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The Envelope System: Budget Cuts at imperfect

When B and I started our family budget almost two years ago it was with the goal of living well below our means so that we could maximize our savings and not feel a huge hit when we had kids. 

Because we’ve chosen to live pretty frugally, the numbers work for me to stay at home and for us to live our lifestyle and contribute to savings (minimally), so we had to make a decision about that when we found out Thomas was on his way.  I talked a little here about how my career isn’t conducive to taking years off at a time, but we really tried to focus on what was best for our family with this decision.  For the last year or more my salary has been relied on mainly for savings – savings to replace the car I drove with a family car and to build up our emergency, savings and investment funds.  It feels really secure to transfer an entire paycheck to savings every two weeks.  That’s a security that was hard for us to fathom giving up in this economy.  Plus, B’s in school part-time on top of his full-time job and the stress of being the sole provider for our family in a fairly unstable economy is not what I want for him right now.  So for now, we’ll continue to be a two income family.  But we still tweaked the budget because babies cost money.

Almost every budget category took a hit so that we can ensure we live below Mr. B’s income even with Thomas here.  Our overall goal is to establish a way of life we’re comfortable with so that as one or both of us move up in our careers, extra income goes to savings and not our lifestyle.  Sure, we’ll upsize our house (and therfore probably mortgage) someday, but our goal is to live and save on one income.  We cut $375 from our monthly budget.  About $160 of that gets reabsorbed into the budget to account for Tommy’s expenses, and the other cuts were made to continue to work toward our goal of living frugally so we can maximize savings.

Budget Cuts

We use the Envelope System of budgeting.  Every year we sit down and reassess the envelopes to decide if our old budget still makes sense.  But this year we also restructured in May.  I’m not going to lie, we haven’t been great about the envelopes in the last couple months – but we’re back on track in September.

  • Groceries – $50 cut
  • Eating Out – $25 cut
  • Casco – No cut (I went to bat for Casco in the budget cuts, B wanted to knock him $15)
  • Clothing – $50 cut
  • Gifts – $50 cut
  • Personal (toiletries, haircuts, etc) – $25 cut
  • House Spending – $25 cut
  • Monthly Spending – $150 cut

And we added categories for the baby – not all of which apply right now, but will down the road and we figured we should start allowing room in the budget for them.  Obviously toys and clothing are personal choices, and for several more months food won’t be introduced at all, but we have a general plan that we’re sure will evolve but is a good starting point.

Baby Categories:

  • Diapers and Wipes – $75
  • Clothing – $25
  • Food – $50
  • Toys, etc- $10

And then there’s daycare, of course, but that’s a separate bucket in our minds because daycare and my working go hand in hand.  So that’s how we’re handling baby expenses here for now – we’ll reassess when we need to and change if things aren’t working out.  How about you guys? Any budget tricks you’ve been practicing lately?