Maternity leave is rapidly approaching; July is shaping up to be the last month I will receive my full salary. Our joint income is due to shrink by slightly over one fifth - incidentally, the amount that we have begun to put aside in savings. The aim is to continue to put money aside each month, though I doubt we will be able to afford such a proportion. Depleting our meager savings over a relatively trivial reduction in income is not something I want to contemplate in Austerity Britain 2011, at the very least I want to be living comfortably within our monthly earnings. Needless to say, I have had a few sleepless nights worrying about our finances.
The first step to calming financial jitters is to sit down with a pen and paper and rationally assess the situation. So yesterday we sat down to go over our budget. There are two versions, one for the four paydays up to the end of July; and one for the following nine months when our income will be reduced. Every non-discretionary expenditure is listed - rent, council tax, utilities, contract repayments - and the monthly payments tallied. Where payments are annual (for example our water supply bill) the figure is divided by 12 and highlighted - this is an amount that needs to be put into savings ready to pay the bill when it finally arrives. We have got out of the habit of saving monthly for these one off expenses and have suffered a few uncomfortably lean months as a result of large bills arriving.
The next section of the budget is discretionary spending. Some essentials, such as food, are included here, because there is a great deal of flexibility in how much we can spend. The food section is broken down further - there is the monthly expenditure for fresh goods; and as we plan to return to bulk shopping, a store cupboard fund, which is put aside ready to do a bulk shop every few months. Fuel and transport costs are now part of our discretionary spending - though we will budget for a tank of fuel a month - as neither of us will need to make regular 'essential' journeys once I have finished work. Many of the items on the lists will take the form of monthly savings set aside to be dipped into as needed throughout the year - payments to a holiday/fun fund, gifts, clothing, household and gardening expenses.
We will keep a copy of the budget on the wall above the computer. Last time I got creative with colouring pens and star stickers - anything to make sobering financial restrictions more appealing to look at. It makes a big difference to keep the budget prominent, as opposed to tucked away in a notebook, as it is the cornerstone of financial (and therefore household) well being. Last time we placed our debt repayment tally next to it - ticking off payments as we made them was very satisfying; and we could directly relate that to the effectiveness of our budget. Anything that motivates you to keep to your budget, whether that be a picture of your one-day desert island retreat, or a decreasing mortgage balance sheet, will have the same effect.
Now the budget is in place, we have to decide how to organize the practicalities of it. We plan to set up standing orders to our savings accounts for both our long term savings and irregular expenses, to go out at the beginning of the month. We will continue to use direct debits for our regular monthly payments. For all day to day expenditure except fuel, we will use an envelope/jar system and pay cash (if I am feeling particularly virtuous, or time rich, I will make some hard wearing, beautiful pouches such as these ones over at the Co-op). The bulk shop, which is usually done online, will be paid via debit card, as will fuel. Any small change left over from the envelopes will be put into our change jar and eventually paid into our savings accounts.
Just having written it all down has calmed my jitters and made me realize we are not screwed, as I had previously thought. Any tips would be very much appreciated by the way, especially if anyone has experience using the envelope system. It all sounds so simple on paper, but no doubt there will be a few false starts over the next few months. A plan, combined with a continuing quest to trim down budgeted for expenses in any way possible, makes us a little more resilient to whatever life, or a new baby human, can throw our way.