I use the word ‘lead’ because distinguishing between our needs and wants sheds perspective on this question. Other than housing, utilities, basic food and clothing, child care and transportation the balance of our expenditures is highly discretionary (i.e. much of food and clothing) or ‘wants’.

But life without treats isn’t fun either. How to find the right balance? The options and choices are many but we must be able to reconcile them with our own set of values and based on this, we may define lifestyle as frugal, comfortable, privileged or extravagant – it’s all very subjective and I can’t say I’ve answered my own question – yet.

I estimated a total cost of $10,000 for a trip for 4 of us to the UK for 20 full days (not including our on flight days). Here’s where the money went:

Flights                                                   $4,880

Accommodation                               $1,391

Rental Car & Gas                              $1,700

Gifts                                                      $160

Events                                                  $410

Fun/Incidentals/Eating Out         $1,680

TOTAL                                                   $10,221

Not bad! We paid for accommodation for 6 nights as we had 6 stays with family and friends (thank you) – the most expensive at $364 (including a fantastic breakfast) and the cheapest at $82 (private family room with an en-suite and a wonderful lake view) at a youth hostel in the Lake District. We had lots of picnic lunches and made several dinners and breakfasts but otherwise thoroughly enjoyed ourselves without feeling like we were watching our pennies (or pounds £ as the case may be). We found that most things cost in £ what they cost in Canada …. Only then you have to double it to account for the exchange rate! For example, a liter of gas was £1.15 and a latte £3.50.

We went to the Edinburgh Tattoo, the Cowal Highland Gathering, Roman Baths (in Bath!) and rode a huge ferris wheel along with visits to several castles, standing stones, and national parks. We came away with souvenirs and many, many pictures. It was a great trip and $200 over budget is not bad…I just wish I’d managed to set aside the full $10,000 before our trip.

• As expected – no more, no less.

• Spending too much on food, gifts, entertainment, vacation/travel and other
• Spending less than budget on bills, vehicle and childcare

The good news is that we are hitting our monthly savings plans for RSP’s and RESP’s. Gifts and entertainment remain the most challenging budget lines. I’m not so worried about vacation or other because I know why we’re over budget and there’s some consolation that in both cases, the spending was planned – some new furniture and a great family trip to the UK. We saved some money in 2014 for our 2015 vacation – it was fantastic to pay the visa bill without feeling a bigger pinch than usual. 

2015 is not over yet so luckily there’s just enough time to set a recovery plan to steer us back on track and finish the year on budget.

Luckily, we’re staying with family and friends for about one third of our holiday which is huge! We’ve paid for our flights, all of the booked accommodation has been charged to our credit card and we have an estimate for the rental car. The wild cards will be gas for the car (we plan to do a ton of driving), eating out and the exchange rate. The exchange rate is not moving in our favour and that could make a huge impact. 

I anticipate that many things will be pound for dollar such as food, beverages and gas meaning that if a latte is $4 here, it will cost 4 GBP in the UK….and then we need to double it in the exchange to CAD = $8 for the latte

Oh well, I think my budget’s pretty close but we’ll see! Our plans aren’t changing and we’ll make the most of it.

I suppose problems can arise if: 

• You spend more on lottery tickets than coffee
• Winning the lottery is your retirement plan

It would be easy lose track of the money, spend like crazy and in short order have little or nothing to show for it. Is that a wasted opportunity? It’s windfall money…unexpected and some would say carpe diem! 

As an accountant, I struggle to take this point of view and would hope that I could make good decisions that would lead to opportunities and positive outcomes. My plan is:

• To do the math – how much would it take to stop working a ‘regular’ job?
• Make wise choices – Is it enough to buy a new home, vehicle and travel?
• Figure out how to share the good fortune?

Ah well, it’s a plan…I think it’s a lot of fun for $3.

1. A Canadian astronaut
2. A former Whitehouse Chief Information Officer

Although each had very different experience and delivery style, their messages were based on common ground:

1. Set goals and develop a plan to get achieve them
2. Run the ‘worst case’ scenarios in order to learn how to better manage adverse events by improving your processes and systems, mitigating the risk of an event occurring and/or to setting up contingency plans
3. Team work and understanding others’ perspectives

I think this is great advice for life in general and financial management!  

How much difference would a 1% rate increase make to your monthly payment? Your monthly mortgage payment would increase by a little over 10%. If your mortgage payment is $1,500 per month, it would increase by $175 to approximately $1,675. Not much you say….but could you afford it? What if the rates increased by more than 1%?

What is your plan if you are faced with this challenge? What expenses do you control and/or resources do you have access to? Perhaps you could increase your income or rent out part of your home. Changes to your lifestyle could mean reduced expenses. It’s worth a conversation because knowing how you would deal with this hurdle can reduce worry about the unknown or the ‘What if?’.

We received mail last week saying that as of July we would receive $60 per child per month until they turn 18. Hmmmm – We still pay much more per month for child care – $400 per child per month is ingrained in our budget and we’ve become used to setting aside $400 ($200 each) per month to their RESP.

I am wondering how to make the most of an extra $120 per month ($60 each)? If it lands in our general account, it will simply disappear. However, if we think of it as $1,440 per year …. it has possibilities. We could increase our mortgage payments, our RSP (Retirement Savings Plan) or our travel savings. Or a combination! We’ll put a plan in place by July. What would you do with an extra $120 per month?

I don’t remember the order of what thoughts popped into my head but here are some of them:

• We have a mortgage to pay
• I’ve committed to a second child care spot
• I’ve paid for a child care spot for our eldest during my second maternity leave to hold our current spot and earn sibling priority placement for our youngest – a lot of money paid and a lot of money to pay
• What are we going to do?

Never mind all the other questions and issues to work out, my priority was crunching some numbers to figure out how to deal with this massive curve ball!

Whether you are a single or double income household, any disruption to income is a big deal. The bulk of your financial obligations don’t change in this scenario but it’s important to find out what you can adjust to best meet any reduced income.

How much income will be coming in and at what points might it change further (i.e. Will you receive a severance package, how much will you receive and for how long? Will you qualify for Employment Insurance (EI), how much will you receive and for how long?). I found it easiest to put the information on a timeline.

Note your minimum required monthly obligations cutting out any extras (i.e. cleaner, gardener, pedicures, manicures), savings and cut back on any accelerated debt payments and reduce discretionary spending to the absolute minimum. Consider what you must maintain even though you’re not working right now – reliable child care is so important to parents and impossible to replace if you give up your spot so we chose to continue with this ‘investment’ knowing that we would need it as soon as I found a new job. Others may choose to give up their child care and figure out an alternative when needed – given the amount of the expense, this may not be a choice for many. Don’t forget to consider any large, annual expenses such as property taxes, car insurance, holiday season and vacations.

Do the math – compare the expenses to the income at the different milestone points on your timeline. Does the income cover the expenses? If not, where else can you adjust? Give yourself some brainstorming time – it’s amazing how resourceful you can be. If income is greater than your minimum expenses – perhaps thanks to a nice severance package, calculate the monthly difference (excess). If you set this aside each month, it will be there for you when/if it runs out before you’ve found another job – at least to tide you over and cover your minimum expenses a little longer.

Note your Plan B for if/when the time comes that you need to cut further and what that will mean (i.e. no longer insuring or running your vehicle, selling assets) and mark this on your timeline. Severance and EI all run out at some point.

Other tips include:

• Make sure you have medical coverage
• Get going on any paperwork to apply for EI or any other programs
• Review your insurance coverage and determine if you must find alternative coverage for insurance such as life, disability (short and long term) and dental

This happens to lots of people and some people have to deal with it more than once. Most Canadians do not have an emergency or contingency fund and so, some quick number crunching and planning is the best way to arrest the anxiety and stress that comes with this lousy life event.

It got me thinking though….in a previous post, I suggested that clothing budgets be guided by the value of your current wardrobe. For example, if the replacement value of your clothes, shoes, jackets etc. is $10,000, then perhaps 10% is a reasonable amount to budget annually for clothes. Is this enough? Are clothes your thing? They’re not really my thing but I recognize that depending on your job, the sports you may play and choices made between quality and quantity, 10% might not be enough. If it was up to my husband, it would be more than enough because his philosophy is – you can’t wear 3 sweaters at one time!

This may be a slight exaggeration  but he might have a point in that there’s value to planning a wardrobe (ensure you have basics, shop with a list and buy only items that fit well and you like wearing) and spending more to buy quality classic pieces that will last longer. Like most things, the amount spent on clothing is a choice and it isn’t a good reason to blow the budget but what is the right balance between having the basics, dressing neatly and appropriately and taking pleasure from your clothes?