Having an understanding of your personal finances is important.
Knowing where you stand on your savings, investments, and yes—even your mortgage— can help you stay on track toward a bright financial future. Plus, practices like creating a budget can help you cover your bases, afford fun things you’d like in the present, and be better prepared down the road. In fact, 85% of people who budget say the process helped them either get out or stay out of debt.¹

There’s no time like the present to take stock of your spending and saving, and make any necessary adjustments to put you financially ahead of the game. Creating a budget that you can realistically stick to is a great way to start. Here’s a rock-solid way to come up with yours.

GET TO KNOW YOUR DISPOSABLE AND DISCRETIONARY INCOME
Whether you use an online tool or an app, a spreadsheet or simple pencil and paper, the first step to creating a solid budget is understanding how your income and spending are related:

• Determine your disposable income: Start by gathering how much money you have coming in from all sources each month, including take-home pay (salary minus taxes) from however many jobs you have, and any other sources of income such as investments.

• Find out where your money is going: Next, create a new list with two columns. In the first, list your fixed or essential expenses. These expenses include things you must pay for every month, like rent or mortgage, cell phone, transportation costs, groceries, insurance, utilities, etc. In the second column, gather your flexible or lifestyle expenses, including items that fall into categories like entertainment, clothing, subscriptions, or memberships. These things are typically not necessary for your day-to-day life, no matter how much you enjoy them.

• Calculate your discretionary income: Subtract your fixed or essential expenses (the amount in your first column) from your disposable income to get an amount that’s called your discretionary income. This is the amount of money you have left to spend on the items in your second column, as well as other financial goals.

TAKE STOCK OF YOUR OTHER FINANCIAL GOALS
Before using all your discretionary income to pay for the lifestyle items in your second column, consider your overall financial goals and how they may have changed over the past year. Maybe you had a baby and would like to reconsider your living quarters, buy a new car, or start saving more money. Some other financial considerations that may impact your budget include:

• Emergency savings: If you haven’t already, experts recommend saving three to six months’ worth of fixed or essential expenses (more doesn’t hurt, especially in volatile economic climates) in a savings account that’s specifically intended to cover any unforeseen emergencies that may crop up.

• Insurance: If you have a full-time job, your health insurance is likely partially covered by your employer, with the amount you’re responsible for coming out of your paycheck automatically each month. If you need additional healthcare, or if yours isn’t covered by your employer, research your options and factor this additional cost into your essential expenses above. Also, consider whether you’d like additional policies, like life insurance or short- or long-term disability, depending on how your needs have changed over the year. It’s also a great time to check in on car and homeowners or renters insurance policies to make sure they are still a good financial fit.

• Retirement: Like health insurance, if you have an employer-sponsored retirement plan, the amount you pay each month likely comes out of your paycheck automatically. Depending on your retirement goals and age, as well as if you’ve recently changed jobs, you may want to consider adjusting the amount you save for retirement. Make sure to add this to your essential column if you’re paying it out of pocket, or adjust your disposable income if you’re altering an employer-sponsored plan.

• Debt repayment: You might be automatically making debt repayments each month, like student loans or a mortgage. If not, or if you have other debts such as a credit card that needs to be paid off, revisit your list of lifestyle expenses to see where you can cut back to help pay down (particularly high-interest) debt more quickly.

PICK A BUDGET TRACKING METHOD
With your expenses and goals in mind, find the budgeting method that's best for you. Some financial experts recommend using the 50/30/20 rule and keeping 50% of your income for your needs, 30% for your wants, and 20% for your savings and debt repayment. The envelope method—where you assign spending categories to individual envelopes and contribute a certain amount of cash to be used for each month—is another way to keep track of expenses for people who prefer using cash.

Make things automatic
Once you know how much you’ll be spending on each item in your budget for the month, approach any online payments with a “set it but don’t forget it” approach. Set up direct savings and automatic payments to avoid having to regularly complete these tasks manually. This helps you avoid costly late fees should you forget to pay, and ensures you aren’t tempted to spend the money elsewhere.

Practice active management
Just because any budget you set up might work for you now, that doesn’t mean it’ll work for you down the road. Perhaps you decide to refinance your home and begin paying a different interest rate, or you change jobs and find yourself with adjusted discretionary income. Whatever the reason, life happens—setting a calendar reminder to revisit your budget every few months throughout the year can help ensure your budget stays on track to match your evolving lifestyle.

Think of your budget as a long-term system you’re putting into place to help you reach your financial goals. With the right mindset—and the right budgeting tools—you can tackle your fiscal ambitions with ferocity, both for the near and long term.

Our lending experts are here to help you with anything you might need regarding your mortgage. Plus, Wintrust Mortgage is part of Wintrust Financial Corporation, so we offer a wide range of financial services in a one-stop shop.