Ok, so I want to install Ubuntu on my 80gb internal HDD on my laptop and use this drive to exclusively hold the OS & software. I want all of my files to be stored on an external HDD which stays connected at all times.
When I install new software, I want want it to automatically install on the internal drive, when I create a file, I want it saved to my external. Now, of course I know I can always choose where to save a file. But I want to cut a couple steps by avoiding the need to navigate to my external HDD every time I want to save a file.
Does anyone know if such a setup is possible?

One possibility is to create a directory on the external and symlink (symbolic link) to it from your home folder.

For example, I created a "downloads" directory on an external, created a symlink to it in /home/[username], and set my browser to point to /home/[username]/downloads (the symlinked directory) as the default downloads directory; downloads get saved to the external.

See man ln for more on symlinks.

You could do the same for your documents, pictures, or any other directory.

I would not recommend pointing to the external as your entire home directory. If it fails or gets disconnected, that would be a bad thing.

Symlinks are a good idea. I should have thought of that one. As for the safety issue you mention, only accidental disconnection is an issue since I automatically backup to my SpiderOak account anyway. So I know that anything more than say 5 minutes old is backed up & recoverable.
Thanks for the help Frankbell!

A link to the /home on usb may work.

Could try to just mount a folder or partition on the usb as your /home for your common standard user account. As always, use runas or su, sudo to run root functions like installing software. Root should have the account on the internal so it won't fail if the usb isn't on. Might have to avoid autologin.

Jefro, that sounds like another great idea. But can you give me more details on how to do this?