep in the red, or already in the black, the topics I will cover have something for everyone.

To kickoff this series, let me distinguish between good debt and bad debt. It’s the bad debt I want to identify and get rid of, and it’s the good the debt I want to manage slowly but effectively while saving for other things.

Experts will tell you, in the most helpful way they can, not all debt is bad, not all debt is good, but it’s a little more complicated than that.

Let’s clarify the distinction with my case. I have gone back up to $4,000 in credit card debt, all but $500 of which is locked in at a 0% interest rate relatively soon to expire. My student loan debt is just under $10,000 at 6.8% interest. I have no mortgage, no car payments, and low monthly utility expenses. What’s the good debt? What’s the bad debt?

Bankrate.com (via MSN Money) provides some great rules of thumb.

Good Debt: An investment that creates value and builds wealth (ie, student loan, home and business loans).

Bad Debt: Purchase that goes down in value or has no potential to increase in value (ie, disposable or durable goods).

That’s pretty easy to grasp, but I’ll echo the experts and say it’s a little more complicated than that. My student loan isn’t entirely good debt because half of it was for a random semester of school I did after graduating college to break from the rat race. That creative writing semester hasn’t really added much to my earning potential. I learned the hard way that I should take education and career a bit more seriously.

Also, I was grim to discover this past tax season that a significant portion of interest I paid on my student loan in 2006 could not be deducted because the benefit gets phased out for my income range, a tax pitfall I wish were more widely available knowledge. Those who made more than $65K in 2006 didn’t even get to deduct any student loan interest.

Good debt falls into a bit more of a gray area. Take current real estate market conditions, for example. Nina pointed out that many sub-prime borrowers are hurting significantly from their home loans, while I discussed that home values are stagnating or even depreciating in some parts of the country. Auto loans are another gray area. It’s a necessary expenditure for some, but there is risk for driving too much car. I’ll talk more about managing good and gray debts later in this series.

Thankfully bad debt is pretty clear. For me, and this is my personal opinion, but credit card debt simply sucks. It’s bad debt, and it’s best to live without it.

Most of us already know that partial monthly payments and high interest rates are what have kept us in debt. I’m not advocating life without credit cards, however, because it’s not wise. We need a credit card to develop and maintain a credit history that shows creditors we are responsible with money, as Paula discusses. It just comes down to managing life with credit cards and staying out of bad debt as your money goes toward building wealth. That’s the focus of this series, and that’s all there is to it.

Stay tuned for next week where I talk about how I got organized to pay down my debts, and the risky debt ratio I’m riding that you definitely want to avoid on the debt reduction path.